Unchained - Everything You Need to Know About the Looming Battle Over Privacy in Crypto - Ep.199

Episode Date: November 17, 2020

Jake Chervinsky, general counsel at Compound Labs, and Kristin Smith, executive director of The Blockchain Association, talk about the storm brewing in the cryptosphere involving self-custody and privacy. In this episode, they cover: the differences between hosted and self-hosted wallets and how transactions between them differ why the ability to transact from self-hosted wallets is so important compliance and regulation in the traditional financial world and how it could affect self-custody the “Swiss rule” and what it could mean for the rest of the world the proposal by FinCEN to lower the threshold for collecting data on transactions from $3,000 to $250 how regulators might achieve their goals without “dragnet” surveillance how the amount of crime and money laundering in the traditional financial system compares to that in the crypto world why OTC brokers are considered the most significant money laundering risk in crypto, and how that risk might be mitigated how different political environments can influence the value of peer to peer transactions whether Americans should be willing to give up some of their financial privacy in favor of security what the recent statement by the DOJ's cryptocurrency enforcement framework labeling anonymous transactions as "high-risk activity indicative of possible criminal conduct" could mean for privacy coins like Monero and Zcash Gary Gensler's appointment as head of Biden's financial policy transition team and whether to view it as a positive or negative for crypto whether they think the incoming Congress will be in favor of more surveillance or more privacy whether there might eventually be regulations for developers who write code for self-hosted wallets how potential rules regarding self-custody could affect non-monetary items like NFTs and the next big developments they are watching out for regarding this issue   Thank you to our sponsor!  Crypto.com: http://crypto.com   Episode links:  Jake Chervinsky: https://twitter.com/jchervinsky Compound Labs: https://compound.finance   Kristin Smith: https://twitter.com/kmsmithdc The Blockchain Association: https://theblockchainassociation.org/ https://twitter.com/BlockchainAssn   FinCen NPRM: https://www.federalregister.gov/documents/2020/10/27/2020-23756/threshold-for-the-requirement-to-collect-retain-and-transmit-information-on-funds-transfers-and   Coin Center commentary on lowering FinCEN threshold: https://www.coincenter.org/app/uploads/2020/10/Coin-Center-Comment-FinCEN-FRB-250-threshold.pdf    Unchained episode about the FATF travel rule: https://unchainedpodcast.com/why-the-travel-rule-is-one-of-the-most-significant-regulations-in-crypto/    The choice of Gary Gensler to lead the financial policy transition team:  https://www.wsj.com/livecoverage/trump-biden-election-day-2020/card/peMRHGPJasECSPLezSFx   https://www.coindesk.com/biden-confirms-gary-gensler-will-lead-financial-policy-transition-team   Shapeshift delists Zcash: https://www.coindesk.com/shapeshift-delists-privacy-coin-zcash-over-regulatory-concerns Jessie Liu interview on Unchained: https://unchainedpodcast.com/what-you-need-to-know-about-the-dojs-cryptocurrency-enforcement-framework/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to YouTube.com slash C-U slash Unchained podcast and subscribe today. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto. All in one place. Earn up to 8.5% per year on your BTC and more than 20 other coins. Download the crypto.com app now to find out how much you could be earning. Today's topic is the potentially brewing fight over self-custody and privacy in the crypto space. Here to discuss are Jake Chervinsky, General Counsel at Compound Labs and Kristen Smith,

executive director of the blockchain association. Welcome Jake and Kristen. Thanks for having us. So the topic for today's discussion stems back to, or rather the inspiration for this episode, stems back to a tweet storm by Jake last month in which he said that because crypto has matured, there's now new anti-money laundering regulations that could be coming to crypto, and that could happen potentially in a way that infringes on users' ability to custody their own digital assets and transact privately. So this is just the background, but before we actually dive into the meat of today's topic, I really think we need to define some basic terms for people so they understand kind of how this all works and why some of these technical terms are

important. So let's just start with the definition of a self-hosted wallet and how it's used and then how that differs from a hosted wallet. Sure, so I can take that. A self-hosted wallet, I think the best way to think about it is it's just a default Bitcoin or cryptocurrency address. So what it means is the user of a cryptocurrency has their own private key. They are able to control their own assets. They decide whether to send or hold their assets in their own wallet. A custodial or a hosted wallet on the other hand is when a person's private key is managed by a trusted third party, like an exchange or a custodian, where the user who actually owns those digital assets, that Bitcoin or some other crypto asset, has to rely on that third party in order to send

or get back of their assets whenever they want them. So they're relying on a trusted third party. I would also add that people in government will refer to self-hosted wallets as unhosted wallets. We just prefer the term self-hosted wallet. Oh, interesting. And some good examples of self-hosted wallets would be, for instance, like maybe a ledger or a Metamask or a blockchain.com wallet, whereas a hosted wallet would be using, for instance, something like Coinbase or Square Cash app or just pretty much any exchange like Crackin or Binance. Is that correct? I think that's right. I think the question is just who has the private key that gives you the ability to transact in that crypto asset. So even something like a paper wallet where you literally print out your own private keys kind of like a self-hosted wallet. The wallets that you described are more like wallet software. So something like samurai or wasabi or metamask. Those are wallet software applications, whereas a self-hosted wallet I would consider even being like a paper

wallet or something where you've printed out or have your private key and, you know, a hard copy. And then can you just walk me through what a transaction looks like between, for instance, two self-hosted wallets versus two hosted wallets and then maybe like, you know, a mixture, you know, between a self-hosted wallet and a hosted wallet. And then even like I know that you guys are coming out with some materials in which you even compare some of these transactions to credit card transactions. So I'm curious to just hear you walk through these examples and then how one of these in particular is similar to doing something like a credit card payment.

Yeah, I think from the user's perspective, it will feel fairly similar. So when you conduct a transaction using Bitcoin or another digital asset, what you do is you specify two pieces of information. One is the receiving address. So where are you sending the asset to? And the second is what is the amount of the asset that you're going to send, right? So you might send 0.1 Bitcoin to some particular Bitcoin address. The difference is with a self-hosted wallet, you will sign the transaction yourself using your software,

and you will upload that transaction to the Bitcoin Mempool, where it can then be mined by a miner added to the blockchain, and then the transaction will be validated. Whereas with a hosted wallet, really what you're doing is you're giving an instruction to the custodian who has the private. key to make that transaction on your behalf. And you're trusting that they will, in fact, process the transaction the way that you've specified. But of course, they could decide not to or they could get it wrong. So the question is really, are you the user processing the transaction yourself using your private key? Or are you asking somebody else to process that transaction for you? And I think this is very similar. I mean, the analogy that we use when we talk to

policymakers, because policymakers like to think in analogies, um, is that a self-hosted wallet, self-hosted wallet is a self-hosted wallet transaction is very much like cash. It's like me opening up my wallet, taking a $5 bill and handing it to Jake. He puts it inside his wallet. That's all you need, right? You don't need any sort of third party to validate that you have the cash, the fact that you have it and hold it in your hand and pass it over.

That is the transaction. That's very different than if I go buy a sandwich down the street with my credit card. there are several intermediaries in between that need to have information about the transaction before it's verified and completed. And so I think that, you know, as we think about the role of cash in society, being able to have transactions with self-hosted wallets is really important for a lot of different reasons that we can get into on the show. Well, yeah, why don't we talk about those now? What are the benefits? Well, privacy is one. One benefit.

You know, not having, if you look at China and some of the systems that they've built out, they see every single minor transaction, you know, between every single person. And then they do profiles based on top of that. You know, that's not great. I think there are a lot of businesses, you know, who deal with cash, who might be serving customers that don't have access to the traditional financial services system. And so cash is a fairly low-cost way of transacting because there aren't fees associated with it. But also, you know, individuals often have need for privacy.

They might be purchasing something that's embarrassing or purchasing something that they fear if other people knew that they would be, you know, maybe in trouble with their job or something like that. Or there might be a health care expenditure that, you know, somebody wants to keep private. And so by not having a financial record, you know, that preserves individuals' privacy. Yeah, you know, I think this strikes directly at the core principle of what Bitcoin is all about, right? The concept of Bitcoin is that you do not need to rely on a trusted third party in order to have access to basic financial services or to be able to hold a store of value. The reason that this is so important is because if we have a world that is completely intermediated, you always have to rely on some third party in order to hold your assets for you or process your transactions for you, that makes you susceptible to all kinds of attacks and other

vulnerabilities in that financial system. This is honestly less of an issue in the Western world where we have a pretty good financial system. Our banks are pretty reliable. You know, PayPal works pretty well, but in a lot of other places in the world where the banks aren't so reliable, it's really important for people to be able to have financial autonomy and to be able to hold their own value without relying on third parties that frankly are not very trustworthy. And the other aspect of this is not having to rely on those intermediaries is simply what makes this technology better than the legacy financial system. So if you want to send a transaction to somebody else on the other side of the world, you don't have to wait for the banks to open.

You don't have to go through the many different layers of intermediaries that it requires to process a wire transfer, for example. You don't have to pay those transaction fees. All of this depends on people being able to control their own assets and not having to rely on those intermediaries in the process. So this really is the core of what Bitcoin is all about and what we're doing here. And so I actually also, before we continue on discussing this, just want to ask about a few nuanced types of transactions involving, you know, hosted slash self-hosted wealth. So what does it mean when we have a company like Coinbase that typically offers hosted transactions? What does it mean when they offer something like a self-hosted wallet? Basically what it means is they're providing

software that a user can use to hold their own assets. And the user will not have to rely on that trusted third party like Coinbase or somebody else in order to process those transactions. So basically what that means is the user is the only one who has the private key that gives them the right to control those assets, whereas in the hosted wallet context, a third party has the private key. Maybe they exclusively have the private key and the user is simply relying on them, depending on them, trusting them to do what the user says. So the difference is all about who has custody and control of the assets. And then just to also sort of fill out the universe of different types of crypto transactions,

so we did mention exchanges as being another example of a place where you would be transacting in a hosted way. And then what about with OTC brokers, over the counter brokers? Would those be considered transactions using a hosted wallet as well? And if so, how do the privacy levels differ with those transactions versus at a hosted wallet? Or are they exactly the same? It depends on the broker. There are OTC brokers who do it different ways. Some of them do have hosted wallets.

And if you're a client, then you have to actually deposit your crypto with them. So they will actually control the private keys. And they'll be the ones who process the transactions when there is a trade between their customers. Some of them are non-custodial. So all they're doing is matching up buyers and sellers. But then the buyers and sellers are processing the transactions themselves. So it depends on how they're not. the OTC broker does it, there are multiple ways of doing it. Okay. So then let's now draw out the picture of

what compliance and or regulation looks like for transactions in the traditional financial world, just so people get a picture of, you know, what it is that you're saying may come to the crypto space. if somebody does a transaction using a third party in the traditional financial world, such as a bank or a stock exchange, what kind of compliance or regulatory activity takes place around those transactions? Yeah, so there are a couple different things. And Jake, you can add to this list. But most importantly, traditional financial services have know-your-customer requirements. So anyone who has an account with that institution would have to fill out information about themselves. Also, when you're going through between the world of cash and getting into a traditional financial institution, there are reporting requirements and limits around how much cash you can move at different times. So the government will have an insight into when you're trying to get in and out. And all of this stems from the Bank Secrecy Act, which, you know, is the purpose of which is to, give the government insight into what transactions are happening so that they can go pursue

illicit activity in that space. But Jake might have some additional items to throw in. That's exactly right. And I mean, just to give the sort of the legal side of this, the institution that the customer is using to process the transaction is known as a regulated financial institution that is required to have an anti-money laundering AML compliance program. And for most purposes, the AML compliance program will include usually five different elements. And some of it, the customer never sees. So things like having a designated compliance officer that is responsible for compliance. That's required.

Having internal controls to capture any types of fraud or other issues is required. required. Having an employee training program is something that these financial institutions have to do to train their employees about identifying red flags that might look like money wandering or terrorist financing. And then there are, as Kristen just said, record keeping, reporting, and customer identification requirements. So these financial institutions have to know who their customers are. They have to collect certain information about the transactions that their customers are trying to conduct. And then sometimes they are required to report details about those transactions to the government.

Sometimes that's based on the amount of the transactions. So transactions that exceed a certain U.S. dollar value have to be reported. Sometimes it's about the nature of the transaction if it's suspicious. So if the institution has some reason to believe that the transaction is involved in some criminal activity, then they'll have to report that to the government. All right. So now let's turn to these proposed, and perhaps in some of these cases, existing regulations that could affect self-custody. In May 2019, FinCEN, the Financial Crimes Enforcement Network here in the U.S., published guidance on how its regulations apply to cryptocurrency businesses.

So what did those guidelines say when it comes to this particular issue? So, and Jake, feel free to jump in as well. So those guidelines provided, so there's been two sets of FinCENSEN guidance, but the guidance from last year did have some positive news for self-hosted wallets in there, which again they call unhosted wallets. And at the time, it said that unhosted wallets don't need to register as money services businesses with FinCEN. So money services business is the entity that, you know, is roughly equivalent to what we refer to as VASPs in the international contacts, virtual. asset service providers. And so that was an important victory at the time. But we are now starting to see some discussion that could, you know, sort of threaten the flow between the two worlds. But that to me was the most important part of that guidance. Jake, did you want to add anything? No, I mean, that's exactly right. You know, FinCEN has done a very good job of drawing the line between who regulated money services businesses are and what types of entities in the

crypto ecosystem are not actually performing money transmission services such that they're subject to the law. And, you know, Kristen knows a great explanation of last year's May 2019 guidance. Okay. Yeah. Well, so shortly after that, in June 2019, the Financial Action Task Force, which is a global organization published its guidance for a risk-based approach to virtual assets and virtual asset service providers. So how did this guidance differ from the FinCENC guidance?

So I wouldn't say it necessarily differed. And it's also important maybe to step back for a second and explain the difference between an entity like FinCEN and one like FATF. FinCEN is a Bureau of the U.S. Treasury Department. It's responsible for administration. during the Bank Secrecy Act, which is the U.S. law governing anti-money laundering compliance. So FinCin is actually responsible for rulemaking around how regulated financial institutions can comply with that law. FATIF, on the other hand, is not an administrative body. Instead, it's an international standard setting body that makes recommendations about what its member jurisdictions should do with the implementation of their own laws. So, basically,

Basically, what FATF does is every year makes recommendations about what a good global industry standard would be for anti-money laundering regulations. And, you know, actually, I think that what the FATF said last June and what FINCEN has been saying is really quite consistent, which is that at this point, the law in the U.S. and also in most other jurisdictions does not require any software providers, that is, any developers that are providing self-hosted wallet software to comply with anti-money laundering regulations. The reason for that is because the regulations apply, like I said, before, to financial institutions that are processing transactions on behalf of their customers, not to individuals who are processing

their own transactions. And the FATF agreed with FinCEN that the current laws don't apply in the context of those self-hosted wallets where people are processing their own transactions. where people are processing their own transactions. However, what the FAAF did was they flagged self-hosted wallets as a potential money laundering and terrorist financing risk that might require some further analysis by its member jurisdictions to find out whether perhaps the law should be changed

so that there should be new regulations for those self-hosted wallets. And that was really one of the first times that we've heard any signals from regulators, either in the U.S. or globally, that there is concern about people who are holding their own digital assets and processing transactions on their own behalf. Yeah, I think the fact that, you know, FATF, again, is on, they meet on a regular basis. They issue reports on an ongoing basis and guidance. And that what was particularly troubling was, again, they didn't require that any of the nations that participate in FAAF take these steps, but they suggested that if there is concerned,

that there are a couple of tools that could be considered in order to kind of help prevent concerns around illicit finance. And one of those is banning or denying licensing platforms if they do allow transactions with self-hosted wallets. Another would be introducing volume limits on peer-to-peer transactions in general or mandating that transactions occur with a VASP or other type of financial institution. And so, again, they weren't saying, they weren't recommending these, but they were throwing them out there as possibilities. As we look at this, it's worrisome that, you know, if nations around the world start to implement some of these, what we're going to see is a bifurcated world where we have one world of these self-hosted wallets that can only

interact with another, but there's no way to get any interaction with hosted wallets. We also worry that because any sort of even just like limits will be very difficult to comply with, that what we'll see is that the hosted wallets and the exchanges that are associated with them will just stop allowing transactions to sell posted wallets. So, you know, definitely concerning that they're out there. And I think that the compliance with these types of solutions, if they were to be required, would be so difficult that it would really, as I said, create sort of two different worlds. And one other thing, and I'm not sure if this is a suggestion or if this was like a proposal. But I also saw that I believe this FATF guidance either recommended or,

floated the idea that VASPs should get the customer info of any sender of a transaction from a hosted wallet from the customer themselves. Was that something that they said, you know, recommended or just an idea that they were floating? I interpreted that as an idea, not necessarily a firm recommendation. I mean, at this point, I think that the FATF is sticking pretty strictly to the idea that regulations apply to VASP to VASP transactions, meaning from one hosted wallet to another hosted wallet. And the idea is that VASP should understand who owns these funds, where they're going, who they're being sent to, where the funds originally came from, what is the purpose of the transaction to the extent that they can determine that, so that they can comply with those

reporting requirements we were talking about before, right? If there is some suspicious activity so that the VASP can report that to the right authority, sometimes it's hard to get all that information in the crypto world. And there's been some difficulty for the VASPs in figuring out how to gather all of that information that in the traditional financial system is really easy to collect because it's been done for decades. And it's pretty easy to track how funds have moved through regulated financial institutions as opposed to the crypto world, where funds perhaps were jumping through self-hosted wallets, you know, for any number of hops before they arrive at AvSp. So I think that the FATF and its members are all just thinking about how do you address that

kind of situation where it's harder to collect the information that typically is very easy to collect in the traditional financial system. But the FATF is very careful about differentiating between ideas that it's exploring versus standards that it is recommending for its members. And I think that's what we saw in the June 2019, 12-month review was a lot of ideas and thoughts about what might come in the future and, you know, really holding off on making any firm recommendations at this point. One other thing to come out of this was that, you know, the different countries following this guidance can implement the regulate or the standards as they like. And Switzerland has come up with something called the Swiss rule. How does the Swiss rule differ from how most countries are implementing the FATF guidelines?

Yeah, so not to hog the limelight here, but I'll take the first shot at that. Like I said, in general, A&L regulations only apply to transactions between regulated financial institutions. The Swiss rule goes further than that. The Swiss rule basically says, we are going to require financial institutions not only to collect information about transactions, between, you know, customers' accounts at regulated institutions, but also customers' transactions with self-hosted wallets. So what the rule says is, in order for a financial institution to allow a withdrawal of crypto to a self-hosted wallet, or to allow a deposit of crypto from a self-hosted wallet, the institution must verify the beneficial owner of the self-hosted wallet.

and to sort of step out of the legalese and tell you what that really means, what it means is if I am a customer of one of those financial institutions and I want to send some Bitcoin from my account at an exchange to my ledger hardware wallet, I would have to prove to the exchange that I am actually the owner of the ledger hardware wallet that I want to withdraw those assets to. And the problem is it's really hard to prove that my ledger hardware wallet belongs to me, right? What am I going to do, show a receipt that I purchased it, send a picture showing that it's still in my possession. I didn't give it to somebody else. So this has become a very complex and difficult standard to meet. And the result of that is, in essence, at least as I understand it, Swiss financial institutions have simply refused to allow any transactions with self-hosted wallets because it is just too complicated to figure out how to comply with that rule. So at this point, we have this bifurcated market that Kristen mentioned in Switzerland, where you have some crypto on exchanges or with custodians in this regulated financial institution world. And that crypto can move around between those financial institutions, but it can never move off of that walled garden into a self-hosted wallet. And similarly, any crypto that is in sort of the self-hosted world, right, that people have self-custody of, that they're moving around. through their own transactions on the blockchain, they can never get those assets into the financial

institution. Yeah, that somehow seems untenable to me, but I'm not a regulator. One thing I wanted to ask was, you know, Switzerland is just one place. So if this were to be implemented there, would it really have a ripple effect or would it simply affect people who use some of the exchanges or wallets in Switzerland? Well, I worry that it could have a ripple effect. I worry that when you have one nation do something, then, you know, other countries will look around and say, oh, they're being tougher on illicit finance than we are, and there's sort of a race to make sure that regulations are strong enough in meeting the strongest

standards. And the reason that there is such concern about unhoused wallets is, you know, for those who understand this space, but for policymakers who might be less, less schooled on the inner workings of cryptocurrency, you know, the major concern is that today, you know, cash is obviously the method of choice for criminals, whether it's for terrorist financing or for any money laundering that that is like the preferred methodology. But if I want to finance some terrorists on the other side of the world with cash, I actually have to physically deliver that cash. I have to put it in a bunch of suitcases and get on an airplane. And at some point along the way, you know, like there's a good chance I might get caught with all of that. But the concern that

these regulators and policymakers have is that with self-hosted wallets, you can do very large amounts of volume almost instantaneously. And so that is something that they're trying to wrap their heads around and figure out what to do. The irony is that the way that we track down these guys today is using, there are these specialized firms that do forensic analysis of the blockchains. And because we have information about some of the wallet addresses and don't have information about some of them, we're still able to piece together, you know, we, not me, but these firms are able to piece together and in many times identify who has that information. But the irony is that if we get to this bifurcated world, we'll have no information about the world of self-hosted wallets

while having perfect information about the world of hosted wallets. And so the cure that these policymakers are coming up with by the results in the split world is actually, going to make it more difficult to find the bad guys and not stop it. And so, you know, we were hopeful that by doing some education around this, that we'll be able to prevent some of these ideas from taking off in the U.S. and not make the Swiss rule the standard that we will see globally. Yeah. And, you know, it actually just occurred to me as well that this also has implications for security because if people then feel. feel that they need to keep the coins they've purchased on an exchange at the exchange and can't

pull them over to their own self-hosted wallets, then, you know, a lot of people's coins will be subject to any hacks at those exchanges, whereas, you know, right now you can transact and, you know, get a good price on an exchange, but then bring your money back to your own hardware or your own software wallet. All right. So in a moment, we're going to talk about some of other regulations that could come to the self-custody area and restrict people's ability to host their own wallets. But first, a quick word from the sponsors who make this show possible. The scorebed app here with trusted stats and real-time sports news. Yeah, hey, who should I take in the Boston game?

Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? The score bet. Trusted sports content, seamless sports betting. Download today. 19 plus, Ontario only.

If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conicsonterio.ca. With Amex Platinum, $400 in annual credits for travel and dining means you not only satisfy your travel bug, but your taste buds too. That's the powerful backing of Amex. Conditions apply. Local news is in decline across Canada. And this is bad news for all of us.

With less local news, noise, rumors, and misinformation fill the void. And it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us. Because local news is big news. Choose news, not noise. CBC News. Crypto.com, the crypto super app that lets you.

you buy, earn, and spend crypto, all in one place. Earn up to 8.5% per year on your BTC. Download the crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com metal card, which pays you up to 8% cash back instantly. Reserve years now in the crypto.com app. Back to my conversation with Jake Schervensky and Kristen Smith. So there is actually also another regulation that may come specifically to the U.S. because FinCEN is looking at adopting a rule that would lower the threshold for transactions that have data collected on them by financial institutions for the Bank Secrecy Act from $3,000 down to $250. What do you think of this idea?

Do you think it's a good idea or a bad idea? And, you know, why do they want to do this? So we think this is a bad idea. They want to do this and this is something that we understand is a priority for the Treasury Department, you know, not just FinCEN, who is the direct regulator. But they, we think this is a bad idea. It's particularly bad for crypto because this proposed rule applies to all financial institutions that are out there. So for banks that are, already have a program in place for this, it's fairly easy for them because they just sort of change a number and it will increase the volume of reports, but it's easier for them to comply. But for crypto companies that don't yet have a working travel role solution in place, this is going to be hugely problematic. And it's not going to apply to just international transactions like the rule suggests, but in practice could very well have to comply, or it would very well apply to all transactions because the way that kind of current iterations of the travel rule solution

that are in play, there's no way to sort of verify where a wallet is in any sort of reliable way. So if it were to be applied, it would have to be blanketly applied. And so this is a big step for crypto. The VASPs in the U.S. have been working together to try to figure out a solution. But this makes it incredibly much more burdensome. I agree with Kristen. And I think on principle, the idea of reducing the reporting threshold is directionally incorrect. The direction that you're moving by saying more will be reported to the government

is expanding the amount of surveillance that is conducted and reducing the privacy of people who are using the financial system. And I think in the wake of the FinCEN files, you know, where we learned that basically the reports that are already being submitted to the government are not being used particularly well. And that's for reports of many millions of dollars in value of transactions or even billions of dollars in transactions. To say that the solution to this problem is, for the government to collect even more information about transactions in the, you know, $250 range, just doesn't make a whole lot of sense. I think that what we should be focusing on, you know, to the extent that we believe that this surveillance system where financial institutions are

deputized basically as actors of law enforcement to provide information to law enforcement so that they can root out criminal activity, the solution to that is to improve the, you know, the government's use of the information that it is already receiving, not to just expand the dragnet and collect more information. So I think directionally, it's just incorrect to think about reducing the transaction thresholds. Coin Center did write up a comment in response to this proposal, and they pointed out that when the Bank Secrecy Act was implemented in 1971, $3,000 back then would be the equivalent of $20,000 today, and that the equivalent of $200,000, $150 today would have been $40 back then. So that just gives people a perspective on, you know,

what Jake was talking about when he says like directionally, it's, you know, not maybe going in the same direction as originally intended. So, you know, I just want to get the lay of the land here. How likely is it that you think these regulators, and I understand, you know, we're talking about, you know, U.S. and some of these are international and stuff. But right now, which way is the wind blowing. Do you think it's likely that these regulations will be implemented or do you feel like regulators kind of understand what the downsides are? I mean, I think a lot of it's going to depend, at least in the U.S., on who we have leading the Treasury Department in a Biden administration. And we've seen various names thrown about. I think that it's going to be not just the secretary,

but the undersecretary who deals with issues of terrorist financing and illicit finance, I think that a lot of it will depend on those personalities. But, you know, FinCEN has issued this NPRM, notice of proposed rulemaking. You know, there are lots of ways for that to slow down and not necessarily become an actual rule. but I think it's great that CoinCenter was so quick. Peter is like amazing at pumping out these letters to FinCent. You know, we're working on a response at the Blockchain Association that, you know, provides some data that it shows how burdensome this rule would be towards crypto. But I also think importantly, you know, when you do these proposed rules, the regulatory agency is required to do a cost-benefit analysis. And if you look at the cost-benefit analysis that Finsett provides in the rule, it shows the cost to banks, which are just one category of financial institution that already have this infrastructure in place.

It doesn't take into account sort of the non-bank financial institutions. But more importantly, it doesn't take into account individuals that are going to have all of their information about their small transactions reported to government officials. And so, you know, we have been in discussions and are working on getting a grassroots website up and running. And we don't have that quite yet, but we should have that in time for individuals who want to comment on it from, you know, sort of a personal privacy and liberty standpoint. You know, all else being equal, the trend is toward more regulation, not less. So I think if we do nothing, then we should expect there to be more regulation in any number

of different ways. It might be reducing transaction limits for currently regulated financial institutions. It could be expanding the definition of those regulated financial institutions so that more folks are captured under the AML compliance obligations. It could be expanding what the regulated financial institutions are required to do. For example, the Swiss rule, where you're adding a new obligation to do some due diligence or compliance around transactions with self-hosted wallets, I think all of this is on the table. I do not think it's inevitable. And I think that there is a lot of room for us to make very strong policy arguments why these regulations don't bear out the cost benefit analysis, why the cost is much higher than the benefit. And going back to the

FinCEN files, I think what we've learned from that is collecting more information is not necessarily a benefit to law enforcement. And also, there are many ways for law enforcement to do their jobs to detect and prevent criminal activity without doing Dragonet financial surveillance. And on the other side, I think what we see is that the cost to individual privacy to the usefulness of crypto networks is really substantial if you limit the ability of people to use these systems the way that they're intended, which is to say, to remove intermediaries and trusted third parties from the ability to conduct financial transactions. So I think that it's incumbent on us in industry and those of us who care about this issue to make those

arguments why this matters to us. And I think this is a project for not just the next few months, but the next few years and maybe the next decade. I do think that we're entering sort of the second phase of the crypto wars, the first part of which we mostly won in the 1990s around encryption on the internet, although we are still sort of relitigating that battle now in various ways. I think that how that argument applies to financial privacy in the crypto ecosystem is sort of the next battle that we're going to have to fight for a long time to come. And when you said earlier that you felt like there were other ways that regulators could achieve these goals without doing this kind of drag net surveillance. What are some ideas that you have?

Yeah, you know, I think, I think that we need to have an open dialogue with law enforcement about what they need to do their jobs. But, I mean, just as an example, we had this whole argument when it came to encryption in the 1990s, and there was a fairly strong argument that allowing criminals to use the internet to organize was going to increase the amount of illicit activity. that we saw in the world. But the solution to that was not to ban the internet. It was to empower law enforcement with modern tools so that they could still detect and prevent criminal activity that used new technology. And this is frankly not a new story, right? Criminals are always the first adopters of new technology. And then law enforcement has to figure out how to address

criminals' use of that new technology. And so I think, you know, one good example is how the how global law enforcement has addressed dark net markets, for example. And in large part, they aren't taking down dark net markets by doing massive financial surveillance and collecting information from financial institutions. They're doing good old-fashioned police work. They're finding out who the people are who are using these technologies for illicit purposes. You're doing undercover work. They're intercepting drugs that are being sent through the mail. they're doing that kind of good old-fashioned work to figure out how to stop crime using new technology. And I think we need to empower law enforcement to do even more in that sense rather than sacrificing financial privacy in the name of what sounds like it might be helpful, but in truth seems like isn't that helpful at all.

And I also wanted to put into perspective the level of crime or money laundering that we're seeing in crypto versus the traditional financial. system, can you kind of make a comparison there to, you know, the levels of activity in terms of criminal activity and then also maybe make a comparison in terms of the response from the regulators? All of the, sorry, Kristen. No, go ahead, Jake. All of the data that we have now suggest that there is very little illicit activity using crypto.

So there have been a couple of reports that have been done by folks with access to really good data. So chain analysis, for example, said that in their most recent annual report, I think only 1.1% of all crypto transactions involved elicit activity. There was also a report commissioned by the folks behind Zcash through the Rand Corporation, which found, I think, less than 1% of transactions in privacy coins like Monero and Zcash involved elicit activity. In comparison, criminals really do prefer using US dollars in cash for their criminal activity. That is still the monetary instrument of choice. And so when we talk about these concerns that regulators have, it really is an inchoate fear about some future hypothetical world where criminals have decided to start using crypto

for illicit purposes in a way that they absolutely are not today. So it's a fear about a possible future, not a concern about what's happening right now. In terms of what is happening right now, I believe OTC brokers are apparently the biggest money laundering risk in crypto. Why is that and how do you think that risk can be mitigated? Well, I would say it depends on the type of OTC broker. I think most of them that we see here in the United States are regulated and they do KYC and they are, you know, they're very good actors. But I think the problem we see is overseas. there are OTC desks that facilitate, you know, large transactions without having any information,

and that that is probably one of the biggest holes, you know, in the system. And then if we could get those types of actors to come in and do, you know, KYC and have an AML program, that that would be the source of it. It's not, you know, the companies here, the OTC desks here at the U.S., but more over, more overseas. I completely agree, and I think this is the mission of the U.S. government right now, is to bring overseas entities into compliance with anti-money laundering obligations. And, you know, one thing that kicked off this discussion recently was the U.S. government's enforcement action against Bitmex, which really had to do with Bitmex serving U.S. customers, but not complying

with the Bank Secrecy Act and performing KYC customer due diligence on its customers. customers. And so I think what we're seeing from regulators is a focus on bringing those offshore entities into compliance. And I think we're seeing this across the board where offshore exchanges, and I'm sure this is true for OTC brokers as well, who for a long time offered no KYC services, are now starting to require KYC for all of their customers. And I think that trend will definitely continue as we go forward. I also wanted to draw out the I guess how the different political situations and different geographies can also influence one's perspective on the value of peer-to-peer transactions. And I know that there are particular

countries where the value of that is actually pretty salient right now. You know, Hong Kong might be an example or Venezuela, China. Can you just walk me through what? you know, the benefit is of having peer-to-peer crypto transactions possible in places like those? Yeah, I think in Hong Kong, with everything that's been going on there in the past year and the protests, you know, if you bought a metro card with the system, you know, they would be able to know that you were a part of those protests and you don't want the government knowing that. And so to be able to have a digital cash-like option to, engage in political activity. You know, that's one example. But I know Jake has a lot of thoughts on

this because we talked about this before. So let him. Yeah. No, I mean, and we've mentioned a few times already in this discussion that some of these concerns are much greater outside of what we think of as liberal democracies in the developed world. It's really where people fear their government because their government is authoritarian. And their fear of censorship is because they believe that their government will not comply with the rule of law and will not respect their basic human rights in places like Venezuela, for example. And, you know, look, we're not seeing, I think, a whole lot of use of crypto networks in Venezuela right now. But in places like that, you can imagine the argument for financial privacy and self-custody being much more important, where if you are the opposition

party and you're making legal arguments against the ruling party. And the ruling party's response to that is to de-platform you or to cut you off from access to the financial system so that they can defeat you not through a democratic election, but rather through wielding their power to crush the opposition. That's where these technologies really matter. And so this is a geopolitical question. And I think something that the U.S. government will have to consider as it thinks about its policy toward crypto broadly is how is crypto a geopolitical tool for freedom and against oppression in places where governments are not respecting the rights of individuals to speak freely, to think freely, and to, you know, fight for their own

voice in politics. So something super interesting that acting control over the currency, Brian Brooks said when he came on Unchained was I asked him about privacy and he said, look, if you're a dissident in a country like Cuba or if you live in Venezuela, you'll care more about financial privacy. And then he said, quote, in the U.S. where we are legitimately a target of terrorism every day, it feels a little bit different. Yes, there are some things we would probably rather buy privately. But as a society, we seem to have made the judgment that the threat of people using our financial system for illegal, even terrorism purposes, is sufficiently tangible that we need to protect against that and thus give up some of our privacy in favor of that. Do you agree that this is

how Americans should feel. And do you also think that this then justifies the U.S. having more regulations and less privacy? Well, I mean, I think that's what makes us a policy issue and something that needs to have the debate of elected officials as opposed to just regulators. But, you know, I think, you know, Brian Brooks is right. There has been a tradeoff that has been made here. And the problem that policymakers have is once they tend to get go, going in a direction, it's very hard to reverse that. And so I think that, I think that, yes, somewhere along the line, we realized, we decided to hand over our financial privacy. And I think that we're now seeing with this Finson rulemaking that that's only going to increase. And it's very,

nobody wants to be, you know, the congressman that says, you know, hey, well, we've got enough. And if we, if we don't do more than, you know, people will, you know, there will be more threats and more people will be hurt. I mean, and, you know, this might be a politically unpopular thing to say, but I feel like it's sort of with coronavirus, right? Like, yes, if everyone stayed inside their house all day for six months, it would all disappear. But at the same time, there would be, you know, negative consequences of that, right? Like, no one would go to the gym. There would be mental health problems. There would be suicides as a result of that. So all of these decisions that are made are policy tradeoffs. Like that's what makes policy interesting, right? You have you have different interests that

needs to be to be balanced. And what I worry is that the voice of the individual in all of this has just kind of taken it to be, you know, a foregone conclusion that this is how it has to be and that we have to give up these things. But I think that now, I mean, I think crypto entering in this space is an opportunity to revisit these questions and to educate individual users. You know, at the Blockchain Association, we represent companies, right? But I think there are a lot of individuals who should also care about these decisions. And, you know, I think that this is something that I know Jake and I hope we can get more people involved in and talking about, because we should be having a much more open debate about this topic. You know, I think people care very deep.

about privacy here, actually. And I think that, yes, it's a trade-off, and it's important to remember, this isn't all or nothing, right? I don't think anyone is advocating that every single financial transactions should be anonymous and no one should ever be able to know anyone who spends anything anywhere, right? That's sort of an extreme view that no one is advocating for. I think what we advocate for is having the option to have anonymous transactions where it is appropriate. There are some things that we simply do not want to be known by everybody in the world, right? Just imagine a world where every single person, all of your neighbors and friends and family and business associates knows every single dollar that you spend everywhere and on what at all times.

That is not a world that we want. And that's why we have cash. And that I think is why as a policy matter, we are very committed to having cash. We're not trying to move to a cashless society. And the question is, why would you treat physical cash, paper cash, that we're used to, any different from digital cash? Right, it doesn't mean that every single transaction will be done in digital cash, but what it means is that there should be an option. But also, as I said, I think that people do care very deeply about privacy here. And we see that in the form of new privacy laws, like the recent law passed in California.

that does give people much more control over personal information that is collected by the businesses that they patronize. And so I do think that this is, you know, this is an issue that is going to get worked out for a very long time. But I'm imagining that candidates for elected office will have to be responsive to the interests of their constituency. And people are very concerned about protecting their privacy. last month the DOJ's cryptocurrency enforcement framework labeled anonymous transactions quote as a high risk activity indicative of possible criminal conduct what do you think that statement means for the future of privacy coins such as Monaro and Zcash I mean I think it's a challenge for them right and you know we we work very closely with the Zcash guys and I think they've been very thoughtful in their approach and we're continuing to figure out the right way. But I mean, I think as we saw yesterday, ShapeShift delisted Zcash, having that report out there is problematic because, you know, that is sort of an identifiable

step that exchanges could choose to take. And I think that that is a huge step backwards towards maintaining financial privacy and something that I think is going to have to come to a head in a larger public policy debate in order to correct that. Yeah, you know, Laura, you had Jesse Liu on to talk about the enforcement framework, and it was a fantastic conversation. So I would highly recommend everyone listen to that to get more context for what the enforcement framework means. Yeah, and just so people know she was the former district attorney for Washington, D.C. Yes, and she was a nominee to be undersecretary of Treasury for terrorism and financial crimes. So she,

knows more than anybody about this subject. And I would echo what she said, which is the enforcement framework was a clear message from the Department of Justice that they have a fundamental concern with anonymity enhancing cryptocurrencies. And when they talked about exchanges offering anonymity enhancing services or assets, what they said was that the financial institutions should consider whether it is possible to comply with their anti-money laundering obligations while offering those cryptocurrencies. Not how they can best mitigate risk or something like that. They literally said whether it is possible. And to translate that into sort of DC speak, what lies behind that reading between the lines is they don't think that it is possible. And it was a message, I think,

to financial institutions, to exchanges and custodians that they should not be offering. those assets. And I think that's what motivated ShapeShift, which is run by a CEO, Eric Forkes, who is, I think, very deeply committed as a personal matter to financial privacy to decide that it was just too risky to offer those assets. So I think that this is, this is an issue that is going to be debated for quite a while. Yeah, I have to say, I find that surprising simply because both of those cryptocurrencies do come with viewing keys that could be used to show regulators the particulars of those transactions, which means that they sort of have something built in to comply with existing regulations, but apparently that's not enough. So we did touch briefly

on the upcoming administration, but I want to dive into it a little bit more. Gary Gensler, this former CFTC chairman, has been tapped ahead of the financial policy transition team for the upcoming Biden administration. And I wondered if you consider that a positive development for crypto. And you did mention some of the key appointments that you were looking at. And I wondered if there were any names of like who would be on your wish list. Yeah, no. I mean, I think that, I think that having Gary Gensler is positive. He, you know, teaches a course at MIT on blockchain and crypto and has a very good understanding of how the technology works. And I think that having him in the mix is comforting. If you look down the list, sort of without naming names,

there are some additional advisors on that list. When I saw that upon its release, I was a little bit worried that some of those might not be in the best interest of crypto. But I think Kevin Gary at the top is good. I think for Treasury Secretary, that's really going to set the tone. And then all of the undersecretaries will stem from who the Treasury Secretary is. And I think there are several names in the mix,

Lail Brainer, Janet Yellen, who, you know, either of them, I think, would be, you know, thoughtful on these issues. I don't think they have a major beef against crypto, but I also don't think they're the biggest champions either. I have, you know, I've been trying to get Glenn Hutchins on the list. I don't know if Glenn Hutchins knows this, but I think he would make an amazing Treasury Secretary who really understands this space. I think Roger Ferguson is, I've heard his name on that list. I think he would be a thoughtful choice. He's the current CEO of TIACRAF. So, you know, I don't, there's nobody on the list right now that I consider to be an immediate threat, especially compared to the current Treasury Secretary. I mean, he's been

fairly vocal that he doesn't see much value in cryptocurrencies. So I think, you know, the bar is fairly like the lower right now and we need to just get somebody better than that. But, you know, I'm not sure, you know, when somebody shows up and they, you know, are surrounded sort of by the career staff that have dealt with these issues, they may decide to take on sort of in this next level of regulation as a priority. So we're not out of the woods yet, but I think that that's why it's important that we be having this conversation within our crypto community and, you know, get people mobilized and involved and, you know, weighing in with regulators when there's opportunity and talking to members of Congress and letting them know that financial privacy is important

and that we don't want the government to go too far. And speaking of Congress, how does the makeup for the next Congress look in terms of this issue? Do you think that it will be the type of Congress that wants more surveillance or that will be supportive of privacy? I think that it'll, I think, I don't think Congress will do too much on this. I do think that the House is, you know, going to be controlled by Democrats. They tend to be in favor of more regulation and the makeup of the House Financial Services Committee has traditionally pushed for more. In the Senate, the current chair, Mike Crapo, Senator Crapo of the Senate Banking Committee, he is a huge privacy advocate.

Now, he is no longer going to share the committee because he's going to move to the Senate Finance Committee. and so likely we'll have Pat Toomey. But I think the leadership on the Senate Banking Committee, as a general matter, tends to value privacy. And so, you know, that actually might be, you know, sort of two good sides of the coin that could lead to a good policy in the middle. I mean, what you don't want is just sort of one opinion coming in and not having the debate and determining what the tradeoffs should be. but I'm not convinced that that is something that's going to move quickly. Now, what could change is if there is some, you know, horrible incident and we find out that Bitcoin is the, was the financing behind it, you know, then, you know, that could change very

quickly. And so I think that's why, you know, we want to make sure we have our ducks in a row to have that debate. It's one of the reasons why the Blockchain Association this month is putting out a report on this topic. And we, we, we want to make sure we want to make sure we have, we want to be ready to go because that could change pretty quickly under the right circumstances. And I also wanted to ask about something that maybe, you know, isn't in any of these proposals at the moment, but certainly is out there as an idea. Could there be regulations that come for developers who write code for self-hosted wallets or for other privacy preserving crypto products, where they might be targeted even if they're not actually in charge of people's private keys.

Sorry, go ahead, Jake. I was just going to say that would surprise me a lot for a couple reasons. The first is right now there are no laws that I think could be construed as applying to the developer of software who is not actually taking custody of someone else's assets. So in order for something like that to happen, you wouldn't just need new FinCEN guidance or even formal rulemaking. You would actually need Congress to pass a new law extending regulation to the developer of open source software. I think it's very hard to imagine that happening for political reasons. I think it would be strongly opposed and very broadly opposed because there really aren't laws restricting the development of open source software in any context.

let alone in the financial context. I also think that there would be a pretty strong constitutional challenge if there was an attempt to craft some law that prevents folks from simply writing software that they themselves are not using or helping others to use. And I know this is an issue that that Coin Center works on a lot. And in particular, Peter Van Valkenberg, who dives into the First Amendment right to freedom of speech of developers. And I think that if there was an attempt to pass a law like that, there would very quickly be any number of constitutional challenges. And so I don't expect anything like that. Even on the administrative level, FinCEN has been, as I said before, very careful to draw the line between service providers who are actually taking custody of assets belonging to others and then providing some service, whether that is money transmission, right, sending those assets to some other person or location.

or mixing services, right, providing some level of anonymity for future transactions. FinCEN has really distinguished between those service providers and mere software providers who FinCEN says are not subject to the Bank Secrecy Act. And it would really shock me if that changed. I do think, though, we could see the idea floated in Congress. You know, there's a lot of crazy bills that are introduced that don't go very far. So it wouldn't surprise. me if, you know, a Brad Sherman or somebody like that, you know, comes in and, and throws something in the hopper, you know, to get that idea out there. But yeah, I agree with Jake. I think that there would be a challenge. And if something like that happens, you know, we would, we would fight

that tooth and nail, obviously. That would be a major, major problem for not just crypto, but, you know, for the entire internet. Yeah. And as a reminder for people, Brad Sherman was the congressman who proposed, I think, banning Bitcoin and other cryptocurrency. So just to jog your memory. And then the last thing I'm going to ask about was, so, you know, everything we've been talking about is how these proposed rules affect, you know, these wallets. But the fact is that wallets can contain other things besides money.

For instance, with, you know, a file coin or with this whole NFT trend, they could contain documents or they could contain art. So how could these potential rules affect those types of situations? Yeah, no, I mean, I think if there are, if, if policymakers decide that self-hosted wallets are untenable and that there need to be limits in transaction, in transacting with unhosted wallets, that is not, you know, that's not just money. If you think of your wallet today, you know, for those who actually still have wallets, you'd, you may keep your cash in there, but you might also keep your. Social Security card in there. You might keep a picture of a family member. You might keep your identification in there. Similar with a safe, you could have some valuable items, some jewelry, some things of that item, that nature. You know, self-hosted wallets, you know, can host many

different kinds of crypto-based assets. And, you know, that if, you know, those types of limits were to be put in place, they could very well extend to, you know, wallets that host, you know, other types of assets. And so it would really have, I think, a ripple effect across all of the crypto industry. And that is, I think there's so much potential with Web 3.0 applications of cryptocurrency that we're just starting to see, like such as Filecoin and others, that we wouldn't want to cut off this whole, part of innovation that, again, is in the early stages, that, that, you know, in an effort to go after

terrorist financing. Yeah, and this is actually one of the two subjects of FinCEN's notice of public rulemaking. So we've talked a lot about lowering the reporting transaction threshold down to $250. That's one aspect. The other is clarifying the definition of money, basically, under the funds travel rules. So what types of transactions are subject to these reporting requirements? And basically the notice of public rulemaking proposes clarifying that all, quote unquote, convertible virtual currencies, CVCs, which is FinC's word for cryptocurrencies, that all transactions in CVCs are subject to the Bank Secrecy Act. I think in general, that makes sense. It's sort of what we've all assumed anyway that Bitcoin and Ether and pick your crypto, that all of them are subject to

those requirements. I think where there might be some dispute is, like you said, Laura, when you get outside the scope of these convertible virtual currencies, these fungible assets to non-fundable assets where there's a token representing art or something like that, I think then there might be an argument that the traditional rules for anti-money laundering compliance don't apply. But I don't think we've really. dug in from a legal perspective to that issue quite yet. All right. Well, we will see where all of this goes. When are kind of like the next big developments that you're looking for when it comes to whether or not this is going to go in the

direction you would like or not? Well, I think seeing what happens is the next step with the FinCEN notice of proposed rulemaking and, you know, whether they extend it and move forward with that. I also think figuring out who the Treasury Secretary nominee is and who some of the other people at Treasury will ultimately be, which will be finding out in sort of the weeks and months ahead. And then I think as one we're keeping an eye out on is FATIF is expected to do another report in June. And this may or may not be addressed in that, but we'll definitely be keeping an eye out to see if this is something that they continue to have. as a matter of discussion.

Okay. Well, where can people learn more about each of you and about this topic? Well, for the Blockchain Association, you can follow us at blockchain ASSN on Twitter, or you can go to the blockchain association.org. We have a public policy page that talks about all of our issues, including this, including what we've been speaking about today. and that will have a link to our report on self-coasted wallets that we're releasing in November. Yeah, and for me, I would say just follow me on Twitter.

It's at J. Chirvinsky, J-C-H-E-R-V-N-S-K-Y. I try to keep folks updated on, you know, the most important issues around self-custody and privacy and especially as enforcement actions roll out from the Department of Justice and elsewhere in the U.S. government. I try to keep folks updated on that. And then when there are opportunities to provide public comments, like in the case of FinCEN's notice for public rulemaking, I'll try to keep folks updated about those opportunities as well. Okay, great.

Well, thanks to both of you for coming on Unchained. Thanks, Laura. Thank you. Thanks so much for joining us today. To learn more about Jake and Kristen, check out the show notes for this episode. Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained podcast and subscribe today. Unchained is produced by me, Laura Shin,

with L from Anthony Yun, Daniel Nuss, Bossie Baker, Shishak, and the team at CLK transcription. Thanks for listening.