Original Title: "An SEC Official Stops Pretending"
Original Author: Liam
In the world of cryptocurrency, government regulation is often seen as the biggest obstacle to the development of privacy technologies.
However, on August 4, SEC Commissioner Hester Peirce delivered a stunning speech at the University of California, Berkeley, where she quoted the Cypherpunk Manifesto, publicly criticized the U.S. financial surveillance system, and advocated for privacy technologies such as zero-knowledge proofs and decentralized networks.
This regulator, known as the "Crypto Mom," rarely stood on the side of the regulated, and was even more radical than many crypto enthusiasts.
This is a moment of awakening for regulators.
Peanut Butter and Watermelon, a Regulator's Awakening
On August 4, at the University of California, Berkeley.
SEC Commissioner Hester Peirce delivered a speech that left the audience stunned. The title of the speech was "Peanut Butter and Watermelon: Financial Privacy in the Digital Age," which at first sounds like a food sharing session, but in reality, it was a fierce attack on the existing financial regulatory system.
Peirce began with a family story: her grandfather hated eating watermelon, so to make it palatable, he always spread a thick layer of peanut butter on it. This strange combination always attracted neighborhood kids during summer picnics. Years later, when a telephone operator answered a call for her grandfather, she asked, "Are you the Mr. Peirce who puts peanut butter on watermelon?"
It turned out the operator was one of the kids who had watched back then.
Peirce was not interested in the combination of peanut butter and watermelon; her focus was on the telephone operator, a profession soon to be eliminated by technology. The later automatic switching systems allowed people to dial directly without needing a human intermediary, and more importantly, no neighbors could eavesdrop on your private calls.
Hester Peirce was supposed to be a staunch defender of financial regulation. She graduated from Case Western Reserve University School of Law and spent years working in the Senate Banking Committee before being appointed as an SEC commissioner by Trump in 2018.
The crypto industry gave her a loud nickname, "Crypto Mom," because she was much friendlier towards cryptocurrencies than other regulators. But in this speech, she completely tore off her moderate mask and laid it all out.
"We cannot expect the government, corporations, or other large, indifferent organizations to provide us with privacy protection out of goodwill."
This quote she cited comes from Eric Hughes' 1993 "Cypherpunk Manifesto," a work by a technological anarchist. It is as strange as a police officer quoting a criminal to criticize the law enforcement system.
But Peirce was not satisfied.
She followed up by saying, "Where the law is unable to protect us due to design flaws or inadequacies, technology may be able to."
This sounds nothing like what a civil servant should say; it rather resembles a rallying cry for a technological revolution.
The Universal Hammer
Peirce's real firepower was directed at the existing financial surveillance system.
She first harshly criticized the "third-party doctrine," a legal concept that allows law enforcement to obtain information you provide to banks without a warrant. As a government employee, she criticized her employer for using this doctrine as a universal hammer.
"The third-party doctrine is a key pillar of financial surveillance in this country," she pointed out an absurd phenomenon: banks can use encryption technology to protect customer data from theft, but under the third-party doctrine, customers still have no expectation of privacy regarding that encrypted data. In other words, banks can protect your data from being stolen by thieves, but the government can look at it whenever they want.
Next, she turned her attention to the Bank Secrecy Act. This nearly 60-year-old law requires financial institutions to establish anti-money laundering programs, effectively making banks act as informants for the government.
The data is shocking.
In the fiscal year 2024, 324,000 financial institutions submitted over 25 million transaction reports to the government, including 4.7 million "suspicious activity reports" and 20.5 million "currency transaction reports."
"The Bank Secrecy Act has turned U.S. financial institutions into de facto law enforcement investigators," Peirce said bluntly. The government has created an atmosphere of "better to wrongly accuse a thousand than to let one go," encouraging banks to report any suspicious transactions, resulting in a flood of useless information drowning out genuinely valuable leads.
Even more outrageous, Peirce did not spare her own agency.
The SEC's Consolidated Audit Trail (CAT) system can monitor every transaction in the stock and options markets, tracking everything from order placement to execution. She and her colleagues directly described this system as "a product of a dystopian surveillance state." This system not only burns through money, having spent $518 million by the end of 2022 without being completed—almost eight times the budget—but it also allows thousands of SEC employees and private sector workers to view anyone's transaction records at any time, crucially without any suspicion of criminal activity.
Imagine an FBI agent publicly criticizing wiretapping laws, or a tax official defending tax evasion; Peirce stood in opposition to the system.
Technological Redemption
Since the law cannot be relied upon, Peirce placed her hopes on technology.
She publicly advocated for a series of privacy-protecting technologies: zero-knowledge proofs (ZK), smart contracts, public blockchains, decentralized physical infrastructure networks (DePIN). If you are a seasoned crypto enthusiast, you are certainly familiar with these concepts.
The appeal of these technologies lies in their ability to bypass traditional intermediaries.
Zero-knowledge proofs allow you to prove your identity or age without revealing other information; privacy mixers can obscure your income, donations, and purchase records; decentralized networks simply kick centralized service providers out. Some blockchains come with privacy features that protect sensitive information just like private telephone lines did in the past.
Peirce even expressed the radical view hinted at by Hughes in the "Manifesto": These technologies must be allowed to develop freely, "even if someone might use them for bad purposes."
This statement from a government regulator carries significant weight.
She also brought up historical lessons. In the 1990s, the government wanted to keep strong encryption technology under its control for national security reasons. However, the development of the internet depended on encryption technology, and a group of determined cryptographers rose up in resistance, ultimately persuading the government to allow the public to use encryption technology freely.
Phil Zimmermann, the developer of PGP software, was one of the heroes in this effort.
It is because of their efforts that we can safely send emails, conduct online banking, and shop online today. Peirce elevated privacy protection to a constitutional level. She quoted Supreme Court Justice Brandeis's famous saying: "When the government seeks to do good, we must be most vigilant to protect our freedoms."
She called on the government to protect the public's "ability to communicate privately and transfer value privately, just as people did with cash transactions when the Fourth Amendment was drafted."
"The key to human dignity is the ability to decide to whom to disclose one's information."
She emphasized, "The American people and the government should eagerly protect people's rights to live private lives and use privacy technologies."
The timing of the speech coincided with the trial of Roman Storm, co-founder of Tornado Cash, a typical example of the government's crackdown on privacy technologies. Peirce made it clear: "Developers of open-source privacy software should not be held responsible for how others use their code."
More Radical than Geeks
Interestingly, Peirce's views do not completely align with Hughes's and are even more radical.
Hughes wrote in the "Manifesto": "If two parties have a transaction, each party will remember the interaction. Each party can talk about their memory; who can stop them?" This is essentially a defense of the third-party doctrine; since you gave the information to the bank, the bank can certainly tell the government.
But Peirce is precisely attacking this doctrine, arguing that even if information is in the hands of a third party, individuals should retain control over their privacy.
This divergence is intriguing; Hughes, as a technological anarchist, accepts the harsh realities of the situation to some extent; while Peirce, as an insider, demands more thorough privacy protection.
In my view, this could be described as "convert zeal," akin to Korean Christians who are more enthusiastic about missionary work around the world.
Of course, as a regulator, she knows the problems of the existing system better than anyone, and her long regulatory experience has made her realize that true protection may not come from more regulation but from the solutions provided by technology itself.
However, changing societal perceptions is not easy.
Hughes once said: "For privacy to become widespread, it must become part of the social contract."
Peirce also acknowledges this challenge. Whenever she criticizes financial surveillance, there are always people who say, "I haven't done anything wrong; what's wrong with the government monitoring everyone to catch bad guys?" She counters with a quote from privacy scholar Daniel Solove: "This 'I have nothing to hide' argument represents a narrow view of privacy that deliberately ignores the other problems posed by government surveillance programs."
Over thirty years ago, Hughes wrote: "We cypherpunks seek your problems and concerns, hoping to engage in dialogue with you."
Thirty years later, Peirce responded to this call with her speech.
Compared to others, Peirce's contradictory identity is what makes this speech the most fascinating: a regulator advocating for the regulated technology, a government official quoting anarchists to criticize government policy, a guardian of the traditional financial system standing up for the decentralized revolution.
If Hughes were alive today and heard Peirce's speech, he might feel comforted and say, "You are one of us!"
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