Speak Out: Verifying and Unmasking Cryptocurrency User Identity

47 Pages Posted: 19 Apr 2021 Last revised: 18 May 2021

See all articles by Hadar Yoana Jabotinsky

Hadar Yoana Jabotinsky

Tel Aviv University - Cegla Center for Interdisciplinary Research of the Law; The Hadar Jabotinsky Center for Interdisciplinary Research of Financial Markets, Crises and Technology (HJC)

Michal Lavi

Hebrew University of Jerusalem - Faculty of Law; The Hadar Jabotinsky Center for Interdisciplinary Research of Financial Markets, Crises and Technology (HJC)

Date Written: April 18, 2021

Abstract

Terror attacks pose a serious threat to public safety and national security. New technologies assist these attacks, magnify them and render them deadlier. The more funding terrorist organizations manage to raise, the greater their capacity to recruit members, organize and commit terror attacks. Since the September 11, 2001 terror attacks, law enforcement agencies have increased their efforts to develop more anti-terrorism and anti-money laundering regulations, which are designed to block the flow of financing of terrorism and cut off its oxygen. However, at present most regulatory measures focus on traditional currencies. The more efforts to restrict the financing of terrorism by traditional fiat currencies succeeds, the greater the likelihood that cryptocurrencies will be used in order to fund illicit behavior. Furthermore, the COVID-19 virus and social distancing guidelines that followed it have increased the use of cryptocurrencies for money laundering, material support to terror and other financial crimes.

Cryptocurrencies, electronically generated and stored tokens which can be exchanged via a decentralized payment system, are a game changer, significantly affecting market functions like never before and making it easier to finance terrorism and other types of criminal activity. These decentralized and (usually) anonymous usable currencies facilitate a high volume of transactions, allowing terrorists extensive fundraising, management, transfer and spending of money for illegal activities. The ability of terror organizations and those who finance them to increase their activities and attacks by using cryptocurrencies poses a major threat to national security. As cryptocurrencies gain popularity, the issue of how to regulate them becomes more urgent. The scope and utility of financing of terrorism begs for a coherent legal response.

This Article proposes to reform the regulation of cryptocurrencies. It advocates the promotion of mandatory obligations directed at cryptocurrency issuers, wallet providers and exchanges to verify the identity of users on the blockchain. Thus, courts could grant warrants obligating companies issuing cryptocurrencies to unmask the identity of cryptocurrency users when there is probable cause that their activities support terrorism or other money laundering activities. Such reforms would make it possible to allow stifling the financing of terrorism and other types of criminal activity financed through cryptocurrencies, and in so doing would make it possible to curb harmful lethal activities and promote national security. As we are aware of the legal challenges our solution poses, this Article also addresses substantial objections that might be raised regarding the proposed reforms, such as jeopardizing innovation, First Amendment freedom of expression objections, Fourth Amendment protection from surveillance and measures for promoting efficiency in the application of the proposed reforms.

Keywords: Cryptocurrencies, Anti-Money Laundering Regulation, Terror, Financial Regulation, Public Policy, Anonymity, First Amendment, Fourth Amendment, Law & Technology, Law

Suggested Citation

Jabotinsky, Hadar Yoana and Lavi, Michal, Speak Out: Verifying and Unmasking Cryptocurrency User Identity (April 18, 2021). Fordham Intellectual Property, Media & Entertainment Law Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3828970 or http://dx.doi.org/10.2139/ssrn.3828970

Hadar Yoana Jabotinsky (Contact Author)

Tel Aviv University - Cegla Center for Interdisciplinary Research of the Law ( email )

Ramat Aviv
Tel Aviv, IL
Israel

The Hadar Jabotinsky Center for Interdisciplinary Research of Financial Markets, Crises and Technology (HJC) ( email )

29 Ha'Oren St.
P.O Box 80
Timrat, 23840
Israel

Michal Lavi

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Jerusalem, IL
Israel

The Hadar Jabotinsky Center for Interdisciplinary Research of Financial Markets, Crises and Technology (HJC) ( email )

29 Ha'Oren St.
P.O Box 80
Timrat, 23840
Israel

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