General Discussion

Has the United States decided to be the Switzerland of crypto? The laudable aim of the Trump administration’s landmark cryptocurrency legislation, eloquently exposited by Treasury Secretary Scott Bessent, is to bring some much-needed regulatory clarity to the wild west of digital finance. However, by proffering an official stamp of approval, the U.S. is potentially providing a powerful vehicle for facilitating tax evasion and all manner of illegal activity worldwide.

It doesn’t have to be this way. Dollar-backed stablecoins — cryptocurrencies convertible one to one with dollars — are potentially the most important application of blockchain technology to date. This special class of cryptocurrency, which at present accounts for less than 10 percent of the $4 trillion crypto market, was the focus of the bill that is already law. To be fair, the act incorporated many good ideas, such as requiring that stablecoins be (almost) fully backed by safe, highly liquid assets, including Treasury bills and federally insured bank deposits.

Critics have pointed to the risks that, despite the precautions, there will still be runs on some stablecoins and that fraud will be rampant, particularly among the smaller players. These are serious concerns. The biggest one, however, which has thus far received only fleeting attention, is that the new law does too little to make stablecoin transactions as easy to audit as debit and credit card transactions are. Once out the door, stablecoins are tokens on a blockchain just like bitcoin and can change hands almost as anonymously as paper currency.

Yes, in principle, everything on the blockchain is public information, but crypto wallets can be held pseudonymously; you don’t have to reveal who you really are. On top of that, one can hold scores of wallets, and dollar stablecoin wallets can be issued outside the U.S. by unregulated entities, in addition to being traded abroad on lightly regulated exchanges. Sure, government sleuths can often find clues that help them figure out the true owner of a crypto wallet. They will certainly bear the necessary cost in the case of a major terrorism incident. This is hardly feasible on a routine basis, however. If crypto was that easy to trace, its appeal might collapse.