The last few weeks have demonstrated several aspects of electronic payments and cryptocurrencies that warrant closer examination by individuals who care both about privacy and healthy, civil societies. Specifically, we’ve seen:

(1)    Publication by the Federal Reserve of Boston and the Massachusetts Institute of Technology on the possibility of a U.S. central bank digital currency (CBDC) as part of Project Hamilton.

(2)    The arrest by the U.S. Department of Justice of two individuals that, according to court documents, were associated with one of the largest Bitcoin laundering operations associated with the theft of 119,754 BTC from the Bitfinex platform in 2016.

(3)    Canadian Prime Minister Justin Trudeau invoking the Emergencies Act to crack down on protests ostensibly about vaccine mandates; the Prime Minister’s action also included the ability for banks to freeze personal accounts of anyone linked with the protests.

In addition to these three events, we’ve also seen the tragic decision of Putin to invade Ukraine with Russian military forces and the overwhelming response of the international community to impose economic sanctions as a response.

 

When the MobileCoin Foundation’s board members started drafting this blog post, we were going to focus on what, in retrospect, appeared to be the fairly “easy” topic of how to address the reality that cryptocurrencies have enabled ransomware crimes to occur across borders and geographies. Now, given the recent events above, we at the MCF feel the need to talk more broadly about how MobileCoin, as an electronic payment solution, is committed to providing the maximum privacy for individuals under the rule of law.

 

What we mean by compliance and maximum privacy for individuals

 

In almost every country, the rule of law specifies different reporting requirements for individuals than businesses. For most of the Group of Seven (G7) countries – individuals have less strenuous reporting requirements for large flows of money than businesses. Individuals have some responsibilities to report transport of large flows of cash (in the United States it is $10,000 or more) being brought into the country – however for Canada, Italy, France, the United Kingdom, Germany, Japan, and the United States, there are more laws and regulations regarding the risks of money laundering and improper direction of funds for businesses than individuals.

 

At the MobileCoin Foundation, we care about compliance, peace, and world stability. By design, MobileCoin is a pre-mined cryptocurrency – which means we know the origin fund from the beginning for all MobileCoins. This design choice is essential for us to become a trusted electronic payments platform that provides maximum privacy for individuals under the rule of law because the only way compliance can occur is if the origin fund is known from the beginning.

 

Similarly, also by design, MobileCoin is built from the ground-up to comply with financial regulations for both individuals and businesses. The MobileCoin protocol itself does not have a user identifier. Instead, compliance occurs at the point of interaction when two wallets exchange funds. If the business you interact with has reporting requirements, then that business may ask for additional identifying information to perform Know Your Client (KYC) checks. Businesses are required to do KYC so that they can comply with the laws of whatever nation within which they operate.

 

Achieving compliance and privacy

 

The MobileCoin network provably has no user identifier. The code is always open source, you can always review it on our github repository.

 

Individuals can choose to share information about themselves. Individuals can choose to do this in their interactions with a business, sharing the information specific to whatever KYC laws apply. Individuals can also do this as part of their relationships with other individuals or groups of individuals, should the group ask for KYC or some other information necessary to confirm with whom they’re engaging in a transaction.

 

Specifically, if an individual chooses to volunteer information consistent with the amount of information linked to Bitcoin-related trades and pseudonyms – then an individual can choose to degrade the privacy present in MobileCoin to be the same as that as Bitcoin (BTC). Bitcoin is not anonymous. All Bitcoin transactions are stored publicly and permanently on the network, which means anyone can see the balance and transactions of any Bitcoin address. This means BTC itself does not have a lot of privacy, as witnessed by the ease in which BTC trades can be analyzed in the event of money laundering.

 

At the same time, we wantMobileCoin to be a vanguard for privacy and compliance – and to actively discourage use of MobileCoin for illicit activities like money laundering, human trafficking, small arms trafficking, or other nefarious activities tied to the flow of large amounts of money. We also want MobileCoin to be a vanguard for peace and world stability, which includes respecting economic sanctions if nations decide to impose them.

 

This tandem relationship of ensuring that the MobileCoin network provably has no user identifiers – and that at the transaction level businesses, other individuals, or groups can request information to perform KYC checks appropriate to the laws of the land – is what enables MobileCoin to provide the maximum privacy for individuals consistent with the rule of law. We think this is both our “secret sauce” as a modern, electronic payments solution and a benevolent use of cryptographic methods of individual and public good.

 

So, what does this all mean?

 

This means we now have cryptography that permits us to have our cake and eat it too. For example, Apple gives great privacy with their devices and complies with the law. Similarly, MobileCoin is built from the ground-up to comply, to give individuals their privacy while also permitting businesses to comply with the rule of law.

 

We provide the ability for any institution to do above-banking level compliance. In the United States, this includes 31 CFR 103.33 (g) – often called the “Travel” rule – requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution.

 

All of us at the MobileCoin Foundation believe that privacy is important, yet so is compliance with financial laws. None of us want a surveillance state (or surveillance capitalism). But we also don’t want to see bad activities such as money laundering, human trafficking, small arms trafficking, or other anti-civil society activities occur (more on these “four horsemen of the crypto-apocalypse” in a future blog post).

 

Striking this kind of balance isn’t easy…but if it was easy, someone would have built it already.

 

We here at the MobileCoin Foundation – in partnership with the additional elements of the MobileCoin ecosystem – will be strongly championing that it is vital for trusted, secure, responsible electronic payments to employ cryptographic methods to strike that balance: to provide the maximum privacy for individuals, under the rule of law.

 

And one addendum on the additional bonuses of being a pre-mined cryptocurrency, this also means the carbon footprint of MobileCoin is very low compared to other cryptocurrencies which require “proof of work”. Given MobileCoin’s commitment to purchasing carbon offsets proportionate to transaction intensity MobileCoin is a net carbon negative cryptocurrency too.

 

Sincerely,
The MobileCoin Foundation Board
Be Bold. Be Brave. Be Benevolent.