Governments See Crypto As An ‘Evolving Threat’: Edward Snowden

Governments see crypto as an “evolving threat,” according to whistleblower Edward Snowden, who gave an extensive interview to Marta Belcher, president of Filecoin Foundation and general counsel at Protocol Labs, at Camp Ethereal 2022 last week. 

“I think governments correctly perceive an evolving threat to traditional tools which they’ve grown accustomed to," Snowden said, "in terms of an ability to impose regulation upon private lives, and more broadly, private trade."

The ‘invasive’ US financial system

Snowden took further aim at the “incredibly invasive" U.S. financial system.

“When you think about the way the U.S. incredibly invasive financial network operates, with all of these anti-money laundering and know-your-customer impositions," he said, "it is hard for me to believe that if they had the technical capacity to very easily get the serial number of every dollar bill that passes through their hands, that they do not."

For the government whistleblower, these characteristics undermine the popular presupposition that money is anonymous. 

“We have this presupposition that cash is anonymous, that we have inherited from a time when it meaningfully was. That is no longer true. When you think about Bitcoin having a public ledger, well, once a dollar enters the banking system, there is a private ledger that is available to the people who are performing financial surveillance. So it's really just private to the public, but it's public to the prominent, shall we say."

Enter crypto. 

Crypto and financial surveillance

Snowden is sharply critical of Bitcoin for many of the same reasons he is critical of the traditional financial system. 

At last year’s Ethereal Summit, Snowden said Bitcoin must become "private by design” in order to counter law enforcement efforts to crack down on other cryptocurrencies, including privacy coins like Monero. 

During this year’s Ethereal Summit, he said that Ethereum "suffers from the same sort of privacy problems as Bitcoin," and said that with the Bitcoin blockchain, "you get chain analysis people and whatnot who are doing fairly devious things with it" such as "trying to get a financial edge out of the on-chain analysis."

Still, he called the Bitcoin blockchain an "even playing field" and said none of his privacy complaints have stopped him from seeing the power of cryptocurrencies and decentralized technology writ large.

“What people are really missing as they get down in the weeds is how transformative the power relationships are, or how much the power relationships are going to transform, as we move from these legacy technologies to these sort of future decentralized technologies,” he said. 

But is it true that governments see the crypto industry as an “evolving threat?” When it comes to the United States, it’s easy to make the case based on recent regulatory signals. 

The US, crypto, and national security

The United States has routinely raised alarm bells about the use of cryptocurrencies in undermining national security. 

Last summer, the Biden administration set up a ransomware tasked force explicitly tasked with combating cyber attacks and tracing cryptocurrency ransomware payments. 

What’s more, former FBI agent and current Director of Threat Intelligence at Abnormal Security Crane Hassold recently told Decrypt that cryptocurrencies were the “primary factor” driving today’s ransomware industry. 

President Biden also warned Russia to act on the illicit ransomware activity coming from within its borders. 

Russia did no such thing. On the contrary, according to recent Chainalysis data, Russian-backed criminals netted about 74% of the world’s ransomware profits in 2021. 

Some of those profits were generated deep in the heart of Moscow—where the prestigious Russian skyscraper Vostok was found to be facilitating business for an array of crypto hackers, cybercriminals, and money launderers. 

And in October of last year, the US Treasury published a report that said cryptocurrencies could undermine economic sanctions—a long-established cornerstone of American foreign policy. “These technologies offer malign actors opportunities to hold and transfer funds outside the collar-based financial system. They also empower our adversaries seeking to build new financial and payment systems intended to diminish the dollar’s global role,” the report said. 

These concerns have been heightened amid Russia’s recent invasion of Ukraine, though many experts have said Russia would not have an easy time using crypto to dodge sanctions.

For obvious reasons, Snowden did not comment explicitly about Ukraine, but his observations about governments and crypto are applicable on this topic, too. 

Russia, Ukraine, and sanctions

It is already well-documented that the Biden administration has concerns over the use of cryptocurrencies to undermine economic sanctions, and thus—as Snowden says—act as a “threat” to national security. 

On March 1, the Treasury’s Office of Foreign Assets Control announced it was set to issue new rules that are designed to restrict financial transactions to enforce existing sanctions levied against the Russian state. The rules, called the Russian Harmful Foreign Activities Sanctions Regulations, take aim at “deceptive or structured transactions or dealings to circumvent any United States sanctions, including through the use of digital currencies or assets or the use of physical assets.” 

Prominent individuals in the crypto industry have disputed the case for cryptocurrencies as effective tools for sanctions evasion, including the Blockchain Association’s head of policy, Jake Chervinsky. 

But some precedent does exist. David Carlisle, director of policy and regulatory affairs at blockchain analytics firm Elliptic, recently pointed to non-compliant exchanges being used by Russia-affiliated cybercriminals. 

“We’ve seen instances before of crypto asset exchange services that were complicit in enabling Russia-based criminals to launder large amounts of money," he said during a recent online webinar, naming SUEX as one example.

Last September, the Treasury’s Office of Foreign Assets Control sanctioned SUEX pursuant to an existing Executive Order that authorized the imposition of sanctions against those complicit in cyber-related activity against the interests of the United States. 

In terms of how national governments can "get it right," Snowden pointed to the recent steps by Canadian authorities to block protesters from accessing their bank accounts as a troubling example of overreach.

"Somebody should be able to send something to anyone for anything," Snowden said. "And that shouldn't be something that we can interfere with, that shouldn't be something the government of Canada, or whatever, can say, 'We're gonna cut this off.' Because if we do that, everybody's going to start doing it—and that's not supposition, we already see it happening. The idea that Canada of all places would do this—and I think most people see Canada as a pretty enlightened government—is really an illustration of the concern. Whether you're for or against this particular protest or protest movement is really secondary to the problem that, at the flip of a switch, we are vulnerable to being unable to take anything out of our wallet."