Crypto-Friendly US Policy Requires Strong Data Governance Measures

The rise of cryptocurrency has led to a growing interest in making the US a more 'crypto-friendly' jurisdiction. However, this pursuit may be hindered by the lack of attention being paid to privacy architecture.

A recent wave of crypto kidnappings and data leaks in France serves as a warning for the US to prioritize robust data governance measures. The French experience shows that the risk of unauthorized access and misuse of sensitive information linked to cryptocurrency holders is real, and it can have severe consequences for taxpayers.

The structural changes brought about by cryptocurrency shift the economics of coercion, making it easier for criminals to target individuals with sensitive information. In ordinary tax administration, a data breach is bad enough, but with crypto, the stakes are much higher due to its portability, irreversibility, and ability to be unlocked under duress.

The US has been moving towards mandating more formal crypto tax reporting, which can help taxpayers comply and enable the IRS to enforce tax law. However, this increased reporting also means that sensitive data will be held by different entities and actors, raising questions about access, logging, and breach procedures.