I saw a few summaries of the Market Structure Draft yesterday (#1410839) that seemed generally positive (protections for self-custody, protections for non-custodial app developers, protections for node-runners).

Today, we get The Rage's take, and it is a nice tempering force to the general politician positivity.

Of protections for non-custodial developersOf protections for non-custodial developers

This shaves a maximum of five years off of any potential charges, but continues to leave the door wide open to charge non-custodial developers with conspiracy to evade sanctions and conspiracy to commit money laundering if people use their software for illicit means – carrying up to 40 years in prison.

Of self-custody:Of self-custody:

Specifically, the draft states that “nothing in this section may be construed to limit the authority of the Secretary of the Treasury, the Commission, the Commodity Futures Trading Commission, the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, or the National Credit Union Administration to carry out any enforcement action or special measure authorized under applicable law, including the Bank Secrecy Act, section 9714 of the Combating Russian Money Laundering Act (3111 U.S.C. 5318A note), and section 7213A of the Fentanyl Sanctions Act (21 U.S.C. 2313a); or any other law relating to illicit finance, money laundering, terrorism financing, or United States sanctions.”

Of KYCing self-custody wallets:Of KYCing self-custody wallets:

The provision sounds eerily similar to the potential introduction of a FATF-style Travel Rule already in force in the EU and UK, in which crypto asset service providers must verify whether a customer sending money to a non-custodial wallet actually owns the address they are sending funds to.

Although The Rage notes:

The draft clarifies that the Treasury’s guidance for financial institutions shall “not require a regulated entity to collect, with respect to any transaction, personally identifiable information about the controller of a self-hosted wallet when the controller is not both the customer of the regulated entity and a party to such transaction, except as required by United States sanctions laws and regulations or lawful process.”

Of giving Treasury more authority via the Patriot Act:Of giving Treasury more authority via the Patriot Act:

The draft herein amends the PATRIOT Act's special measures to allow the Treasury to prohibit certain types of cryptocurrency transactions it deems a primary money laundering concern.

These could, for example, be transactions that involve coinjoins or payjoins, as the Treasury has already completed a public comment period on its so-called Mixer Rule, leaving only its enforcement as the next step. The Rage has repeatedly warned of the application of the PATRIOT Act to digital assets here and here.

L0la L33tz concludes:L0la L33tz concludes:

For the lack of Congressional protections for privacy software developers and users present in the current draft, it can be concluded that the Senate Banking Committee’s market structure proposal is not so much a document that will give non-custodial developers the protections and clarity they so urgently need, but rather functions as a piece of legislation that will continue to put non-custodial developers and users of privacy software at the will of the Government, leaving the door wide open to the full surveillance of all users of non-custodial software.