Original title: "An SEC official stops pretending"
Original author: Liam
In the cryptocurrency world, government regulation is often considered the biggest obstacle to the development of privacy technology.
But on August 4, Hester Peirce, a commissioner of the U.S. Securities and Exchange Commission (SEC), delivered a surprising speech at the University of California, Berkeley. She quoted the Cypherpunk Manifesto, openly criticized the U.S. financial surveillance system, and advocated for privacy technologies such as zero-knowledge proof and decentralized networks.
This regulator, known as "Crypto Mom", rarely stands on the side of the regulated and is even more radical than many crypto geeks.
This is an awakening of regulators.
Peanut Butter and Watermelon: The Awakening of a Supervisor
August 4, University of California, Berkeley.
U.S. SEC Commissioner Hester Peirce delivered a speech that stunned the audience. Titled "Peanut Butter and Watermelon: Financial Privacy in the Digital Age," it might sound like a delicious treat, but it was actually a fierce attack on the existing financial regulatory system.
Pierce opens with a family story: Her grandfather hated watermelon and always slathered it with peanut butter to make it easier to swallow. This unusual combination always attracted the attention of neighborhood children at summer picnics. Years later, when the telephone operator answered the phone to her grandfather, he unexpectedly asked, "Are you Mr. Pierce, the one who smeared peanut butter on the watermelon?"
It turned out that the operator was one of the children watching that year.
Pierce wasn't interested in the peanut butter and watermelon combination; she was focused on telephone operators, a profession that was becoming obsolete due to technology. The automated switching system allowed people to dial directly to communicate, eliminating the need for a human intermediary and, more importantly, the possibility of neighbors eavesdropping on your private calls.
Hester Peirce was supposed to be a staunch defender of financial regulation. A graduate of Case Western Reserve University School of Law and a veteran of the Senate Banking Committee, she was appointed by President Trump to the SEC in 2018.
Crypto industry practitioners have given her a resounding nickname, "Crypto Mom," because she is much more friendly to cryptocurrencies than other regulators. But in this speech, she completely tore off her moderate mask and showed her cards.
“We can’t expect governments, corporations, or other large, indifferent organizations to provide us with privacy protections out of the goodness of their hearts.”
The quote she quoted was from Eric Hughes's 1993 work, The Cypherpunk Manifesto, a techno-anarchist. A government official quoting an anarchist to criticize the government is as odd as a police officer quoting a criminal to criticize law enforcement.
But Pierce wasn't satisfied.
She then added: "Where the law, because of flawed design or inadequacy, fails to protect us, technology may be able to."
It doesn't sound like something a civil servant would say at all, but rather like cheering for a technological revolution.
Universal Hammer
Pierce's real attack is on the existing financial monitoring system.
She began by lambasting the "third party doctrine," a legal concept that allows law enforcement to obtain information you give your bank without a warrant. As a government employee, she slammed her employer for using the doctrine like a sledgehammer.
"The third-party doctrine is a key pillar of financial surveillance in this country," she said, pointing out the absurdity that banks can use encryption to protect customer data from theft, but under the third-party doctrine, customers still have no expectation of privacy in that encrypted data. In other words, banks can protect your data from thieves, but the government can always see it.
She then took aim at the Bank Secrecy Act, a nearly 60-year-old law that requires financial institutions to establish anti-money laundering programs, effectively making banks informants for the government.
The data is shocking.
In fiscal year 2024, 324,000 financial institutions submitted more than 25 million transaction reports to the government, including 4.7 million "suspicious activity reports" and 20.5 million "currency transaction reports."
"The Bank Secrecy Act has turned American financial institutions into de facto law enforcement investigators," Pierce bluntly stated. The government has fostered an atmosphere of "better to kill a thousand than to let one go," encouraging banks to report any suspicious transactions. The result is a flood of useless information that drowns out any truly valuable leads.
What's even more outrageous is that Pierce didn't even spare his own unit.
The SEC's Comprehensive Audit Trail (CAT) system monitors every trade in the stock and options markets, tracking the entire process from order placement to execution. She and her colleagues have described the system as "a product of a dystopian surveillance state." Not only is the system a guzzling expense—$518 million had already been spent by the end of 2022, nearly eight times the budget—but it also allows thousands of SEC employees and private sector personnel to access anyone's trading records at any time, without any suspicion of guilt.
Imagine an FBI agent publicly criticizing wiretapping laws, or a tax official defending tax evasion; Pierce is on the wrong side of the system.
Technology Redemption
Since the law was of no use, Pierce placed his hopes on technology.
She has publicly advocated for a range of privacy-preserving technologies: zero-knowledge proofs (ZK), smart contracts, public blockchains, and decentralized physical infrastructure networks (DePIN). If you’re an old cryptocurrency investor, you’re definitely familiar with these concepts.
The appeal of these technologies lies in their ability to bypass traditional intermediaries.
Zero-knowledge proofs allow you to prove your identity or age without revealing other information; privacy mixers can mask your income, donations, and purchases; and decentralized networks simply eliminate centralized providers. Some blockchains have built-in privacy features, protecting sensitive information much like private phone lines once did.
Pierce even expresses the radical view hinted at by Hughes in the Manifesto: that these technologies must be allowed to develop freely, “even if some people use them for evil.”
Coming from a government regulator, these words are particularly powerful.
She also cited historical lessons. In the 1990s, the government, for national security reasons, sought to control strong encryption technology. However, encryption was essential to the development of the internet. A group of determined cryptographers rose up in resistance and ultimately persuaded the government to allow private use of encryption.
Phil Zimmerman, the developer of PGP software, is one of these heroes.
Thanks to their efforts, we can now safely send emails, make bank transfers, and shop online. Pierce elevated privacy protection to the level of constitutional law. She quoted Supreme Court Justice Brandeis's famous words: "When the government's purposes are benign, we must be most vigilant in protecting liberty."
She called on the government to protect people’s “ability not only to communicate privately but to transfer value privately, just as people did with cash in the era of the Fourth Amendment.”
"The key to human dignity is that she can decide to whom she discloses information."
She emphasized that "the American people and government should be zealous in protecting people's rights to live private lives and use privacy-focused technologies."
The speech coincided with the trial of Tornado Cash co-founder Roman Storm, a case that exemplifies the government's crackdown on privacy technology. Pierce made it clear that "developers of open-source privacy software shouldn't be held responsible for how others use their code."
More radical than a geek
Interestingly, Pierce’s views are not completely consistent with Hughes’s, and are even more radical.
Hughes wrote in the Manifesto: "If two parties have a transaction, each party will remember this interaction. Each party can talk about its own memory, who can stop it?" This is actually defending the third party theory. Since you give the information to the bank, the bank can of course tell the government.
But Pierce is attacking this very theory, arguing that individuals should retain control over their privacy even if information is in the hands of a third party.
This disagreement is very interesting. As a technological anarchist, Hughes accepts the cruelty of reality to a certain extent; while as an insider of the system, Pierce demands more thorough privacy protection.
In my opinion, this seems to be called "convert fanaticism", just like Korean Christians who are more keen to preach around the world.
Of course, as a regulator, she knows the problems of the existing system better than anyone else, and her long regulatory experience has made her realize that real protection may not come from more regulation, but from the solutions provided by technology itself.
However, changing social perceptions is not easy.
Hughes said: “For privacy to be universal, it must be part of the social contract.”
Pierce acknowledges this challenge. Whenever she criticizes financial surveillance, she's often met with people saying, "I've done nothing wrong. Why wouldn't the government be able to catch bad guys?" She counters, quoting privacy scholar Daniel Solove: "This 'I have nothing to hide' argument reflects a narrow view of privacy that deliberately ignores the other problems posed by government surveillance programs."
More than thirty years ago, Hughes wrote: “We cypherpunks seek your questions and concerns and hope to engage in dialogue with you.”
Thirty years later, Pierce responded to that call with this speech.
Compared to others, Pierce's identity contradiction is the most fascinating part of this speech: a regulator waving the flag for regulated technology, a government official quoting anarchists to criticize government policies, and a guardian of the traditional financial system standing up for the decentralized revolution.
If Hughes were alive today and heard Pierce's speech, he might feel very relieved and say, "You are one of us!"
