Sanctions, Allowists, and Blacklists Oh My
It was fun
Sam Bankman-Fried has a few ideas he would like to share. Lately, we in the crypto community have learned that crypto regulations are here and they are not going to go away, the “wild west” or “frontier” days of crypto are gone and now the time of regulations, taxes, and rules is upon the technology… well it was a fun run.
During this time many crypto communities are coming together to discuss the right way for these regulations to happen and not stifle the growth of the sector. There are many in the crypto community that has ideas and one such person is the altruistic and very busy Sam Bankman-Fried, founder of the crypto exchange FTX
SBF makes a proposal
During his time Sam Bankman-Fried has been able to create cooperative efforts with many companies, celebrities, and other crypto exchanges. The founder is very focused on blockchain technology and believes it can be used for good. Lately, the crypto mogul has discussed his own regulatory framework for the crypto industry during a series of tweets this week.
During his statements, Sam stated how he is a proponent of using blacklists or blocklists. Blacklists or blocklists are a bit different from whitelists or allowlists in that all traders are free to trade until they are explicitly sanctioned. With a whitelist or allowlist, no one is allowed to trade unless specifically given permission.
2) At a high level:— SBF (@SBF_FTX) October 19, 2022
a) we need regulatory oversight and customer protection
b) we need to ensure an open, free economy, where peer to peer transfers, code, validators, etc. are presumptively free
c) we should establish regulation–and until then standards–to ensure (a/b)
Sam spoke more on his ideas of regulations in a more detailed document titled “Possible Digital Asset Industry Standards” stating that using allowlists would be a big problem when it comes to innovation and commerce because it “freezes out the economically disadvantaged” he did state that allowing just anyone to participate would also mean opening the doors to more criminal actions. In the document, he stated a fundamental belief towards using blocklists and stated three possible options. 1. The allowance of all transfers on the blockchain but that comes with the risk of more crime, 2. Ban transfers between sanctioned parties meaning to make those transfers illegal and hold all violators liable while allowing other peer-to-peer transfers, or 3. Ban all transfers unless specifically allow and listed by an institution. There is much more to read here and some of the points seem very valid. Sam states that everyone should respect and follow the sanctions list given by OFAC.
Sam states that blacklists strike a much better balance between all options stating”
“This can simultaneously enforce sanctions compliance effectively while also making sure that you don’t need a passport and social security number to buy a bagel from 7-11”
Other things to consider
There are of course other things to consider such as illegally taken funds being moved from one wallet to another. A wallet address does not specifically point to a person directly as stolen funds can be moved through an infinite number of addresses without anyone being able to know if that address actually belongs to the person you are seeking.
In August a Twitter troll dusted hundreds of high-profile addresses with tainted crypto from the now-sanctioned Tornado Cash. This left the owners with a legal issue they had nothing to do with. The dusting came right after Tornado cash was hit with sanctions from the U.S government making it illegal to use the platform. The troll sent the illegal funds to multiple wallets including those of celebrities The sanctions that made the use of the platform illegal also stated it was illegal to receive funds from that platform as well but if your wallet is publicly known or easy to access and you receive tokens you didn’t ask for would you then be responsible or legally to blame?
FTX suggested there be a sort of “cure” for this issue by providing a specific address for users to send the ill-gotten funds. There are many things to consider when it comes to crypto but one thing is for sure, regulations are coming and crypto will never be the same again.