Author: Zhang Feng

On December 15, 2025, Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC), delivered a speech at a cryptocurrency working group roundtable, providing profound insights into the balance between financial privacy and regulation in the blockchain era. He explicitly pointed out that if regulatory direction goes awry, cryptocurrencies could devolve into "the most powerful financial surveillance architecture in history," potentially pushing the entire industry into the abyss of a "financial panopticon." In today's world, where digitalization and blockchain technology are deeply integrated, implementing effective financial regulation without infringing on personal privacy has become a common challenge faced by global regulatory agencies.

I. Why is this issue crucial? — Erroneous regulation could lead to a "financial panopticon"

Atkins bluntly pointed out in his speech that cryptocurrencies and blockchain technology possess unprecedented transaction transparency and traceability. Every on-chain transaction is recorded on a public ledger, and on-chain analytics companies can efficiently assist law enforcement in linking on-chain activities to real identities. This technological characteristic is like a double-edged sword: on one hand, it helps combat illegal financial activities; on the other hand, it could be misused as a comprehensive surveillance tool.

If regulatory agencies adopt an extreme, all-encompassing regulatory approach—such as treating every wallet as a broker, every piece of code as an exchange, and mandating the reporting of every transaction—then the entire cryptocurrency ecosystem will be forced into a state of "panoptic surveillance." In this state, every transfer, every position adjustment, and even every smart contract interaction of users will be laid bare, personal financial privacy will be obliterated, and innovative vitality will be stifled.

As Atkins warned: "Public blockchains are more transparent than any traditional financial system ever has been… If the regulatory direction is wrong, cryptocurrencies could become the most powerful financial surveillance architecture in history." This not only concerns technological ethics but also touches on the core contradiction of the modern financial system: how to delineate the boundary between ensuring security and defending freedom?

II. Basic principles for solving this issue: Balancing national security and citizen privacy

Atkins emphasized that the essence of this issue is "uniquely American," whether people can participate in modern financial activities without sacrificing privacy. This reflects the long-standing value trade-off in American society between national security and personal freedom.

On one hand, the government has an obligation to curb illegal financial activities through tools like the Bank Secrecy Act, protecting citizens and the nation from security threats; on the other hand, "citizens should be able to manage their personal affairs freely, without government surveillance" is one of America's core values. The emergence of cryptocurrencies provides an opportunity to rethink this balance in the context of 21st-century technology.

Therefore, the basic principle of regulation should be: to effectively prevent risks and maintain national security while fully respecting and safeguarding citizens' financial privacy rights. Any policy that emphasizes surveillance unilaterally or allows complete laissez-faire will undermine the long-term healthy development of the financial system.

III. Existing tools of the committee and their boundaries: Self-restraint in regulation as seen in the CAT system

Over the past few years, the SEC has established a series of data collection and monitoring tools, such as the Consolidated Audit Trail (CAT), swap data repositories, and PF forms. These tools have played a certain role in enhancing market transparency and combating fraud, but they also expose the risk of regulatory overreach.

Atkins cited the CAT system as an example, noting that the system was initially designed to help the SEC gain a clearer understanding of market trading conditions but gradually evolved into a "powerful surveillance system," bringing the SEC "one step closer to mass surveillance." More importantly, the government has not even fully utilized all the submitted information, yet investors bear unnecessary costs and privacy risks.

In response, the SEC has proactively taken measures to reduce some of the most sensitive data elements in the CAT and re-evaluate its scope and costs. This approach reflects the self-restraint and tool rationality that regulatory agencies should have—not blindly pursuing data maximization but prudently assessing the necessity and reasonableness of each type of information.

IV. Regulatory challenges in the digital age: The easier information is to obtain, the more humility is needed

In the "analog era," financial regulation was limited by paper records, physical distance, and manual processes, which provided a certain degree of protection for personal privacy. However, in the digital age, especially after the widespread adoption of blockchain technology, the cost and threshold for obtaining information have significantly decreased, allowing regulatory agencies to almost real-time and comprehensively grasp user trading behaviors.

If this technological convenience is misused, it can easily slip into excessive surveillance. Atkins referenced economist Hayek's views in "The Fatal Conceit," criticizing the bureaucratic mindset that "believes that as long as enough information is collected and enough experts are gathered, a perfect solution can be found." In fact, information does not equal wisdom, and data accumulation does not equal effective regulation.

Therefore, in the digital age, regulatory agencies should maintain "humility and principles," avoiding the temptation of surveillance overreach due to technological convenience. Discussions around cryptocurrencies and privacy-enhancing technologies (such as zero-knowledge proofs) are particularly important in this context.

V. Avoiding overregulation: Not turning every link into a surveillance node

Atkins clearly opposed including every component of the cryptocurrency ecosystem under regulatory coverage. He pointed out that if the government "treats every wallet as a broker, every software as an exchange, every transaction as a reportable event, and every protocol as a surveillance node," then the entire system will become a "financial panopticon."

Fortunately, blockchain technology itself also provides tools for protecting privacy, such as zero-knowledge proofs, selective disclosure, and compliance-proven wallets. These technologies allow users to prove their compliance with regulatory requirements without exposing all financial details. For example, a regulated platform can prove that its users have passed anti-money laundering screenings without permanently retaining complete records of every transaction.

This opens up the possibility of "less disclosure, more compliance" and paves new paths for regulatory innovation: not by increasing data reporting to strengthen surveillance, but by using technological means to achieve compliance verification while protecting privacy.

VI. Ensuring normal business operations: Allowing some information to remain undisclosed to maintain market health

The normal operation of financial markets relies on a certain degree of privacy and confidentiality. Atkins pointed out that many institutions depend on their ability to establish positions, test strategies, and provide liquidity, and if these activities were fully disclosed in real-time, it would lead to phenomena such as front-running, imitation behavior, and "herd selling."

For instance, if market makers and underwriters were required to disclose every inventory adjustment or fund movement in real-time, their business attractiveness would significantly decline, and market liquidity could be harmed. Therefore, moderate information opacity is a necessary condition for the healthy operation of the market, and regulation should allow for reasonable business privacy.

This point is equally applicable in the cryptocurrency market. If every on-chain transaction and every smart contract invocation were fully exposed, it would not only suppress institutional participation but could also encourage market manipulation. Therefore, the regulatory framework should find a balance between transparency and confidentiality.

VII. Building a target framework: Technological advancement should not come at the expense of personal freedom

At the end of his speech, Atkins proposed that the ultimate goal should be to construct a regulatory framework that promotes technological innovation and financial development without sacrificing personal freedom. This framework should have the following characteristics:

• Principle-oriented: Balancing national security and personal privacy as the basic principle;
• Technologically neutral: Making good use of privacy-enhancing technologies to achieve "compliance without surveillance";
• Layered regulation: Distinguishing between different entities and risk behaviors to avoid a one-size-fits-all approach;
• Dynamic adjustment: Continuously optimizing regulatory tools in line with technological advancements and market changes.

He emphasized that this matter "is of profound significance and lasting impact," requiring the participation of regulatory agencies, the industry, and the public in discussion and design. Only through collaboration can a feasible path be found that balances security and innovation without sacrificing personal privacy.

VIII. Insights for our country's regulation: Rethinking goals, principles, tools, and frameworks

The discussion by the U.S. SEC provides important insights for our country's regulatory practices in the fields of digital currency and blockchain:

Regulatory goals should clearly balance. In promoting the development of blockchain technology and regulating cryptocurrency trading, our country should also establish regulatory goals that emphasize both security and freedom. It is essential to prevent financial risks and combat illegal activities while protecting users' legitimate rights and encouraging technological innovation.

Regulatory principles should emphasize restraint. Regulatory agencies should maintain tool rationality and power restraint when utilizing big data, blockchain analysis, and other tools, avoiding excessive surveillance due to technological convenience. The SEC's reflection on the CAT system can serve as a reference to establish a data collection necessity review mechanism.

Regulatory tools should be technologically adaptable. Our country can actively explore the application of zero-knowledge proofs, homomorphic encryption, and multi-party computation in compliance, promoting a regulatory model of "data minimization and trusted verification." For example, in anti-money laundering monitoring, it can achieve "proving compliance without disclosing transaction details."

Regulatory frameworks should encourage innovation. When formulating relevant regulations, it is important to leave room for technological iteration and business practices, avoiding overly detailed and rigid rules that stifle innovation. Consideration can be given to sandbox regulation and classified pilot programs to explore the balance between regulation and privacy in a controlled environment.

Industry self-discipline should play a role. Encouraging industry organizations to establish privacy protection and compliance standards, promoting enterprises to consciously adopt privacy-enhancing technologies, and forming a three-tier governance system of government regulation, industry self-discipline, and corporate awareness.

Paul S. Atkins' speech profoundly reveals the core contradictions and possible paths of financial regulation in the cryptocurrency era. In an age of unprecedented technological capability, regulators must remain clear-headed and restrained, avoiding the trap of "panoptic surveillance." Making good use of existing tools, ensuring normal business operations, and maintaining power restraint may be the key to achieving a balance between cryptocurrency regulation and privacy protection. This is not only a challenge for the United States but also a common question for every country exploring the future of digital finance.

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