The crypto compliance lie: Sacrificing privacy does not make us safer

In the last month, we've seen the United States Federal Reserve come after BitMEX for failing to identify customers, crypto intelligence firm CipherTrace report that most crypto exchanges are not collecting enough user info, and the so-called "FinCEN Files" demonstrate that even large banks that collect and report vast troves of suspicious transactions are not doing enough to unbank the bad guys.

Stepping back and looking at the larger trend, many in the crypto community are now imagining a world with two "Bitcoin blockchains" - or perhaps, two distinct networks of various blockchains.

Privacy advocates fear that because Know Your Customer rules are being placed on exchanges that custody crypto and that banks and institutional wealth will make crypto mainstream via similar custodial solutions, only those who custody crypto with such institutions will be allowed onto the lovely lightchains.

These chains will lie within the lofty ivory pillars of Wall Street and beneath the halls of wealth and power, while the vast unwashed masses who prefer to hold and control their own crypto will be forced into a crypto ghetto on the darkchain.

Most virtual asset service providers, or VASPs, use blockchain explorer compliance tools to block and track transactions on the darkchain and assist law enforcement with its investigations.

These efforts have also made it much, much harder for actual criminals to launder their crypto on compliant exchanges.

This leaves us with a third chain, the vast, lovely, delightfully opaque "Graychain" blockchains that have served us so well for all these many years.

To "Keep blockchain gray," we must resist the efforts of the lightchain to penetrate the gray by penalizing VASPs and blockchain exploration and compliance tools that engage in unjustified tainting of the gray with the white.

We must resist the darkening of our beloved graychain by policymakers, pundits and so-called crypto lawyers who advocate for penalties on operating in the gray zone.

There is nothing wrong with holding your crypto in a hardware wallet, and to argue that those who exercise healthy cybersecurity by doing so have "Something to hide" stains credibility.