US Treasury’s Defi ID plan gets backlash in privacy

The US treasury is explored if identity checks must be built directly on decentralized intelligent contracts, a warning of transferring critics may re -write the foundations without financial consent.

Last week, the agency opened a consultation under the Guide and Establishment of National Innovation for the US Stablecoins Act (Genius Act)signed by law in July. The law has appointed Treasury to review new compliance tools to combat forbidden finances in crypto markets.

An idea is the emergency Identity credentials directly to wise contracts. In practice, this means a DEFI protocol that can automatically verify a user’s ID of a user, biometric credentials, or digital purse certificate before allowing a transaction to proceed.

Supporters argue that that building Know your customer (KYC) and Anti-Money Laundering (AML) Blockchain infrastructure checks can be a compliance with the criminals.

Fraser Mitchell, Chief Product Officer of the AML Provider SmartSearch, told Cointelegraph that such tools could “UNMASK the unknown transactions that make these networks attractive to criminals.”

“Real-time monitoring for suspicious activity can make it easier for platforms to ease the risk, see and eventually prevent money launderers from using their networks to wash the proceeds from some of the worst crimes in the world,” Mitchell said.

Related: Genius Act to Spark Wave of ‘Killer Apps’ and New Payment Services: Sygnum

Defi ID checks: Protect data or risk tracking?

Mitchell recognized the tradeoff of privacy but argued that solutions existed. “Only the required data required for monitoring or regulatory audits should be stored, with all deleted. Any data held should be denied at the row level, reducing the risk of a major violation.”

However, critics say the risks of the proposal are washing the Defi core. Mamadau Kwidjim Toure, CEO of the Ubuntu Tribe, compared the plan to “put cameras in each living room.”

“On paper, it looks like a clean compliance shortcut. But you have turned a neutral, unauthorized infrastructure to the one where access is gated by government-approved credentials. Initially it changes what the defi means,” Toure told Cointelegraph.

He warned that if biometric or government IDs were tied to blockchain wallets, “every transaction risk becomes permanently monitored in a real world. You are losing offense and, by expanding, the ability to transact without tracking.”

For the toure, the stakes are beyond compliance. “Financial freedom depends on the right to a private economic life. The ID at the protocol level is already eliminating and creating dangerous precedes. Governments can proceed transactions, blacklist purse, or even the tax collection automatically through intelligent contracts.”

Related: The Genius Act Ani can push trillions into tokenized assets-ex-bank exec

Who will be left behind?

Another concern is the exception. Billions of people around the world are still lacking in formal identity. If defi protocols require credentials released by the government, the entire community, migrants, refugees and the unscrupulous risk locked.

“It can restrict access to users who prefer ignorance or not meet ID requirements, limiting Defi’s democratic nature,” Toure said.

Data security is also a flashpoint. The connection of biometric databases to the financial activity can make hacks more disaster, revealing both money and personal identity to a violation.

Critics emphasize that the choice is not binary between crime havens and mass monitoring. The tools preserved by privacy such as Zero-Knowledge Proofs (ZKPS) and Decentralized Identity (made) The standards of ways are offered to prove to be eligible without exposing the entire identity.