Swan Bitcoin, a California-based Bitcoin services platform, communicated last Friday that it would terminate accounts of users directly interacting with coin mixing services.
Swan Bitcoin’s compliance with financial regulations
The decision to halt accounts interacting with coin-mixing services such as Wasabi and Samourai Wallet was a direct response to the pressure from banking institutions following a Financial Crimes Enforcement Network (FinCEN) proposal. The proposed rule aims to heighten the bookkeeping requirements for transactions involving mixing services.
The firm further warned that Depositing “directly to” or withdrawing “directly from” crypto mixing services could result in instant termination of user’s accounts.
Coin mixing services, often seen as a method to enhance privacy in the cryptocurrency world, have been under scrutiny for their potential use in illicit activities. Swan Bitcoin’s move to restrict such transactions reflects a growing trend of compliance within the crypto industry, aligning with traditional financial regulations.
Yan Pritzker, co-founder and CTO of Swan Bitcoin shed light on the company’s stance. While the firm acknowledges the value of coin mixing as a privacy service, the practicalities of connecting with banks and qualified custodians necessitate a more cautious approach. “Game theoretically, this behavior is expected and obvious,” Pritzker stated, highlighting the reluctance of banks to engage in additional verification work amidst governmental advisories against mixing services.
Community backlash and criticism
Despite the practical reasons behind Swan Bitcoin’s policy shift, the move has sparked a significant backlash from the crypto community. Critics argue that the company’s decision goes against the foundational ethos of cryptocurrency, which values decentralization and user privacy.
Samourai Wallet condemned Swan Bitcoin’s actions. In a scathing response, Samourai Wallet accused the company of being an enforcer for a proposal that hasn’t yet become law, urging users to either close their accounts or engage in activities that would prompt account termination by Swan Bitcoin.
The criticism extended beyond wallet providers. Vlad Costea, the host of the Bitcoin Takeover podcast, labeled Swan Bitcoin’s actions as “dystopian,” asserting that they promote an anti-Bitcoin compliance culture. Costea’s remarks reflect a broader sentiment within the crypto community, where many view such compliance measures as antithetical to the principles of Bitcoin and its promise of financial sovereignty.
Last month, a federal court ruled in favor of the US Treasury against Coin Center and various cryptocurrency proponents who had filed a lawsuit challenging the Department’s sanctions on Tornado Cash. The plaintiffs, led by Coin Center, contended that the Treasury exceeded its authority by imposing sanctions on the mixing service Tornado Cash, which they described as merely a piece of computer code. However, the court rejected this perspective, affirming that under the International Emergency Economic Powers Act, the Treasury can sanction any entity involving foreign interests.
