SEC Chair Speech: Blockchain Regulation Needs to Strike a Balance Between Privacy Protection and Financial Oversight

On December 15, 2024, SEC Chairman Paul S. Atkins delivered a speech at the agency’s Cryptocurrency Roundtable, delving into the issues of financial privacy in the blockchain technology era. His core argument drew widespread industry attention: if regulatory directions go astray, the cryptocurrency ecosystem could evolve into the most powerful financial surveillance system in history.

The Double-Edged Sword of Blockchain: The Dilemma of Transparency and Privacy

Atkins emphasized that public blockchains are more transparent than any traditional financial system. Every value transfer is recorded on a ledger accessible to everyone. On-chain analysis companies have already been able to effectively link on-chain activities with off-chain identities.

This transparency is originally an advantage of blockchain, but under excessive regulatory pressure, it becomes a hidden danger. If governments treat each wallet as a broker, each piece of code as an exchange, and require reporting for every transaction, the crypto ecosystem could transform into “the all-seeing eye of financial monitoring”.

The Reality Crisis of Insatiable Government Regulation

In his speech, Atkins cited the core ideas from economist Hayek’s book The Road to Serfdom, criticizing a common illusion among government officials: that by gathering enough smart people and sufficient data, they can find perfect solutions. History has shown that this approach has limited effectiveness in practice.

Regulatory tools previously developed by the SEC—such as the Comprehensive Audit Trail System (CAT), swap databases, and PF forms—initially claimed to protect investors and combat fraud. However, in actual operation, they have continually expanded, gradually evolving into infrastructure for large-scale surveillance systems. Atkins admitted that the government’s desire for data collection has spiraled out of control, with much of the collected information not even being fully utilized.

The Amplification of Regulatory Power Risks in the Digital Age

In the era of analog, paper documents, physical distances, and manual processes naturally limited the amount of information the government could collect. Although these inefficiencies were inconvenient for the government, they protected the privacy of American investors. But with the advent of the digital age, these natural barriers have been significantly weakened.

The emergence of blockchain and cryptographic technologies has created the most powerful monitoring possibilities in history, while also providing unprecedented privacy protection tools. Zero-knowledge proofs, selective disclosure, and privacy wallet designs allow users to prove compliance without submitting complete financial records and personal data to intermediaries or the government.

Balancing Market Functionality and Financial Privacy

Atkins also pointed out that complete transparency would severely hinder the normal operation of financial markets. Many institutions rely on building positions, testing strategies, and providing liquidity without being immediately discovered by competitors and predatory traders.

If every order, every hedge transaction, and every portfolio adjustment is visible in real-time, markets will face issues like front-running, strategy copying, and herding effects, greatly reducing the attractiveness for liquidity providers and underwriters. This means that the healthy development of the blockchain financial ecosystem requires some level of privacy protection.

Seeking a New Balance: Protect Innovation, Maintain Freedom

Atkins’s final stance is: the government can leverage cryptographic technologies to achieve national security goals while protecting the privacy rights of American citizens. The key is to ensure that American citizens are not pre-judged as suspicious when using these tools.

The best practice is to protect legitimate citizen activities from mass surveillance while empowering the government to perform necessary functions—this is the most effective way to safeguard national security, uphold citizens’ fundamental freedoms, and leave room for innovation.

This discussion around blockchain, cryptocurrency, and regulation marks a pivotal moment. How to find a lasting balance between technological progress and individual freedom will determine the future trajectory of the financial ecosystem.