On surveillance and freedom: the SEC's debate on blockchain highlights a regulatory dilemma

The President of the U.S. Securities and Exchange Commission, Paul S. Atkins, raised a crucial issue during a cryptocurrency task force meeting held on December 15. At the center of the discussion: how to balance citizen protection with the right to financial privacy in the digital age.

The Paradox of Blockchain Technology

Blockchain represents a double-edged sword in the context of financial surveillance. Atkins emphasized how this technology has an extremely powerful capacity to trace transactions and identify senders. Paradoxically, if regulation takes a wrong turn, cryptocurrencies could become the most advanced financial monitoring architecture ever created—what Atkins described as an '“panopticon prison” of the financial sector.

The worst-case scenario, according to the SEC chairman, would materialize if the government considered every digital wallet as a broker, every line of code as a stock exchange, and required reporting of every movement of funds. A situation that would represent unprecedented financial control.

From the Analog Era to the Digital Era: How Control Has Changed

During the pre-digital era, financial regulation was naturally limited by paper records, physical distance, and manual processes. These constraints, although inconvenient for regulators, effectively provided an involuntary protection of investors’ privacy. Information was dispersed, difficult to centralize, and took time to gather.

However, with the advent of digital technology, these natural barriers have collapsed. Systems like the SEC’s Consolidated Audit Trail (CAT), swap data repositories, and other data collection tools have transformed the regulatory landscape. Although these systems were theoretically designed to protect investors and combat fraud, in practice they have created a seemingly insatiable “data hunger” among government agencies.

Atkins criticized how the federal government continues to expand these surveillance mechanisms without even fully utilizing the information already collected—a practice that imposes significant costs on American citizens without proportional justification.

Technological Solutions to Protect Privacy

Nevertheless, the same technology that could become a massive surveillance tool also offers innovative solutions to safeguard privacy. Zero-knowledge proofs, selective disclosure, and smart wallets allow users to demonstrate compliance with regulations without revealing their entire financial history or personal details.

This approach could enable regulated platforms to verify that their users have undergone proper screening without permanently storing sensitive data of each payment, transaction, or donation. A solution that would effectively balance the need for regulatory compliance with fundamental privacy rights.

The Crucial Role of Market Structure

Atkins also highlighted how total financial transparency could harm market functioning. Many financial institutions rely on their ability to build positions, test strategies, and provide liquidity without immediately exposing themselves to competitors. If every order, hedge, and portfolio adjustment were visible in real-time, the market could face phenomena like front-running and chain sales, compromising companies’ risk management capabilities.

Still Possible to Find a Balance

Despite the risks, Atkins maintained an optimistic stance: there is still a viable path forward. Regulators must embrace humility and integrity when confronting cryptocurrency innovation. The goal should be to protect Americans’ legitimate activities from mass surveillance while allowing the government to perform its essential functions of national security.

This vision presents a powerful challenge to the American regulatory system: how to ensure that technological progress and financial development do not come at the expense of individual freedoms. The answer to this question will determine the future of the crypto ecosystem and, more broadly, the relationship between technology, freedom, and control in the 21st century.