What individuals want the most is privacy and freedom, which comes from the need for physical security in a world of survival after millennia of repressive power structures. Having anonymity is not a cloak to hide illegal activities, it’s a shield of protection from the overreach of government and the invasive power of big tech companies.
The government is tasked with the chore of protecting the individual, but the only method it has is the enforcement of laws, so it seeks awareness of what everyone is doing to maintain order, which creates a dynamic tension between both sides: the government wants information for control; and the individual wants privacy for freedom. These two diametrically opposed forces are colliding over the role of cryptocurrencies, and how they can be regulated, so here’s a pragmatic solution from the center.
The way to regulate cryptocurrencies and decentralized finance is not through enforcing onerous KYC data collection on the exchanges - it’s through the wallets. The solution is to verify the identity of a digital wallet owner through an encrypted KYC process that protects anonymity. For example, let’s say there’s a government database that contains our name, social security number, passport and/or driver’s license - anything needed to verify our identity, but each part is encrypted and broken into pieces on a decentralized protocol, so it’s nearly impossible to be hacked.
A universal wallet could be designed so the individual enters all their identifying information, so it can connect to the government database to assemble the pieces and verify the identity as real, but there’s no record kept that links this particular wallet to that particular person. It’s a one-way “read only” KYC process that has no memory - it just verifies and gives a “blue checkmark” to the wallet, which unlocks its full functionality, but the government database doesn’t retain any wallet information, and the wallet deletes the identifying information too. The database could limit the number of wallets to one, but the identity of the wallet owner would remain anonymous.
Then a law could be created that states all smart contracts and defi exchanges can only allow execution between two verified wallets. And the wallets could be programmed to only work with other verified wallets. Since all businesses will eventually take payment exclusively from digital wallets, this forces everyone, including criminals, onto the legitimate system, or they become exiled from the economy altogether. An unverified wallet could only be used with other unverified wallets, but those funds would never be able to access the verified system unless they get verified.
By maintaining anonymity, there’s no need to trust the government isn’t overreaching with surveillance into our life. And from the government’s point of view, the wallets could be designed to keep track of every transaction like a bank statement, including realized and unrealized gains or losses for tax purposes. At the end of the year, anonymous wallets could automatically send tax information from capital gains to the identities in the government database, but it would be a “read-only” process that doesn’t remember the wallet. This way, the government gets its taxes, and they force everyone onto a verified system to prevent money laundering, yet the individual keeps their privacy and freedom. There could even be a banned substance/product list - like the materials needed to make a chemical bomb - so if any wallet purchases those things, a government agency is notified. Meaning, the only way for the government to have the right to see your transactions is through a warrant that needs proof of purchases from the banned list. Otherwise, they have no right to see what you’re doing. This is how you balance the privacy of the individual with the safety of the community.
The same process could be applied to internet browsing and social media. Our digital wallets will be the passport to login everywhere, so we need the ability to toggle on/off our identity for purposes of social media, yet maintain control over the privacy of the data collected for ad targeting. Personally, I like be targeted by ads for products I’m interested in, however, I don’t think Facebook or Google should connect any of that data with my identity, so the wallet could provide relevant businesses with whatever basic demographics I opt into, but not my identity, even if I turn on my name for my friends and family to see. Essentially, the wallet should be designed to silo the identity of the individual from their demographics, browsing, and transaction history.
Obviously, there are nuances that would have to be solved, but this is the basic idea. The crypto world needs to move beyond the notion that somehow decentralized currencies are going to be integrated into everyday life without government regulations to enforce our laws. And the government needs to understand that individuals are tired of the invasive overreach of powerful institutions, so if they attempt to stifle this innovation with onerous control, all they will do is transform what could be a seamless transition into an ugly revolt.
All the government has to do is reiterate emphatically the US dollar is the only legal tender. As expressed below in “The Universal Bank,” we will have the fight over legal tender in ten years. Until then, blockchain can focus on the multitude of other innovations from supply chain tracking to microfinance to the creation of video game and virtual world economies, which is our only chance to grow out of this burdensome debt without a destabilizing devaluation of the sovereign currencies.
If a billionaire with political connections would like to develop a universal wallet, or the universal bank idea below, send me a message.
