The Criminalization of Privacy and Bitcoin’s Legal Future

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Summary

The August 07, 2025 episode of Bitcoin Magazine podcast features Peter Van Valkenburgh analyzing the Tornado Cash guilty verdict against Roman Storm. He explains how the court’s expansive definition of money transmission contradicts FinCEN’s 2019 guidance and undermines due process. The discussion highlights appeal strategies, legislative remedies, and the surveillance risks shaping Bitcoin’s future.

Take-Home Messages

1. Legal Overreach: Expansive interpretations of money transmission laws expose developers to criminal liability.
2. Due Process Risks: Contradictory regulatory guidance undermines fairness and weakens legal trust.
3. First Amendment Stakes: Publishing code must be defended as a protected form of speech.
4. Legislative Remedies: The Blockchain Regulatory Certainty Act could offer durable safeguards for developers.
5. Surveillance Expansion: Reporting requirements and mixing designations threaten ordinary privacy practices.

Overview

Roman Storm was found guilty of operating an unlicensed money transmission business, though the jury did not convict on money laundering or sanctions charges. Van Valkenburgh explained that the Department of Justice applied an unusually broad interpretation of money transmission that contradicted FinCEN’s 2019 guidance. This left the jury with little choice, effectively criminalizing non-custodial privacy tools.

He argued that this verdict violated due process since developers were explicitly told licensing was unnecessary. The appeal will center on constitutional questions, including the First Amendment right to publish code and due process protections against contradictory regulation. These issues are foundational to whether open-source software remains legally viable in the United States.

The Samurai Wallet case, where developers accepted plea deals to avoid trial, illustrated how prosecutorial pressure prevents legal clarity. Van Valkenburgh likened operating a Coinjoin service to hosting a platform like Craigslist, enabling users to interact but not directly transmitting funds. He contended that labeling such activities as money transmission is legally unsound.

Attention then turned to potential remedies, particularly the Blockchain Regulatory Certainty Act, which would enshrine non-custodial protections into law. However, Van Valkenburgh warned that surveillance measures, including tax reporting rules and expanded definitions of mixing, could criminalize basic privacy practices. Without reforms, innovation may shift overseas, eroding U.S. leadership in digital financial infrastructure.

Stakeholder Perspectives

1. Developers: Fear criminal prosecution for creating privacy-preserving tools that do not custody funds.
2. Regulators: Aim to broaden jurisdiction over digital financial activities despite prior guidance.
3. Lawmakers: Divided between supporting privacy protections and expanding surveillance measures.
4. Civil Liberties Advocates: Oppose due process violations and restrictions on publishing open-source software.
5. Investors: Concerned that legal uncertainty increases risks for privacy-focused projects.

Implications and Future Outlook

The Tornado Cash verdict demonstrates how inconsistent regulatory interpretations destabilize the environment for developers. Unless appellate courts uphold constitutional protections, the chilling effect could stall innovation in privacy-preserving financial tools. This uncertainty undermines trust in the rule of law and may shift development activity abroad.

Legislative remedies such as the Blockchain Regulatory Certainty Act could resolve some of these risks by providing statutory clarity. Yet unresolved policies, including broad mixing definitions and mass reporting requirements, continue to erode financial privacy. Without balanced reform, surveillance expansion may discourage everyday Bitcoin use for peer-to-peer transactions.

The future of Bitcoin in the United States will depend on whether policymakers view privacy as a threat or as a fundamental right. Protecting developers and users from overreach would reinforce America’s leadership in open innovation. Failure to act risks both technological decline and a loss of civil liberties.

Some Key Information Gaps

1. How can due process protections be strengthened to prevent prosecutions under contradictory guidance? Addressing this ensures fairness and legal clarity for developers.
2. What legal precedents could affirm that software code is speech regardless of perceived “values”? Resolving this secures the constitutional status of publishing open-source tools.
3. What is the most effective legislative pathway for passing the Blockchain Regulatory Certainty Act in both chambers of Congress? Understanding this will determine the feasibility of statutory protections.
4. How can FinCEN mixing transaction definitions be narrowed to avoid criminalizing basic privacy practices? Reforming definitions would prevent ordinary security measures from being targeted.
5. How can digital identity systems be designed without backdoors to ensure individual sovereignty? Ensuring this will protect users from centralized surveillance in future identity frameworks.

Broader Implications for Bitcoin

Constitutional Precedent and Software Freedom

The case illustrates how financial regulation can encroach on constitutional protections. If courts affirm that publishing code is speech, this precedent will safeguard innovation across fields beyond Bitcoin. A failure to uphold these protections could invite broader restrictions on open-source development in security, artificial intelligence, and beyond.

Privacy as a National Competitiveness Factor

Countries that provide clear protections for financial privacy and open-source developers may attract talent and capital. By contrast, U.S. prosecutions could drive innovation to friendlier jurisdictions, weakening America’s role in shaping global financial technology. The competition over legal frameworks will influence where the next generation of privacy-preserving tools is built.

Surveillance Infrastructure and Social Trust

Expansive reporting requirements and mixing prohibitions risk normalizing financial surveillance. Over time, this could erode public trust in institutions and provoke resistance to government overreach. For Bitcoin, the outcome may shape whether users adopt it primarily as a freedom-preserving technology or perceive it as a compromised system.