Yesterday’s FinCEN rule proposal is incredibly overbroad, comprehensive, and perfectly designed to allow arbitrary information collection at any scope they choose to enforce. It truly is a mind-blowingly large grab attempt at private information of anyone they can get their hands on. They want all regulated entities — VASPs, banks, financial institutions or entities like casinos, etc. — to by default submit reports of any transactions interacting with mixing within 30 days of noticing the relevant transaction and its association to mixing activity. Currently, most exchanges and businesses keep these records anyway, but they do not by default send copies of them to regulators unless deeper inspection actually merits a reason to do so. FinCEN wants that to change.

To really get a sense for the scope of things, the first thing to look at is the definitions of mixing provided in the proposal. Obviously, the act of mixing is obscuring the source of funds, but the specific technical definitions they give for what falls under the definition of mixing are incredibly broad when looked at together. Let’s go through them:

1. “Pooling or aggregating [funds] from multiple persons, wallets, addresses, or accounts” This encompasses so many different activities other than a traditional custodial mixing service. Lightning channels? That is multiple persons pooling and aggregating funds together. Multisig wallets held by multiple people in general are doing the same thing. Just combining a recent withdrawal from Coinbase with coins you had from Kraken from the point of view of both exchanges is pooling funds from multiple addresses. According to the language of this proposal, something that just happens on a regular basis in the normal course of using Bitcoin, with no attempt whatsoever to obscure or render private anything about the activity, fits into the definition of mixing.
2. “Using programmatic or algorithmic code to coordinate, manage, or manipulate the structure of a transaction” Again, that completely covers the Lightning Network. Coinjoins fall into this definition. In fact…you know what? This is so ridiculously and absurdly broad — it doesn’t even specify manipulating the structure of a transaction to attain obfuscation of the source of funds — that this literally encompasses any piece of Bitcoin software that handles making and signing transactions. 100% of the transactional activity on the Bitcoin blockchain out of sheer logical necessity fits this definition of mixing.
3. “Splitting [funds] for transmittal and transmitting the [funds] through a series of independent transactions” This is also incredibly broad. How are legitimate independent transactions between the same parties to be distinguished from a single transaction split into many for obfuscation purposes? What about situations where that is a perfectly legitimate thing to do for no reason other than your personal privacy? What if I only have three different UTXOs that three separate people know about, and I don’t want to reveal to all three of them my payment history with the other two in order to make a payment requiring all three UTXOs? Does opening multiple independent Lightning channels with the same node constitute this?
4. “Creating and using single-use wallets, addresses, or accounts, and sending [funds] through such wallets, addresses, or accounts through a series of independent transactions” So default behavior of the super majority of Bitcoin wallets — not reusing addresses — constitutes mixing? When I go to my exchange to withdraw with a unique address every time, are they required to consider that action “mixing” my coins? Do physical Bitcoin bearer instruments constitute “single-use wallets?”
5. “Exchanging between types of [cryptocurrencies] or other digitals assets” So every single person trading NFTs, dumb tokens, utility tokens, and just outright shitcoins, whether on an exchange or on-chain through different mechanisms, is now mixing?
6. “Facilitating user-initiated delays in transactional activity” Uhm..timelocks in Lightning? Any type of 2FA rate limited multisig set up? Just the DCA scheduled withdrawal function at different on-ramps? All of this is now mixing?

The definition of [cryptocurrency] mixer is “any person, group, service, code, tool, or function that facilitates [cryptocurrency] mixing.”

Now of course, FinCEN carves out an exception for regulated businesses and institutions covered by the proposed rules for “internal processes” (i.e. the DCA withdrawal functions mentioned above) so as to not interfere with their business operations, provided they can provide the required records to law enforcement whenever required. If a business is unsure whether or not activity they engage in falls under the category of mixing and the exemption, they must by default begin maintaining the required records to provide to law enforcement if required.

Of course, no such exemption exists for private individuals simply seeking to maintain the privacy of their financial activity from the public. Here is the information, within 30 days of being noticed by a business subject to the proposed rule, that would be required to be reported to the government, for every single transaction:

• The amount of cryptocurrency transferred, in native units and USD value at the time.
• The cryptocurrency involved.
• The mixer protocol/service/etc. used, if known.
• Any addresses associated with the mixer used.
• Any addresses associated with the user who mixed.
• The TXID of the relevant transaction.
• The date of transaction.
• Any IP addresses associated with the transaction.
• A “narrative” explaining context, the transaction itself, what the institution did, etc.

In terms of private information about the user involved in the transaction, here is the information proposed to be collected and directly reported to the government for every transaction:

• User’s full name.
• User’s date of birth.
• User’s full address.
• User’s email address.
• User’s IRS Taxpayer Identification Number (TIN) or foreign equivalent.

Now really think about the broad scope of things that FinCEN is proposing to define as mixing, and the type of information they want directly reported to the government every time a regulated business in this space sees a customer engage in any of those behaviors. These rules, if enacted, would allow FinCEN at any point to arbitrarily capture almost any activity on the blockchain and deputize every regulated business in the space to act as an outsourced chainanalytics service tagging, cataloging, and reporting all of the information to the government.

The authority to propose and enact rulings like this is authorized to the Secretary of the Treasury under the Banking Secrecy Act, and delegated to FinCEN by the Secretary. Under the BSA the Secretary is allowed to mandate the retaining of records of net flows of money and individual transactions, mandate additional record keeping requirements or reporting requirements for certain types of transactions, or prohibit maintaining or allowing accounts or services that allow for specific types of transactions, as long as they can argue a material risk of money laundering. During this assessment they are required to consult with the Secretary of State and the Attorney General, and consider the extent to which the relevant class of transaction facilitates money laundering and terrorist financing weighed against the extent to which that class of transaction facilitates legitimate business and commerce.

Their argumentation that it presents a material risk of money laundering and terrorist financing leans on all the factual examples of bad people mixing you would expect them to. Ransomware, exchange and cross-chain bridge hacks, etc. They bring up TornadoCash, and North Korean groups mixing funds with it, its use in laundering funds from bridge hacks, etc.; all of the big examples of exactly the type of activity these proposed rules are meant to stop that have been detected, analyzed, and cataloged on-chain are trotted out. But when it comes time to analyze the legitimate uses of mixing?

They can’t determine or assess the percentage of legitimate mixing because of a lack of data.

Yeah, you read that right. When it comes to identifying activity on-chain that suits their argument, they have a bounty of examples to cite and point to, but when it comes to activity that would bolster the counter-argument, the data is somehow not there to be found. It’s not possible to watch and analyze the transactions happening on-chain, regardless of whether they are coinjoins, centralized mixing services, or whatever flowing into those mixers and determine if there are “illicit connections.” It’s impossible to look at the percentage coming from regulated exchanges where you know some record is present if you need it. It’s impossible to look at what coins are coming from places like darknet markets. It’s also completely impossible to see what percentage of the outflows from those mixers go to regulated exchanges, or innocuous transactions not intersecting with any known “illicit activity”, versus obvious illegal activity like back into darknet markets.

The data just isn’t there for some mystical reason. I call bullshit. It’s right there, just like it is for the cases of someone like North Korea hacking an exchange and mixing the stolen funds. They’re just going to pretend it isn’t so they can create a legal justification to take all this information businesses are already processing and storing and make a nice complete copy in the hands of government regulators themselves.

This is nothing short of a systematic preparation for an enforcement crackdown, and potentially progressively increasingly antagonistic regulatory scheme. The nature of how FinCEN has to argue just cause to enact new rules centers around scrutinizing the nature of specific classes of transactions. The overly and absurdly broad definitions of “mixing” in this proposal would essentially take everything broken down in the six definitions provided and bring them together under the same class of transactions, “mixing.” After having shown just cause to categorize and regulate them as a single class, there is a much sounder footing to further carve this single general class into subclasses, and argue just cause to subject specific subclasses to extra regulatory burdens. At the end of the day, they can also prohibit entirely specific classes of transactions given a sound enough argument for mitigating serious harm to the financial system or US geopolitical interests.

First and foremost, this must be routed around. Every substantial piece of Bitcoin should be designed with the possibility of jurisdictions becoming unfriendly to them, if not outright hostile. The scope of this is something all of you should be seriously considering when thinking about how you have interacted with Bitcoin, how you do interact with Bitcoin, and how you are going to interact with it in the future.

But that said, this is also something that should be fought. The scope of it is insanely overbroad in its attempted reach, and the reasoning behind the positive outcomes outweighing the harmful is just fundamentally broken. They just pretend they can’t even ascertain the data to weigh them against each other in the first place.

Actions on the part of the government aren’t going to be absurd jokes that will be easily ignored, or easily routed around anymore. Things are going to continue becoming more reasoned through in effectively achieving the outcome they want, and that is something that all of us need to start taking more seriously. 

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Casey Rodarmor, the chief coder behind the Bitcoin Ordinals protocol, announced Tuesday that he is proposing a significant change to the software, one that could be viewed with skepticism by its budding user base.

Revealed in a post on X Tuesday, Rodarmor specifically proposed deprioritizing the canonical numbering system that assigns unique and coveted numbers to inscriptions created on the Bitcoin network. 

Since the protocol’s inception, each digital artifact created using Ordinals has been assigned a unique inscription number. These numbers, akin to serial numbers, have become an essential part of the digital art’s identity. 

Lower numbered inscriptions have been historically perceived as more valuable, driving collectors to seek these coveted positions within the numbering hierarchy. For instance, Casey Rodarmor himself owns the highly sought-after “Inscription 0.” 

Notably, the change does not impact the numbering system the protocol assigns to individual satoshis on the Bitcoin blockchain, which would still be awarded a distinct numerical score based on their ordering in Bitcoin blocks.

Still, Rodarmor sought to assuage the market in his comments discussing the change, expressing concern that the effort to maintain stable inscription numbers “has resulted in complicated code and hindered the protocol’s development.” 

He continued: “The need to ensure new changes do not alter the numbers of existing inscriptions has made the development process cumbersome and challenging.”

Rodarmor’s proposal could spark a lively debate within the Ordinals community, as well as among NFT collectors and crypto enthusiasts. However, it’s noteworthy that Rodarmor himself believes this system is already unstable. 

Discussing past attempts to rectify the issues, like adding negative numbered “cursed inscriptions” to the protocol, he wrote:

Cursed inscriptions and negative inscriptions numbers have a number of downsides:

• An inscription number now does not tell you anything about the order in which the inscription was made.
• The logic required to keep track of which inscriptions are cursed is a source of bugs and complexity.
• “Blessing” cursed inscription types, i.e., collectively deciding that after a certain block height, certain cursed inscription types will no longer be assigned negative numbers, and be assigned positive numbers instead, requires coordination.
• Cursed inscription numbers are permanently unstable, so a substantial number of inscription numbers are already unstable, even under the status quo.

Rodarmor’s solution, in his own words, would make the existing inscription numbers “permanently unstable,” changing how indexers would treat this information as opposed to eliminating them entirely.

Some market observers like Luxor’s Charlie Spears backed the move, stating: “Inscription numbers are a shitcoin, and overemphasis on the number has led to ill-conceived protocol decisions and weird market dynamics.”

Time will tell if the market agrees.

Notably, the proposal comes on the heels of a rare public appearance by Rodarmor at the recent Ordinals Summit in Singapore, where he discussed the protocol’s success and future innovations. As such, the pull request could signal that the developer is about to enter a period of renewed activity.

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Welcome to Latam Insights, a compendium of the most relevant crypto and economic development news from Latin America during the last week. In this issue, Bolivia mulls using the Chinese yuan in international trade settlements, inflation reaches 108.8% in Argentina, and Steve Hanke states he can eliminate Venezuela’s inflation in 30 days.

Bolivia Mulls Using Chinese Yuan in International Trade Settlements

The government of Bolivia has announced it is considering the usage of the Chinese yuan as a replacement for the US dollar for international trade settlements. The Bolivian President Luis Arce instructed the central bank to research if the recent advancement regarding the use of the Chinese currency in Brazil and Argentina could be also be applied in Bolivia’s case.

In a meeting with Bolivian journalists, Arce stated:

In the world, there are several countries that are going through illiquidity of dollars, to such an extent, what Argentina, Brazil, France, and the Arab countries are doing is no less. What are they doing? They decide not to trade in dollars.

Bolivia recently passed a law to sell half of its gold reserves for dollars to give a solution to its dollar liquidity issues.

Inflation Reaches 108.8% Year Over Year in Argentina

The National Statistics Institute of Argentina (INDEC) has delivered the price data corresponding to April, registering an inflation increase of 108.8% year over year. The inflation number jumped further higher than the 104.3% registered in March. Food and beverage items contributed the most to the rise in inflation numbers, with prices rising 10.1%.

The Argentine government explained that “the exchange rate unrest in the financial dollar markets, in the last part of the month, prompted preventive price increases in many products and services of our economy,” acknowledging that it would have to make bigger efforts to achieve better results in its fight against inflation.

Steve Hanke Believes He Can Eliminate Venezuela’s Inflation in 30 Days

Steve Hanke, professor of applied economics at Johns Hopkins University, stated that he could bring inflation down in Venezuela in 30 days. Hanke, who is currently an economic advisor to Roberto Henriquez, a presidential candidate for the upcoming elections, believes that the solution to Venezuelan inflation is the implementation of a currency-board system.

This currency board system would allow for the exchange of Venezuelan bolivares at a fixed rate against the US dollar. In an interview on a local radio station, Hanke stated:

Within 30 days the inflation in Venezuela would be completely eliminated: and the inflation rate would be very close to the inflation rates in the U.S.

Hanke has already directed programs of this kind in Estonia, Lithuania, Bulgary, and Bosnia and Herzegovina.

What do you think about the developments in Latin America this week? Tell us in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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Inflation in China registered an increase of 0.1% year-over-year in April, according to numbers from the National Bureau of Statistics of the country, falling below expectations. Some analysts are already warning about the dangers of deflation, even calling on the Chinese government to deliver cash handouts in order to push consumer demand.

Low Inflation Numbers in China Worry Analysts

China, one of the biggest economies in the world, has registered its lowest inflation numbers in more than two years, according to data coming from the National Bureau of Statistics (NBS). The Consumer Price Index (CPI) registered an increase of 0.1% year-over-year, dropping from 0.7% registered in March.

The drop in prices was caused in part by a decline in food and beverages prices, which went from 2.4% in March to less than 1% in April. Core inflation, which does not include prices of food and beverages, rose 0.7% year-over-year. The numbers are below the expectations of the country for this year, established around a 3% ceiling that is not likely to be touched.

The numbers have been worrying analysts, who take them as a testament to the slow and rocky economic recovery of China after the coronavirus pandemic. However, Zou Lan, an official with the Peoples Bank of China (PBOC), dismissed these worries, stating that “there is no basis for long-term deflation or inflation,” and that consumer demand is expected to warm up during the second half of this year.

Proposals to Avoid Deflation

Standard Chartered has explained they expect inflation levels to hit 0% in the next months, “as a crude-oil price spike in the first half of 2022 created a high comparison base.” However, even with a slow inflation level, the bank has predicted a growth rate of more than 5% without adjusting interest rates, which are now at 1%.

Experts who are worried about the possibility of deflation have made different proposals to avoid it. Li Daokui, a professor of economics at Tsinghua University and former member of the PBOC advisory board, has called for the government to deliver cash handouts to citizens to spur demand. Last month, Li stated:

Even with a conservative estimate, 500 billion yuan in consumption vouchers will drive one trillion yuan in overall consumption.

The state would also receive over 300 billion yuan in taxes derived from the spending directly enabled by the cash handouts, according to the professor.

What do you think about the low inflation numbers in China and the worries about a possible deflation in the Chinese economy? Tell us in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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A proposal seeking to apply a “One Brand, One token” principle has been pushed to a vote on BitDAO’s Snapshot and calls for substituting BitDAO’s token (BIT) under a new governance token. Snapshot serves as an off-chain governance voting platform for decentralized autonomous organizations (DAOs) and other blockchain projects.

According to proposal BIP-21, the BitDAO ecosystem — governance (BitDAO) and product (Mantle) — will be unified as Mantle. Governance processes and treasury management will remain unchanged, but after community approval, BIT holders will undergo a token-conversion process for the new Mantle token.

The move comes ahead of the mainnet launch of Mantle, a scaling layer-2 protocol built on Ethereum. The mainnet launch is expected in the coming weeks. BitDAO is backed by crypto exchange Bybit, along with Pantera Capital, Dragonfly and venture capitalist Peter Thiel.

Token conversions may introduce a fixed exchange rate for all users, preserving all governance rights and other interests, according to the BIP-21 description. A gradual conversion process will be available on different channels, and holders will have a timeline for converting tokens.

Token-conversion rules and ratios shall apply to all tokenholders equally, and holders are not required to take any action in advance, says the proposal. Details on token-conversion plans will be discussed if BIP-21 is approved.

Related: Researchers in Singapore design new ‘more efficient’ DAO scheme

BitDAO claims the “brand optimization” aims to reduce the complexity around the BIT ecosystem. “There is complexity as to whether $BIT should be valued for its governance component or product component or some combination,” claims the proposal.

Along with its token replacement, BitDAO seeks to improve its tokenomics by accelerating contributions and remaining vesting schedules from its launch in 2021, meaning no outstanding vesting schedules will be inherited from the original BitDAO launch.

Voting on the proposal is open until May 19. At the time of writing, the proposal has received 100% support from over 25 million BIT votes. On BitDAO’s governance forum, community members raised their voices to support the branding unification.

“[M]erging the brands before the Mantle mainnet release is a strategic move that will help create a unified identity for the ecosystem. This will ensure that users, developers, and token holders can associate the token and its value proposition with the Mantle brand,” wrote a DAO member.

Magazine: The legal dangers of getting involved with DAOs