'Clock is Ticking' on Bitcoin Privacy: Edward Snowden

CIA whistleblower turned international fugitive Edward Snowden has issued a "final warning" on Bitcoin privacy, amid a U.S. crackdown on crypto privacy projects.

In a tweet, Snowden said that, "I've been warning Bitcoin developers for ten years that privacy needs to be provided for at the protocol level," adding that, "This is the final warning. The clock is ticking."

He was responding to a post by crypto privacy project Wasabi Wallet, announcing that it has suspended its services for U.S. users. Wasabi Wallet is one of a number of projects that have restricted privacy services in recent days; just yesterday, crypto hardware wallet manufacturer Trezor announced that it would shut down its anonymizing CoinJoin feature, which leveraged the same CoinJoin coordinator as Wasabi Wallet.

Wasabi Wallet's move came days after U.S. authorities arrested the founders of Bitcoin mixer Samourai Wallet, charging them with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business.

In both that case and a reply brief responding to the defense's motion to dismiss in the case against Roman Storm, developer of crypto mixer Tornado Cash, Department of Justice prosecutors adopted a wider interpretation of money transmission laws that encompassed wallet developers who have no direct control over user assets.

The move has sparked a backlash among the crypto community, with some crypto advocates characterizing it as a crackdown on crypto privacy projects by U.S. authorities.

"It is hard to know at this point if this is a deliberate attempt to abruptly change long-established policy through criminal enforcement, or if this is a significant disconnect between the Department of Justice and FinCEN," wrote Peter Van Valkenburgh, Research Director at crypto advocacy group Coin Center, in a blog post. "Either way, this is a disaster for the rule of law, due process rights for the accused, and our fundamental freedoms of speech and privacy."

Coin Center characterized the DOJ's stance as "a massive overreach," arguing that it contradicts existing FinCEN guidance and rulings. United States Senator Cynthia Lummis (R-WY) has joined the chorus, stating that she is "deeply troubled" by the DOJ's "hyper-aggressive argument that non-custodial software can constitute a money transmission service."

Shortly after the arrest of the Samourai Wallet founders, the FBI issued a warning to Americans not to use unregistered crypto money transmitting services.

Under federal law, registered Money Services Businesses (MSBs) are required to carry out know-your-customer (KYC) checks; because public blockchains such as Bitcoin are a public ledger of transactions, once a pseudo-anonymous crypto wallet has transacted with a platform that requires KYC checks, the wallet user's entire transaction history is exposed.

"Chilling effects"

Privacy advocates have taken aim at the "chilling effects" of recent actions by U.S. authorities.

Anna Chekhovich, financial director of The Anti-Corruption Foundation, pointed out that the non-profit organization had used Wasabi Wallet to protect its donors from the Russian government’s "surveillance and risks of imprisonment," adding that, "That was not taken into consideration by the US authorities when they began attacking privacy tools."

The U.S. is not the only country that's taken aim at crypto privacy in recent days. Last week, the UK government characterized privacy coins as "not conducive to the public good," in an announcement affording the UK police sweeping new crypto seizure powers.

Police in the UK are now empowered to seize crypto, as well as items such as written passwords or memory sticks, prior to making an arrest. Officers will also be to transfer illicit crypto into wallets controlled by law enforcement, and destroy seized crypto assets "if required."

Edited by Stacy Elliott.