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U.S. law broadens presidential authority over digital assets, sparking privacy concerns

By:
on Jun 6, 2024
Updated: Jun 11, 2024
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  • The proposed law broadly defines digital assets and includes communication protocols and smart contracts.
  • The law would allow the president to block transactions with foreign entities linked to terrorism.
  • Critics warn that the law could force users onto regulated blockchain networks.

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A new U.S. law proposed by Senator Mark Warren grants the president authority to block access to digital assets. The proposal has sparked concerns regarding its impact on users.

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A broad definition for digital assets

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The proposal defines digital assets as any digital representation of value secured by cryptographic ledgers, including communication protocols and smart contracts. An excerpt from the proposal states:

[…] any communication protocol, smart contract, or other software […] deployed through the use of distributed ledger or similar technology; and […] that provides a mechanism for users to interact and agree to the terms of a trade for digital assets.

Once enforced, the law will allow the president to restrict any transactions between U.S. residents and foreign entities flagged as linked to terrorism. 

U.S. financial institutions would also be imposed with strict conditions if they were found to be facilitating such transactions. Another excerpt from the proposal states:

[…] prohibit any transactions between any person subject to the jurisdiction of the United States and a foreign digital asset transaction facilitator identified under paragraph (1).

Privacy concerns raised

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Scott Johnsson, a finance lawyer and crypto advocate, criticized the law, calling it “a user-level ban power by the President.” He specifically raised concerns regarding its implications for forcing users onto KYC-compliant and permissioned blockchain networks.

He suggested that the move could be seen as a means to retain control over the crypto sector guise as ani-terrorism measures, adding:

It could be interpreted more narrowly, but I don’t think that’s the intent here.

The proposal for Warner has allegedly borrowed elements from the Terrorism Financing Prevention Act.

The act was introduced in December 2023 by Senators Mitt Romney, Mark Warner, Mike Rounds and Jack Reed. The bill allows the U.S. Treasury to block transactions to a “foreign digital asset transaction facilitator” flagged as a sanctioned entity.

The new law comes as the political climate in the U.S. is divided. 

On the one hand, crypto-friendly legislation like the Financial Innovation and Technology for the 21st Century Act has passed with Bipartisan support. 

Prior to that, Congress passed a bill targeting the SEC’s Staff Accounting Bulletin No. 121 (SAB 121). 

The bill prevents banks from safeguarding digital assets. It also requires firms that custody crypto to record customer crypto holdings as liabilities on their balance sheets.

However, President Joe Biden vetoed the bill days later, stating that his administration “will not support measures that jeopardise the well-being of consumers and investors.”

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