Coinbase Claims the Bank Secrecy Act Is Broken and Wants to Fix It With Crypto
Coinbase has proclaimed that the Bank Secrecy Act, designed to safeguard the U.S. financial system from malicious actors, is flawed due to its implications for private data. Coinbase CLO Paul Grewal believes that ZKPs might be the answer to the act’s excessive data vulnerabilities.
Coinbase Wants to Fix the US Bank Secrecy Act With Cryptocurrency Technology
Coinbase, the largest U.S.-based cryptocurrency exchange, has set its sights on modernizing the American financial ecosystem using cryptocurrency technology. In a recent blog post, Coinbase CLO Paul Grewal discusses the negative implications of the outdated procedures that companies with Bank Secrecy Act (BSA) compliance have to follow, and how these can be simplified and improved using Zero-Knowledge Proofs (ZKPs).
While Grewal recognizes that the BSA is necessary for pinpointing bad actors and combating illicit finance, he stresses that the procedures on which the act is based have already proven to be obsolete and dangerous. These include the constant know-your-customer (KYC) checks by several entities, stashes that become honeypots for criminals, and the ongoing financial transaction monitoring programs, which produce millions of reports that are seldom read.
Grewal’s solutions for this problem are Zero-Knowledge Proofs (ZKPs), a technology that allows an institution or individual to prove compliance with a condition without revealing data directly proving it.
n financial use cases, ZKPs would allow for an easier onboarding of customers to, for example, banks or crypto exchanges, which would not have to require years of financial data to comply with regulations.
Transaction monitoring would also benefit from the adoption of ZKP technology, as the data regarding these movements could be exchanged and transmitted without having to reveal the ID of the citizens involved, avoiding the risks of data leaks. Also, some of this monitoring could be automated by combining artificial intelligence (AI) and ZKP technology.
Grewal stressed that Congress should move in the direction of adopting this tech, mandating companies with BSA requirements to rely on third-party ZKP providers. He assessed that this should be done after a comprehensive regulatory regime for crypto is established, and that the U.S. Treasury should already be studying where this tech might be adopted to substitute antiquated systems.
