U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce emphasized the need to protect individuals’ right to transact privately during a speech on Monday to blockchain researchers and professionals.
Her remarks come as the trial of Roman Storm, co-founder of Tornado Cash, nears a verdict.
Speaking at the Science of Blockchain Conference, Peirce argued that privacy-preserving technologies and the right to self-custody of crypto assets must be upheld. She also defended developers of open-source privacy tools, stating they should not be held liable for how their code is used by others.
“We should take concrete steps to protect people’s ability not only to communicate privately, but to transfer value privately, as they could have done with physical coins in the days in which the Fourth Amendment was crafted,” Peirce said.
“Although a centralized intermediary or even a DAO deploying a DeFi application could build in restrictions on its use, an immutable, open-source protocol is available for anyone’s use in perpetuity, so requiring that it comply with financial surveillance measures is fruitless.”
Peirce’s remarks come as a jury deliberates in the trial of Roman Storm, co-founder of Tornado Cash—a crypto mixing service that enables users to obscure the origin and destination of their cryptocurrency transactions.
Restricting privacy technologies hinders innovation
In the 1990s, governments sought to keep strong cryptography out of the hands of the public, citing national security concerns, according to Peirce.
She pointed out that it took legal challenges and resistance from cryptographers like Phil Zimmermann — creator of the Pretty Good Privacy (PGP) encryption software — to shift that stance, ultimately paving the way for major technological progress.
“The internet could not have succeeded without strong cryptography, so a determined set of cryptographers pushed back and convinced the government that cryptography in private hands was a net positive,” she said.
“Because of their hard-fought victory in the courts and the court of public opinion, we daily rely on encryption to send email, engage in online banking, buy from online merchants, communicate with one another through voice and video, and conduct many other daily tasks.”
The DeFi Broker Rule Should Remain Defunct
In her speech, Peirce also criticized the nearly implemented so-called decentralized finance (DeFi) broker rule, arguing that regulators should not compel businesses to track the identities of their own or their customers’ transaction counterparts.
“Doing so would deputize us to surveil our neighbors—a practice antithetical to a free society. Nor should we require an intermediary to step in the middle of peer-to-peer transactions,” she said.
“As with the internet, technologies that have legitimate uses are better left in the permissionless, available-for-all-to-use category, even though doing so enables people to use them for bad purposes, because taking any other course would impinge fundamental liberties.”
Before it was scrapped by former President Donald Trump on April 10, the DeFi broker rule—introduced during the Biden administration—would have required DeFi protocols to report gross proceeds from crypto sales to the Internal Revenue Service, including details about the taxpayers involved in those transactions.
Crypto mixers on trial
Roman Storm is currently on trial in the Southern District of New York, facing charges related to allegations that criminal actors used Tornado Cash for money laundering—and that he facilitated their activities. If found guilty, Storm could face up to 40 years in prison.
His defense team, along with industry advocates, argues that Tornado Cash is merely a tool—one that can be used by both everyday users and bad actors—and that developers shouldn’t be held liable for how others choose to use their code.
In a related case, the co-founders of Samourai Wallet—another crypto mixing protocol—also faced similar charges. After initially attempting to have the case dismissed, they chose to plead guilty on July 29.
