Electronic Cash, Decentralized Exchange, and the Constitution
An extension of the Bank Secrecy Act to software developers and individual users would be unconstitutional.
Regulators, law enforcement, and the general public have come to expect that cryptocurrency transactions will leave a public record on a blockchain, and that most cryptocurrency exchanges will take place using centralized businesses that are regulated and surveilled through the Bank Secrecy Act. The emergence of electronic cash and decentralized exchange software challenges these expectations. Transactions need not leave any public record and exchanges can be accomplished peer to peer without using a regulated third party in between. Faced with diminished visibility into cryptocurrency transactions, policymakers may propose new approaches to financial surveillance. Regulating cryptocurrency software developers and individual users of that software under the Bank Secrecy Act would be unconstitutional under the Fourth Amendment because it would be a warrantless search and seizure of information private to cryptocurrency users. Furthermore, any law or regulation attempting to ban, require licensing for, or compel the altered publication (e.g. backdoors) of cryptocurrency software would be unconstitutional under First Amendment protections for speech.
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