Navigating Crypto Compliance

This chapter explores the regulatory landscape surrounding traditional financial transactions and its implications in the cryptocurrency space, focusing on compliance measures like KYC and AML. It examines guidance from entities like FinCEN and the FATF regarding self-hosted wallets, detailing the challenges and potential regulatory issues these assets face. The discussion also highlights the distinct regulatory environment in Switzerland and its potential global impact on the cryptocurrency market.

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Jake Chervinsky, general counsel at Compound Labs, and Kristin Smith, executive director of The Blockchain Association, talk about the storm brewing in the cryptosphere involving self-custody and privacy. In this episode, they cover:

the differences between hosted and self-hosted wallets and how transactions between them differ
why the ability to transact from self-hosted wallets is so important
compliance and regulation in the traditional financial world and how it could affect self-custody
the “Swiss rule” and what it could mean for the rest of the world
the proposal by FinCEN to lower the threshold for collecting data on transactions from $3,000 to $250
how regulators might achieve their goals without “dragnet” surveillance
how the amount of crime and money laundering in the traditional financial system compares to that in the crypto world
why OTC brokers are considered the most significant money laundering risk in crypto, and how that risk might be mitigated
how different political environments can influence the value of peer to peer transactions
whether Americans should be willing to give up some of their financial privacy in favor of security
what the recent statement by the DOJ's cryptocurrency enforcement framework labeling anonymous transactions as "high-risk activity indicative of possible criminal conduct" could mean for privacy coins like Monero and Zcash
Gary Gensler's appointment as head of Biden's financial policy transition team and whether to view it as a positive or negative for crypto
whether they think the incoming Congress will be in favor of more surveillance or more privacy
whether there might eventually be regulations for developers who write code for self-hosted wallets
how potential rules regarding self-custody could affect non-monetary items like NFTs
and the next big developments they are watching out for regarding this issue