The promise of crypto always was "permissionlessness". The idea that anyone could participate in this new global financial system freely, anonymously and without gatekeepers.

But now, under the guise of "safety", all that is changing.

We already know that any financial activity is highly permissioned. Regulators impose stringent AML/CTF (Anti–Money Laundering and Counter–Terrorism Financing) rules on banks, CEXs and other corporations.

In fact, banks spend nearly $300 billion on AML compliance systems and staff. Yet studies indicate that current AML efforts only intercept about 0.1% of global illicit funds.

That means, out of every $1000 laundered by criminals, only about $1 is caught on average.

Yet, every one of us are required to undertake invasive KYC requirements and we're subjected to a sprawling surveillance regime covering everyday financial transactions. Under AML regimes everyone’s financial life must be an open book in case the government wants to audit it. The promise of "safety" (catching a few bad people) has justified the pervasive control over financial privacy.

So, with such an abysmal track record, how can governments gain more insight and more control of digital money?

Enter stablecoins.

As we all know, USDC (Circle) and USDT (Tether) are the lifeblood of much of the crypto economy. Together they account for nearly 90% of the stablecoins used in crypto.

Since more recently, they've evolved relatively permissionless-ly. But now, with stablecoin legislation either passed or being passed around the world, we're in for a rude awakening.

Notably, the US GENIUS Act (like other regulations around the world) requires stablecoin issuers to impose strict AML and KYC requirements. They must also "possess the technical capability to seize, freeze, or burn payment stablecoins when legally required"

Imagine a world where almost all your payments flow through just two private companies that must report to governments. It’s a surveillance honeypot!

(On a side note: what if Circle and Tether went the Facebook/Meta route and sold that information to third-parties about their users?)

We've essentially gone from the promise of decentralisation to extreme centralisation and without any of the checks and balances.

In fact, I've long argued that a CBDC (even though I don't want one) would be better, as there would be some level of check and balance in a democratic country. A private company has no such requirement. Talk to those people who have had their account blocked by X/Twitter.

So, every coffee you buy with a stablecoin, every donation, every online purchase will be able to be traced back to you. It’s the kind of financial transparency that would make any authoritarian regime salivate.

And even in democratic societies, the temptation for authorities to misuse this data or freeze assets on flimsy grounds is real. We got a taste of this back in 2022 when the Canadian government froze bank accounts of protesters during the “Freedom Convoy” trucker protests. Under emergency orders, banks were directed to freeze protesters’ personal and business accounts and officials later boasted that the threat of frozen finances helped quell the protests.

And what's better? Stablecoins are instantaneous and there are only really two large private companies. There's no paper pushing from a bank to get the information that a regulator or government wants or to impose a freeze.

And what if you paired that data with AI? Governments have a treasure trove of information on you. We saw a recent example of this when the Indian Income Tax Department leveraged AI tools to sift through crypto transaction data from CEXs and match it against individuals’ tax filings.

Of course, I'm not suggesting that you don't pay your taxes. I'm simply saying that the tools used to hunt criminals don’t stay limited to that purpose. These tools tend to get applied broadly, subjecting everyone’s finances to automated oversight. It’s a short hop from “we use AI to flag tax evasion” to AI-driven monitoring of all spending “for your own good.”

Add into the mix age-gating laws like the United Kingdom’s Online Safety Act and the new social media and web searching laws commencing in Australia and it becomes quickly clear that we're about to see the entire internet become more permissioned.

Yes, safety is important. No one is arguing that protecting kids or stopping terrorists is a bad goal. But when every user has to show ID, every message is scanned and two entities can freeze funds at will, we risk losing the very freedoms that make our societies worth protecting in the first place.

Crypto was born from a vision of decentralization and self-sovereignty. If we don’t fight for these values, we may wake up in a world where the internet feels like a gated garden and our “digital cash” more closely monitored than our bank account.

My fear, though, is that it may already be too late.

The promise of crypto always was "permissionlessness". The idea that anyone could participate in this new global financial system freely, anonymously and without gatekeepers.

But now, under the guise of "safety", all that is changing.

We already know that any financial activity is highly permissioned. Regulators impose stringent AML/CTF (Anti–Money Laundering and Counter–Terrorism Financing) rules on banks, CEXs and other corporations.

In fact, banks spend nearly $300 billion on AML compliance systems and staff. Yet studies indicate that current AML efforts only intercept about 0.1% of global illicit funds.

That means, out of every $1000 laundered by criminals, only about $1 is caught on average.

Yet, every one of us are required to undertake invasive KYC requirements and we're subjected to a sprawling surveillance regime covering everyday financial transactions. Under AML regimes everyone’s financial life must be an open book in case the government wants to audit it. The promise of "safety" (catching a few bad people) has justified the pervasive control over financial privacy.

So, with such an abysmal track record, how can governments gain more insight and more control of digital money?

Enter stablecoins.

As we all know, USDC (Circle) and USDT (Tether) are the lifeblood of much of the crypto economy. Together they account for nearly 90% of the stablecoins used in crypto.

Since more recently, they've evolved relatively permissionless-ly. But now, with stablecoin legislation either passed or being passed around the world, we're in for a rude awakening.

Notably, the US GENIUS Act (like other regulations around the world) requires stablecoin issuers to impose strict AML and KYC requirements. They must also "possess the technical capability to seize, freeze, or burn payment stablecoins when legally required"

Imagine a world where almost all your payments flow through just two private companies that must report to governments. It’s a surveillance honeypot!

(On a side note: what if Circle and Tether went the Facebook/Meta route and sold that information to third-parties about their users?)

We've essentially gone from the promise of decentralisation to extreme centralisation and without any of the checks and balances.

In fact, I've long argued that a CBDC (even though I don't want one) would be better, as there would be some level of check and balance in a democratic country. A private company has no such requirement. Talk to those people who have had their account blocked by X/Twitter.

So, every coffee you buy with a stablecoin, every donation, every online purchase will be able to be traced back to you. It’s the kind of financial transparency that would make any authoritarian regime salivate.

And even in democratic societies, the temptation for authorities to misuse this data or freeze assets on flimsy grounds is real. We got a taste of this back in 2022 when the Canadian government froze bank accounts of protesters during the “Freedom Convoy” trucker protests. Under emergency orders, banks were directed to freeze protesters’ personal and business accounts and officials later boasted that the threat of frozen finances helped quell the protests.

And what's better? Stablecoins are instantaneous and there are only really two large private companies. There's no paper pushing from a bank to get the information that a regulator or government wants or to impose a freeze.

And what if you paired that data with AI? Governments have a treasure trove of information on you. We saw a recent example of this when the Indian Income Tax Department leveraged AI tools to sift through crypto transaction data from CEXs and match it against individuals’ tax filings.

Of course, I'm not suggesting that you don't pay your taxes. I'm simply saying that the tools used to hunt criminals don’t stay limited to that purpose. These tools tend to get applied broadly, subjecting everyone’s finances to automated oversight. It’s a short hop from “we use AI to flag tax evasion” to AI-driven monitoring of all spending “for your own good.”

Add into the mix age-gating laws like the United Kingdom’s Online Safety Act and the new social media and web searching laws commencing in Australia and it becomes quickly clear that we're about to see the entire internet become more permissioned.

Yes, safety is important. No one is arguing that protecting kids or stopping terrorists is a bad goal. But when every user has to show ID, every message is scanned and two entities can freeze funds at will, we risk losing the very freedoms that make our societies worth protecting in the first place.

Crypto was born from a vision of decentralization and self-sovereignty. If we don’t fight for these values, we may wake up in a world where the internet feels like a gated garden and our “digital cash” more closely monitored than our bank account.

My fear, though, is that it may already be too late.