Crypto exchange Coinbase has urged the US government to adopt blockchain analytics, artificial intelligence, and modern technologies to combat financial crime in digital assets. This comes in response to the Treasury Department’s GENIUS Act request for strategies to deter illicit cryptocurrency activity. Read Coinbase’s full letter.
Recommended Technologies
| Technology | Application |
|---|---|
| Blockchain Analytics | Trace illicit transactions, identify bad actors, track fund flows |
| Artificial Intelligence | Automate suspicious activity detection, identify high-risk transactions |
| Clustering Techniques | Group related addresses to identify entities and money laundering patterns |
Key Barriers to Implementation
Coinbase’s Recommendations
- Issue API Guidance: Outline acceptable use cases, data privacy requirements, and interoperability standards
- Recognize Privacy Technologies: Incentivize decentralized IDs and zero-knowledge proofs for customer verification
- Promote Information Sharing: Encourage blockchain data sharing without overly burdensome recordkeeping on all transaction parties
- Provide Regulatory Clarity: Give firms confidence to adopt AI-powered AML solutions
Balancing Act Required
| Security Needs | vs. | Privacy Rights |
|---|---|---|
| Combat illicit activities | ⚖️ | Protect legitimate user privacy |
| Effective AML compliance | ⚖️ | Foster crypto innovation |
| Law enforcement capability | ⚖️ | Avoid stifling growth |
Collaborative Approach Needed
Multi-Stakeholder Strategy
Success requires cooperation between:
- Industry: Crypto exchanges, blockchain analytics firms
- Regulators: Treasury Department, SEC, CFTC
- Law Enforcement: Federal and state agencies
Successful Collaboration Models
- Industry Working Groups: Joint development of detection techniques
- Regulatory Sandboxes: Controlled testing of new technologies
- Information Sharing: Coordinated action against bad actors
