Author: Daniel Taylor, Policy Director at Zumo
Upon closely observing a typical cryptocurrency regulatory consultation meeting, one quickly notices a significant pattern: a large number of traditional finance (TradFi) lawyers and former financial services personnel are responding to documents drafted by financial services regulators that strictly outline how future crypto asset activities will be conducted.
This reflects the almost parallel worlds we see in the crypto space. On one side are the integrators, assimilators, and "mainstream adopters"; on the other, the cutting edge of technological innovation is almost entirely excluded.
Crypto technology experts may think this does not concern them—regulation and compliance are not areas worth their energy.
However, holding this stance directly threatens today's cryptocurrency users.
In May 2025, Coinbase experienced a data breach that exposed personal customer data collected during its "Know Your Customer" (KYC) process due to regulatory requirements. The company has set aside between $180 million and $400 million to compensate customers who suffered fraud in subsequent social engineering attacks.
The crypto world responded by pointing out a fact that many in the crypto space have long understood: technological solutions already exist that could render such large-scale data collection unnecessary.
Daniel Taylor notes, "This can be achieved through the widespread deployment of decentralized digital identity and zero-knowledge cryptography technologies to prove identity claims without exposing sensitive data. If businesses do not hold customer data at all, there is no risk of data breaches."
This is not merely a minor annoyance—it is not just related to centralized exchanges and the new types of crypto intermediaries that dominate today's crypto user landscape.
Whether we like it or not, exchanges remain the core entry and exit points connecting other (non-custodial) crypto ecosystems. And KYC is not the only data-intensive requirement faced by crypto exchanges.
Other requirements in the UK, including the current (Travel Rule) and future (Crypto Asset Reporting Framework), point to a future where users' transaction data, real identities, and addresses will be neatly tagged and packaged, placed under the data governance of historically poorly managed or even blatantly abused corporate and public institutions.
As physical "sledgehammer attacks" against known crypto asset holders increase in regions like France, this should sound the alarm for all of us and inspire a collective sense of urgency.
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Failing to build privacy-enhancing technologies within crypto intermediaries and widely used applications will trigger disasters in the crypto space (not to mention society as a whole). It is increasingly unforgivable not to question how to apply crypto-native technologies to achieve equivalent regulatory goals.
Industry experts emphasize, "Changing the status quo requires representing this perspective in key regulatory dialogues and providing technological solutions that can bridge the apparent demand gap. Crypto consumers deserve digital solutions that default to offering higher personal security and privacy."
The good news is that the crypto industry has already made significant strides in introducing technological regulatory innovations. Proof-of-reserve systems have become the mainstream way for platforms to declare asset statuses. The concept of privacy pools is exploring how to ensure on-chain privacy while maintaining compliance. Meanwhile, solutions that fully migrate key legal functions onto the blockchain are gradually taking shape. The industry urgently needs more technological advocates and legal experts who can skillfully integrate technological innovation with regulatory needs.
What if we do not take action? We must be clear that, according to the current trajectory, the regulations being finalized are almost entirely based on traditional systems and rule-making frameworks, clearly not taking into account any of these emerging technological factors.
For the industry to create a different future, we must ensure that policy discussions are not confined to a closed space between traditional finance lawyers and vested interests, but rather include a broader and more diverse perspective.
The crypto regulatory framework is at risk of being shaped by individuals dominated by old-world thinking and lacking innovative imagination. We must act swiftly to inject more technology- and crypto-native expertise into regulatory dialogues. Otherwise, we may be forced to accept regulatory rules that lack innovation and fail to adapt to the unique characteristics and potential of the crypto asset industry.
Daniel Taylor, Policy Director at Zumo, points out, "This means we can no longer turn a blind eye to regulatory realities, but must step up and actively shape the regulatory future. More technical experts must join the regulatory dialogue to advocate for privacy-enhancing technologies and crypto-native solutions."
Author: Daniel Taylor, Policy Director at Zumo
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This article is for general reference only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in the article are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original: “Cryptocurrency Regulation Needs More Technologists, Not Suit-Wearing Bureaucrats”
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