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Why is the SEC Concerned about Privacy now?

Nov 23, 2025

In this discussion, Peter Van Valkenburgh, Director of Research at Coin Center and a strong advocate for financial privacy in blockchain, dives into the growing tension between digital rights and regulation. He critiques the 'Transparency Paradox,' arguing that transparency can undermine neutrality in blockchain systems. The conversation explores legal threats against developers, particularly in the Pereira Bueno case, and the implications of Tornado Cash's legal challenges. Peter also introduces innovative solutions like the 'John Hancock Project,' advocating for privacy-preserving KYC alternatives.

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ANECDOTE

SWIFT Shows What Happens To Visible Rails

Van Valkenburgh recounts SWIFT's history as a neutral messaging network that later gained full visibility.
He uses SWIFT's political capture to warn that similarly visible rails can be coerced by governments.

ANECDOTE

MEV Case Threatens Protocol Norms

He describes the Pereira Bueno prosecution where MEV searchers were charged with wire fraud as 'dishonest validators.'
Coin Center filed an amicus brief arguing criminalizing protocol behavior destroys game-theoretic security.

ADVICE

Build Blind Sequencers Not Peeking Operators

Design sequencers and block builders that cannot read transaction contents to reduce coercion risk.
Favor blind sequencing or private sequencing layers (e.g., zero-knowledge designs) over transparent central sequencers.

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At DevConnect 2025, Sebastian and Friederike speak with Peter Van Valkenburgh about the rapidly evolving battle for digital rights. Peter challenges the industry's comfort with transparency, arguing that "transparency will destroy neutrality." He uses the history of SWIFT to illustrate how a once-neutral messaging system was captured by geopolitical interests because it wasn't "technically blind" to the data it processed. He argues that for blockchains to survive as global settlement layers, they must be "actually blind" to transactions, making neutrality a technical reality rather than a policy choice.

The conversation turns to the aggressive legal tactics currently deployed against developers. Peter highlights the Pereira Bueno case, where prosecutors charged MEV searchers with wire fraud for being "dishonest validators" a concept Peter argues completely undermines the game-theoretic security of permissionless networks. He also breaks down the mixed bag of Tornado Cash litigation. While the sanctions against the protocol were successfully challenged and invalidated for Americans, the criminal conviction of developer Roman Storm for "unlicensed money transmission" sets a terrifying precedent for anyone publishing open-source code.

On a constructive note, Peter introduces Coin Center's "John Hancock Project," which advocates for replacing the current, ineffective KYC/AML regime (which seizes less than 1% of illicit funds) with a system based on privacy-preserving attestations and self-sovereign risk scores. Finally, Peter shares surprising optimism regarding the US Securities and Exchange Commission (SEC). He notes that under the influence of Commissioners Hester Peirce and Paul Atkins, the agency has shifted from an aggressive adversary to a potential ally, openly discussing the benefits of full asset tokenization and the constitutional necessity of financial privacy.

Topics

00:00 The Telegram vs. Signal security rant
05:15 The "Transparency Paradox": Why transparent Layer 1s cannot remain neutral in the long run

10:40 The SWIFT Analogy: How a neutral messaging layer became a politicized settlement enforcer

15:50 The Pereira Bueno Case: Why labeling MEV strategies as "wire fraud" threatens all validators
23:10 L2 Sequencing Risks: Centralization and the need for "dumb pipes"
28:30 The Failure of KYC: Why 99.8% of illicit funds are missed and the cost of mass surveillance
35:00 The "John Hancock Project": Using ZK-proofs and attestations to replace identity surveillance
42:15 Tornado Cash Update: Sanctions invalidated vs. the dangerous precedent of Roman Storm’s conviction
49:00 The SEC's 180: Hester Peirce, Paul Atkins, and the push for tokenized equities

Links mentioned in the episode:

Gnosis: https://gnosis.io/
Coin Center: https://www.coincenter.org
Epicenter - All Episodes: https://epicenter.tv/
Report: Tear Down This Walled Garden: https://www.coincenter.org/tear-down-this-walled-garden/
Pereira Bueno Amicus Brief: https://www.coincenter.org/amicus-brief-mev-wire-fraud/
Peter on X: https://x.com/valkenburgh
Sebastian on X: https://x.com/seb3point0
Friederike on X: https://x.com/tw_tter

Sponsors:Gnosis: Gnosis has been building core decentralized infrastructure for the Ethereum ecosystem since 2015. With the launch of Gnosis Pay last year, we introduced the world's first Decentralized Payment Network. Start leveraging its power today at http://gnosis.io