Crypto Freedom Is Worth Fighting For. JW Verret, Founder of Crypto Freedom Lab and More. - E99

On this week’s episode of The Encrypted Economy, our guest is JW Verret, founder of Crypto Freedom Labs . We discuss the concerns with potential government restrictions on personal and financial privacy in the interest of their subjective interpretation of the common good. Be sure to subscribe to The Encrypted Economy for more insights on the latest development in privacy and web 3.0.  

Resource List:
·       JW’s LinkedIn
·       JW’s Twitter
·       Crypto Freedom Labs
·       The ‘SBF Bill’: What’s in the Crypto Legislation Backed by FTX's Founder
·       JW Verret Articles Cointelegraph
·       Tornado Cash
·       Zcash
·       Immutability in Blockchain
·       Reg X Proposal
·       Whirlpool
·       Gurbir Grewal remarks

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Transcript

Eric: [00:00:00] So this week on the Encrypted economy, I had JW Verret, who is the founder of Crypto Freedom Labs. Now, 2022 was a rough year for crypto. If you use prices, fraud, cybercrime politics, regulation as a barometer, leverages gone. S B F, who bought influence in US politics, he turned out to be corrupt. And he still pulls levers with major media publishers, or at least so it seems.

More importantly, the enemies of crypto have their knives out denouncing innovation as being useless and merely ploy for profiteers’ things look bleak. Does that mean we abandoned decor values of crypto and financial privacy? I taped this episode before the FTX collapsed. I taped it just as Gabe Shapiro released the draft of the Stabenow Bill.

So, things changed a little bit since then, but J W's cause doesn't, it doesn't really. What's gone on in the last month? He's a tireless advocate for privacy, [00:01:00] financial privacy, and digital assets for jw. The issues are much bigger than current failures of the market. He's concerned about the power of governments, the censor, their citizens, and the citizens of the rest of the world by extension, under the guise of protection or subjective perspective of the common good.

He's concerned about how far governments will need to go in curtailing their citizens' rights to personal and financial privacy in the interest of protection, JW is a libertarian. Now whether you agree with JW or not, it's important that you realize that this matter is less than the critical counterbalancing role he plays in what is often a one-sided debate.

That are now being held with regards to the future of crypto. This week alone, a spokesman for the A C L U, American Civil Liberties Union stated that it values communication, privacy. More than financial privacy in a conference well attended. Why would they say that? [00:02:00] Now, I may not have always agreed with all the causes of the A C L U in the past, but that's a good thing.

Sometimes we take our rights for granted and are willing to make tradeoffs because, it’s convenient because it's comfortable, because we agree with something that may be narrower but suits us while missing the bigger picture of the fundamental rights. That's the way I want you to listen to this episode.

The Crypto Freedom Labs cause is as important now as it's ever been because freedom and financial privacy are in fact under assault. Now, you may say, but, and you may make qualifications, but if that's the case, you're missing the., you need to listen to this with open ears and to question your comfort levels and think about the underlying values that are at issue.

Crypto Freedom Labs has now released Whole N F T Collection to help them raise funding. I encourage you to visit their site, crypto Freedom Lab. And there's also been some good news since this was released, JW [00:03:00] was appointed to the Board of Zcash Foundation, a point that we discussed briefly on the episode.

So again, if you enjoy this episode, please share it. Encourage you to keep coming back. November may have been bleak and maybe it's a tough time in the, in, in the crypto markets but don't forget why we're all. Thanks so much. 

Welcome to The Encrypted Economy, a weekly podcast featuring discussions exploring the business laws, regulation, security, and technologies relating to digital assets and data.

I'm Eric Hess, founder of Hess Legal Counsel. I've spent decades representing regulated exchanges, broker dealers, investment advisors, and all matter of FinTech companies for all things touching electronic trading with a focus on new and developing technologies. 

Jw, welcome to the Encrypted Economy. I don't know how JW sleeps.

He's touched so many different things. I'm not even quite sure how to introduce him, but I will note that Jacob Robinson had him on the Law of Code [00:04:00] Podcast. So, if you're listening to these podcasts with to this podcast, definitely encourage you to listen to that one as. We're gonna try to take it back from there.

But jw before we begin, why don't we do a little bit of background, try to summarize, I don't know how, but you've Yeah. You've had quite the story career so far, thanks Eric. We'll do the drive 

JW: by. Yes, sure, man. Thanks, Eric. I've, like you mentioned law of Code podcast. It's always good to, to cite them.

I've learned a lot from them in my journey in the crypto. Learned a lot from that podcast. Learned a lot from the crypto economy, especially coming to it as a. I'm trying to learn about crypto as a lawyer and learn how to get involved in the community. I've learned a ton from your, a lot of podcasts. And I love that you're as excited as I am about privacy too, because privacy and encryption, because a lot of people in crypto forget about the encryption part, but you always That's right. Dig deep there, which is always a lot of fun. 

Eric: That's the core of it all. Yes. It's all based on encryption. Yes, 

JW: that's right. That's right. And which means privacy is at the core 

Eric: of it all, which means [00:05:00] privacy. Privacy is the core 

JW: of it. All that. Yes, so my background, I'm a lawyer and a forensic accountant.

So, I've done, I do a ton of things mostly because you can see above me, I've got four young boys under the age of 10. In my twenties I became a law professor cuz I was like, wow, this is great. It's a lot better than working at a big firm. And it was good when I was twenty-seven, making an associate salary and I don't have to work that hard.

And then I got to be in my late thirties and I had four kids and I was like, oh, shit. I need two or three more jobs to add to the job that I have. So, I started doing a lot more work in all along I've been excited about being a professor and teaching securities, corporate banking law, and teaching.

and it's fun to be a law professor in DC cuz you get to get involved in policy issues. 1 I was involved, I started teaching in 2008 in the middle of the financial crisis. So, I got really involved on the policy side doing some think tank stuff. Fighting against the, taking a libertarian view to financial regulations.

So [00:06:00] fighting against the bailouts, fighting against the Frank Act, fighting for crown funding fighting for the FinTech charter. So, as you can see, my record is oh and four basically on policy stuff. Every fight I get involved with is a desperate fight against big, entrenched trad fi interests and their alliance with regulation.

Of course, I became interested in the crypto policy. Couple years ago, and got involved there in a few different ways. And in trying to get involved in, in, in as many ways as I can, I'm really excited about the potential for privacy excited about the potential to upend the traditional financial system and kind of empower the people and take down the two weeks to fail banks.

That was in the Genesis block, right? That's in the Genesis block. It's in the block, man. So, while I was like testifying, like I hate the bailout Satoshi was like, you know what, I'll just invent new money as the answer. And that was a lot more [00:07:00] productive, I think. So, I'm just along for the ride to help out where I can and make space for innovators to build with their building.

Eric: So, I think so when JW gets involved in something, he's all in, right? So, he's thrown himself at issues. So, we're gonna work, we're gonna start off with X R P, cuz that one Yeah. You participated in early outspoken advocate. And here we are still waiting, waiting.

But why don't you give us a little bit of background and where you think we are with Xrp. 

JW: Yes. And to be clear not advocate for X R P, not a comment on the chain, the token, all that that critic of the s SEC's case against Ripple and xrp. There you go. It's very critical of it.

On, on the basis of two arguments. just using the how we evaluate as it stands. I think it's a stretch for the commission. And then two this is an opportunity for the Supreme [00:08:00] Court to look at various circuit courses that have stretched Howe beyond the original four and six case and hopefully par it back.

And I think eventually we're gonna get there because Ripple's already spent a hundred million dollars. Why not take it all the way to sco to, and all that happens 

Eric: seriously. Do you think Congress even wants to touch the judicial interpretation of what constitutes a security. 

JW: some in Congress

 do. You know our diehard pro crypto guys like Representative Emmer want to, I think even Representative Chenery would, if he could.

It's just hard to get that past the finish line, so I don't think it's gonna happen. There are a lot of people who would like to see it happen, but I don't think it's, there's an Overton window for that in the Congress, but I have a lot of hopes for challenging the courts because I think

the libertarian fight right now is in the courts because there's a lot of shifts indoctrine against the administrative state that moves our way, and [00:09:00] it's a good time to bring challenges. Just yesterday, the cfp B'S funding model was invalidated by the Fifth Circuit. I love the fifth circuit.

Fifth Circuit is just gonna save the Republican. 

Eric: Yes. Cuz the, we, we know that there would be some further extension of regulatory powers there and their funding was I don't know, questionable. I haven't d dived into it because the Gabriel Shapiro released the D C P A yesterday.

That, that consumed more of my attention. But yes, back to Ripple. I actually, in the last couple of days, I've heard. Rumblings that there's a settlement to foot. Okay. I've also heard that some have posited that x, that ripples should settle with the s e c on the grounds that X R P was a security for the time period in question but be silent on whether it currently is a security.

I don't know why you'd spend a hundred million dollars to get that, but what, what do you think of that? Would Xrp have [00:10:00] pushed it forward to basically just say, don't hassle us going forward? we'll give you the win on what happened in the past. Yes. 

When you look through some of the list of existing section 11 cases against crypto founders and developers there are a lot of settlements where it was just, offer.

Them, their money back and during a bull market, everybody's Nope. Do you know what? I love my token. I don't want the initial investment back because I would lose money off of it. That calculus probably changes in a bear market. But the s e c settlement posture has changed. I don't think they really do that anymore.

Just offer their money back and go away. Look, it's not, it's just not possible. I don't know the settlement calculus for Ripple and I won't second guess that cuz they're in a tough position. But in terms of a settlement based [00:11:00] on just come in and register the phrase that Gary Genzel likes to use all the time, it's just not possible, right?

As I do all the ways in which you can't register if you wanted to it's you can't register the token, especially the token because the token's not a firm, it. Like you don't own the network. The foundations books are not interesting to the token holder because they don't care about the lease you have for the office and the few people working there.

But you can't put the network on your books cuz that's not a gap because you don't control it. So, it's this kind of fanciful thing of just register, but we all know., what would that 10 k really look like? I don't even know who would sign it. There's no C F O or c o c e o or board most of the time to sign it.

So, I don't even know who would sign the 10 K. 

So, what's your odds on a settlement? Do you want to go down that road or, no. Too dangerous. You had to give percentages. 

JW: Given the politics, the odds are [00:12:00] low. I would say the odds are low that the s e C would really be willing to. in any kind of way that would be workable.

Eric: Yes. I prefer that actually, take it to the end. You've had the battle up to this point. It'd be such a shame if both sides just said, oh, just, yeah., 

JW: those odds would change. I if the s e C comes out tomorrow and says, do you know what, here's a path of registration that's a unique crypto path that takes into account all the technical issues.

Then that calculus changes. But until that, the odds. Yes. 

Eric: Okay. We're gonna shift gears to one of your current projects. That's pretty fascinating. 1, 1, 1 of many examples of J W's twists on advocacy. Everybody knows what happened with tornado cash. Yes. And man, jw I'll flip it to you, but you, you authored a book on financial privacy that.

may be subject to [00:13:00] sanctioning, but I'll let you take it from there. Yes. 

JW: So, I'm working on a book, it's not finished, but I'm working on a book on financial privacy. When the, and one of the chapters was gonna be about tornado cash. So, it's a book about how to use privacy tools, coins like z like Zcash and Manero tools like tornado cash, and a tool that I really.

The Whirlpool Samurai, Sparrow Wallace that implement Whirlpool PO joints and Aztec. And the privacy, the limited privacy of Bitcoin lightning, which is very limited. And just kinda talk about all those tools and rail gun and talk about those tools. And then talk about how they're gonna upend the law.

Talk about how law is not ready for truly private. Outside of the traditional banking system law and forensic accounting are both addicted [00:14:00] to bank accounts and credit card histories that are easily subpoena. They're not ready for the day that comes when in divorce court or judgements.

Somebody says, do you know what? I was hacked, your Honor. The money's all gone and there's no way, there's no way to know if that's true or that's not. And we're gonna hear the, I was hacked, your honor. Defense pretty often, and you can put a lot of pressure on somebody, but if there's no way to prove that it's not true, and if they're willing to lie about what they have that changes the civil justice system completely.

So, I'm doing a book about that and I think it's cool. So, as I'm sitting down to get ready on the tornado cash chapter, I read Uhoh, the code's been sanctioned. Oh man, I gotta rewrite that chapter. That's a real pain in the ass. But it also just such a shame for everybody on Ethereum that they lose the ability to transact privately.

It's an injustice. So, I got pretty hot about it. So, I told my family, I said, Hey just so you. I'm [00:15:00] gonna I'm gonna apply to OAC for an exemption to, to restart the tornado cash code. This code that, I don't know, it was sanctioned because Norths used it for money laundered. And my family was like, you're gonna do what?

what are you gonna, could you go to jail for that? And I was like no. I'm just gonna write a letter to OAC asking for an exemption. That's it. And mentioning the harm that, that I've been caused, because I want to use the tool. I want to write about the., I want to post I want to redeploy the smart contract code.

Call it something else. Probably not, don't call it tornado cash. Call it Barrett Cash maybe. But deploy it in the same way with the admin keys burned and everything replicated. I wanna do all of that, but as an educational tool, teach people about privacy, to write about it, and to teach my students about how to use the right to financial privacy, the human right to financial privacy that they have and how to use it if they're doing it on.

So, I wrote to OAC and I said, this is what I wanna do. I'm still [00:16:00] waiting to hear back. They have posted guidance that says, merely writing about and describing the protocol is not a prohibited thing. 

Eric: What about providing 

JW: a link? They don't answer that question. So, they don't, their guidance doesn't sufficiently answer my EXHIBITIVE request.

It's still pending, and I believe. 

Eric: So, you have links, you even have, don't you even have a website or do you have something deployed, don't you? 

JW: Not yet, but I want to. Okay. I've asked them for permission to do that. I haven't done anything yet. But if they don't, because your 

Eric: family doesn't want you to go to 

JW: jail, my family doesn't want me to go to jail but if they don't give me the, all, everything I'm asking for, I'm prepared to sue. I'm raising the money right now to. and there are already two suits ongoing. So, I have to figure out how it's strategically useful to the cause. But I am prepared to suit if they don't give me everything I 

Eric: want.

So, when your book comes out, does anybody have to be nervous that if they get it, they could become, if they buy the book, they could be blacklisted? [00:17:00] 

JW: I do love the idea, the book jacket saying this book was banned by the FBI. It would definitely help me sell. I'm trying to get the FBI to ban it so that I can put that on the book.

No. I've talked to people in law enforcement about the book. It's a book that would give people the tools to use money privately, which they have a right to do every right to do. It's a book that could be used for nefarious purposes as well. It's a book that could be used by law enforcement and forensic investigators.

Any book about money laundering is also a book about how to money launder money. Alright? Every book out there about anti-money laundering right now is a book. Every compliance manual on a m l is also a book about how to launder money. So, my book will share all the information. It'll be up to people to use it responsibly.

And hopefully, I'd love if the FBI said it should be banned. I'll put, I def, I'll definitely put that on the book., 

Eric: But touching on the [00:18:00] divorce, for example. Yeah. Somebody could say I was hacked, your Honor, ensure that's a defense. Somebody could also go to the bank, withdraw all their cash, put it in a suitcase in their house, and lo and behold, somebody came and stole it all.

Or somebody could use the cash to buy, to buy $9,900 worth of gold bars and store them and say, oh, I don't know what happened to them. So, it's, I think with these things, your book explores all these different avenues and the consequences of private money, but it's not we don't live in a soci society yet.

Where cash itself has not been, cash is no longer a bearer instrument. Cash is a bearer instrument. Much like anything that's a bearer instrument, it can be absconded with, it can be hidden. We, yeah, we, maybe there's a volume aspect to it. Maybe there's [00:19:00] a.

International jurisdictional component to it, but certainly cash and even moving money around banks has been used for decades. We're getting better at tracing it, but honestly, we're also pretty darn good about tracing Bitcoin to date, chain analysis and elliptic and, TRM labs have all been very effective at tracking it down in ways that even the ransomware operators hadn't anticipated.

JW: Yeah, those are all good points. I think it's really important to continue to make the point that you make about the freedoms that we have with cash that we should maintain and that we should also have with use of crypto. I, so that it's, I'm interested in writing about how it's gonna upend the justice system in some ways, but that's not, I hope that doesn't feed into the point of people that say, oh, we should track it all right.

I hope it’s; I hope it's the opposite. I hope it's just; this is like cash. It's probably a little bit [00:20:00] l there. There's less friction in taking it all and hiding it. withdrawal from the bank is very, very high friction to get it all out. If you show up and you want to take it, you're like, I want half a million dollars right now in cash.

I'm not even sure they even give it to you, right? Although part of me wants to try it. And then the physical risk of storing it that you can avoid if you're using cool storage that you don't have, if you've got cash that can burn, that they rats can need or whatever can happen.

So that's one of the benefits of privacy if we can keep it, if we can maintain it. But it also is an interesting puzzle for forensics when bad guys are trying to use it and people are trying to lie to courts about it. But yeah, I just I'm an advocate of privacy, but I'm also interested in the technical issues of what happens when we eventually get to a world of true privacy.

And also, some of the corollary issues, the secondary [00:21:00] issues of. Even if we get to perfect privacy on chain it's still difficult to spend it privately. It still interacts with the ped economy. You can turn it into gift cards, you can even turn it into non-K YC gift cards. But who wants to live life like at $500 worth of gift cards per day?

And that's all you can do, right? It's still just not possible to go fully on chain, fully private. Some people try to do it live; some people even claim to live there. Fully non-K YC Bitcoin in a bitcoin native economy. But I don't know, maybe there are some communities in, there's a community in Vermont for anything.

It sounds like maybe there's a K YC native community in Vermont. It's really hard. So those frictions, when even private digital money interact with fiat are gonna be a challenge for maintaining privacy too. So, I wanna explore that. 

Eric: Yeah. Particularly when you're trying to onboard it back into the system.

Yeah. So, there's that, Crypto Freedom Lab. This is [00:22:00] the vehicle you're using to. Pursue these to fight these sanctions or to get the permission to get the license. You haven't sued 'em yet. So, you're, you've been, you've asked for permissions, but crypto Freedom Lab, do you wanna tell us a little bit about Yeah.

About that effort? 

JW: I do a lot of policy work and I'm trying to stand something up to do a few things. I'm lucky to be at a law school that's very entrepreneurial. I think about half of our law professors run centers of some kind or another. Are affiliated with external think tanks and various organizations around DC to help not only generate scholarship grounded in the academy, but also have real world policy impact.

So, I'm trying to do the same thing, starting up a new think tank of my own, the Crypto Freedom lab. I wanna do a few things with it first. So, you know, there's in defending crypto and you've been really involved in this with a great comment. Letter to the S e c comment letters are part one of the weapons in policy.

To that we're gonna need to [00:23:00] continue to do to defend crypto. You guys did it you and Lex Pump Army and the crew did it. I think with some great stuff that you guys have talked about in a prior show. 

Eric: Ats. 

Yep. 

JW: Yeah. Ats. So, I wanna do some comment letters. 

Eric: Brandon and Jordan on that was 

JW: yeah.

So, I wanna help do some comment letters myself and fund other people doing comment letters. I'm gonna go even deeper than. Think about what are the academic papers that we wish we could cite in the comment letter. Let me fund that and get that done as well. And then strategic litigation.

So, this is amicus briefs is probably where I'll wait in first and then big mega cases if I can. Frankly, if I can raise the money to do it, I wanna be a plaintiff. I want my organization to be a plaintiff in litigation against the. I wanna get involved helping people when they need help. It's it’s sad to see what they're doing to these guys at Coinbase. [00:24:00] 

I think no matter what you think about what they did or not, I don't think they deserve the consequences that they're seeing. I think the same way about the, you mean Wahe? Yeah. Yeah, that's right. Yep. I feel the same way. This case against the guy at open seat no matter what you think about what he did or not or what he's alleged to have done he doesn't deserve a money laundering charge.

Absolutely not. That's not what the money laundering statutes about. I don't think it fits the elements of money laundering. And I don't like the idea that simple use of basic privacy tools is treated like money launder. It's like saying, because you put your money in a wallet instead of carrying it around in your hand, you were money.

So, I wanna get involved in the acus briefs there too and jump in to help criminal defendants, even in cases where in the future you might not like everything they did, but you feel like they're being overcharged. And I think [00:25:00] prosecutors are handing out thrown down indictments like candy and Halloween that include money laundering charge.

For everything crypto. And I think it's a terrible abusive, prosecutorial discretion, so I wanna fight that. 

One of the challenges, of course, in, in raising your Freedom Lab and doing all these things is of course, money. Yeah. The, in many ways what you're fighting for is the true cipher punk vision, who, where are the dollars for that ultimately coming from? Like in, we certainly, and I'm a, obviously I'm a fan of the crypto space, n not everybody actually shares the cipher punk vision. Go figure. Who does 

I am and who can fund it.

Yeah. That is the, that's the key question. [00:26:00] Maybe your listeners can fund it. 

Eric: Okay. My listeners said, there we go. Yeah. We'll make sure to we'll make sure to post a link. You can tell 'em the link now. You can tell at the end of the show. But even more broadly for the real dollars, where do you, again it's a challenge for any movement.

Certainly, one that, that. The digital asset space has an interest in promoting because, certainly, you, these are the, this is the front line and, we lose on these. It's just we continue to backpedal and lose a lot of the liberties that, we don't necessarily associate.

We're like, oh, it's for somebody else, but yet it all, it impacts all of us. Particularly if we don't fight for it at this end. But who is, where does that, who is the big promoter? Who cares enough to put the value up to, to try to push this forward? You obviously, but just broader.

I 

JW: [00:27:00] can I don't I don't have the big money yet that I need, but I'm close. So, what I've raised so 

far is modest. I did a Bitcoin round and Bitcoin. Didn't raise a ton there but raise a lot of awareness in the community. I started with what I know that is libertarian foundations that have supported George Mason, which have supported libertarian think tanks in DC for a long time that I've worked at.

So, I've started with that community and they care about crypto because they care about freedom. They come to crypto because of the libertarian ethos that pervades a lot of crypto. So, I've started. and I think in that community I'll find the support I need to get moving in terms of getting crypto support.

Look, I'd love to get some money from the defi world, but if the community doesn't it, times are tough. It's bear market. If all I get from them, [00:28:00] from and from the leaders in that world is ideas and help, and, editing help and idea help from you, from everybody else in the. Then it'll be a blessing.

I, we've got a lot of friends at the Lex Punk crew. I just, I wanna hear from them about what I should be writing about, and I wanna hear their feedback about where I'm wrong. They're very good at that, right. They're very good at crypto lawyers are awesome. They help they help, but there, it's also kind of trial by fire.

And when you throw an idea out there, which is the best way to hone an idea and I, so I've started in the crypto side. I, my base is Libertarian foundations and the libertarian community, which is very powerful, very strong, very well-funded. And I'm reaching out to people who I admire on crypto, Twitter, who are thoughtful, who are principal, who are like, even at big exchanges, you read their thoughts and you're like, what?

You're at a big exchange. You sound like a Cypress P. Those are the people that I [00:29:00] want help from and that I'm reaching out. and hopefully it'll be enough and, until I get the money I need, it'll just be a one-man band. But I've done a few things. 

Eric: No, you won't be a one-man band. You just may not be a well-funded multi person.

I'll help out when I can as well. Yeah, thanks, man. It's just I'm I wouldn't put myself in the category of big money. Then there's you’ve also started a free crypto newsletter and you've been pursuing the Zcash Foundation Board of Directors. How's that going?

You're trying to get on the board there? 

JW: Yeah, there's the Zcash Foundation, I'm a huge fan of the technology of the people, and they have an open spot on the Zcash Foundation board. Zcash community is there, there's a wide community, but in terms of organization. They have the Electric Coin Company, [00:30:00] which is Zuko company.

It's more the kind of commercial side of things, side of development. There's the Zcash Foundation where some of the other, that was created by some of the other creatives of Zcash, and that also funds development of new projects on top of the Zcash blockchain and new technology. That's part of the ecosystem.

And then there's a Zcash community grants. That directly does some funding that's led by people from the community. So those three organizations right now are all funded by piece of the mining block rewards called the Dev Fund. So, it's an exciting organization and I love Zcash. It's my favorite has a.

It's always been my favorite privacy technology. I love using Zcash. There's not a lot of places to spend it and buy it, but I'd love to send people up. I'll send you a private note over Zcash. I love the idea of sending an encrypted note that's gonna live forever on the [00:31:00] Zcash blockchain, but that nobody but you and I can read.

So, I'll send you a, maybe some dirty jokes or something if you send me your z. And if you don't have a Z address, we'll get you, we'll get you onboarded and get you a Z address. How have to get a Z address need a Z address? Every, all of your listeners need a Z address, so I would recommend right now use My wallet or Z wallet like and get you some Zcash.

You can get it on exchange with the T address but send it to your Z address and its shadow money. For me there's that one moment you come into crypto where the first time you send a significant amount of. And you're like, wow, this is cool. This is scary, but this is powerful.

I'm holding this in my hands. But for me, the second aha moment, and I think as the world, as crypto world learns, they need more privacy than they have is you send some Zcash somewhere to a Z address and then you go look it up on the block Explorer and there's nothing. There's nothing there. And you're like, oh, that's even better.

That's now I not only have private money, [00:32:00] but I have a secret. I have a secret. And that's cool. Secrets are. And secrets are more than just cool. They're central. It's modern life, right? So anyway, I love Zcash. I'd love to have the opportunity to serve. There's another, so there's a, we have a horse race now, so we have a second candidate in the race a great guy from the electronic Future Foundation that fights for privacy in in, in, in computer technology.

We have a horse race. We're gonna do a call, both of us, with the community. Talk about our perspectives and then we'll have a community poll to see which of us will get on the board. And if that doesn't work out, I'll find some way, other way to get more involved in Zcash, cuz it's a, it.

It's my favorite crypto project, I have to say. 

Awesome. How do you see the tension playing out between the need for forensic analysis and the context of, that the, a government's push for a bad actor and [00:33:00] privacy coins? You had the doj I think they did a report I guess about a year and a half ago or so.

And they listed a number of different privacy coins. They called 'em out. Manero was one of 'em. Okay, I gotta check whether Z cash was part of it, but they basically expressed concern with mixers and privacy coins and the potential, for it being used for money laundering, but also terrorist activity.

How do you see that tension between the need to conduct that forensic analysis playing out with regard to the privacy coins? 

I've never seen an example of terrorists using crypto at all. So, I think that's always been a red herring by law enforce. law enforcement uses a lot of red hearings in the A m L and sanctions discussions.

Those regimes are very ineffective at stopping crime. They stop like 0.5% of the UN estimates. They stop 0.5% of [00:34:00] illicit funding. The other 99.5% gets through just fine and we go to all this trouble and billions of dollars in compliance costs from., 

Eric: It's and you lump ransomware also together with the terrorist activity, 

JW: right?

Yeah, sure. That and that the, that's an issue. My default position is the DOJ should absolutely investigate crime and if you wanna investigate crime, get a warrant, the Fourth Amendment, and get a warrant. Anything else is just DOJ being lazy. You don't get to surveil my money and my transactions.

just because it makes it easier for you to conduct investigations. Get a warrant. All right. Good enough for them, it's good enough for DOJ now. 

Eric: And what about what are your thoughts about I immutability, so one of the things that you're seeing come up in the [00:35:00] context of I guess the Stabenow and any of these bills before Congress is this notion of, if a, if there's erroneous transaction, what happens to an erroneous transaction, presumably this.

Like private shards where presumably centralized actors can hold it and have the ability to reverse. What are your thoughts about that potential direction for crypto? 

JW: I, I just don't see any way, I think that's a core function of blockchains. I don't see any way around that.

So, I would be suspicious of any blockchain that was not immutable. I'm not sure I'd want to use it. To the extent that there's a solution to that problem. It's the front ends and the UX to make it easy, to make payments more secure. And I think a lot of people are trying to build the solution to that, to, to make that [00:36:00] more secure so that, it takes a lot of work to learn how to make a crypto payment.

And I still sweat over, comparing the public and being like, X, X 1, 1, 3, 3, right? you're just sitting there, you're like, did I do it right? Let me do it again. Let me look again. And you send the $1 and you're like, it went there, but what if it, what if I just accidentally deleted an X Right.

Or something. So that, it's hard to have universal adoption when that's still the only way to do it. But I think people are trying to build tools, wallets that. Less seat phrase based, which are obviously less secure, but more usable. It seems like those are solutions. They can work, but no, don't take away immutability.

I think the whole thing falls apart if you think, 

Eric: yeah, I, what I suspect is, when you have a regulated, centralized actor, there's probably [00:37:00] gonna be like a private chain that like acts like a, the side chain., publishing on the main chain. And what's ever on the private chain presumably would be, not final until it was published on the main chain.

JW: Yeah, and it's, it, it could end up being centralized actors or just giving you insurance for your payment out and. Mess with the availability of code, but they just, they're just ensuring your payment out, which is not costless. Insurance is never costless usually for sure.

Pay for it. But I'm sure we'll probably see that in regulation or something. 

Eric: So, we've seen a lot of regulation by enforcement. Gurbir Grewal, he's the director of enforcement. He made this public speech which yeah, drives me nuts because he. I say it's three times. We don't regulate by enforcement.

We don't regulate by enforcement. We don't regulate by [00:38:00] enforcement there. It's true. And shortly after that there was block by, and then there was Wahi, and then there was Belina. And you also have like beyond the s e c the Jared case and BZ X Uie which we covered in our episode with Kevon Seg.

What do you see about, certainly black wasn't a Defendant they must have, but they definitely had some, they definitely be able say that they, the solution that they presented was in the context of an enforcement action and not something that they negotiated on the side and pursued.

What do you think about the selection of potentially weak litigants and enforcement targets? the implication for like how practitioners interpret what the law is in the space? 

JW: Yeah. There's no question they're regulated by enforcement. I [00:39:00] think what we mean when we say that is as securities lawyers is, we mean that tends to have a few attributes.

It tends to involve novel theories of. And that are pushed in settlements cuz the s e c usually just announces the case when they settle the case. So, they push a novel theory of law in the settlement. They use their leverage over a particular weak defendant or maybe just someone who can't afford the half million dollars it takes to win against Cscc.

And they use that leverage. Push a novel legal theory, they trump up the legal theory in the settlement like they have in, like one example is a settlement involving somebody doing airdrops and they say, look, airdrops are a sale of a security, which is an incredible pushing of the [00:40:00] envelope of the doctrine.

What constitutes a sailor offer of a security just to say, oh, airdrops are a sale. Easy. But they did that as part of the settlement with the defendant who was judgment proof and, who've had, one of the shittiest of shit coins, right? And now they have, now they point to it and say no.

Airdrops are all sales. See the settlement we had. But that's not even precedent. It's that, and it's also the procedural., like what they're doing with Pki Dao, and we'll serve you on the chat forum and we hope nobody shows up. Thankfully, Lux Punk showed up, man, and Stephen Pley was like, yeah, I'll, I'm here, I'll argue.

And that'll wake you up in the morning. But it's the procedural games. And the pushing the envelope in doctrine and selecting weak defendants. It said the kind of [00:41:00] procedural games that weakened the legitimacy of the agency. I forget there was one former s e c chairman who said, no honest man should ever fear the s e c.

When you have so many when you have a million dollar fine against Kim Kardashian, for not disclosing the amount she was paid, the disclosing, it was an advertisement just weakens the legitimacy of the agency. And, his video, Gary's video doesn't help. I like this agency.

I like when they go after frauds and cheats and major accounting frauds or Ponzi schemes or small penny stock schemes. And there's a lot of that kind of stuff in crypto that weakens the industry that we love. I'd love to see more cases against those people., but this kind of stuff it just de legitimize it challenges the legitimacy of the agency.

That's the phrase I'm looking for. And you hate to see 

Eric: it, man. It's funny. There is a game theoretical approach to [00:42:00] regulation. The game theoretical approach says that you work with a component of the industry that you think is endeavoring to be compliant. And you. You then are able to focus on the part of the industry that is more problematic and you try to make those, try to make those distinctions early on in the process so you have a partnering relationship and the people, you, and the projects you partner with also become almost advocates against those who are not doing things as straightforward and it's actually a much more effective.

Way of regulating certainly when they're prosecuting fraud. That was, I think we had Yuliya Guseva, I'm gonna mess up her name. It's driving me nuts. But Yuliya Guseva. Yeah. On the podcast. She did a number of papers on this and basically, the s e c was far more effective when they were going after frauds than later on when they decided to go after these nickel and dime [00:43:00] registration, violations.

And honestly, what did it accomplish? Did it prevent Tara? Did it prevent three hours capital? What did it actually prevent? It didn't, the fundamental mission of the agency wasn't being pursued. Instead, these sort of procedural registration violations, not to say, They, that there might have been, that, these procedural violations with targets that could have endeavored to comply, with more clear disclosure.

It just was, there's something like that. There was a chance missed. So, the purpose of this, I'm not really just trying to slam on the s e c, I'm saying that there was an opportunity missed Yeah. Where they could have partnered, they. made things a little clearer instead of just simply always beating on it, almost as a way to, like it was almost a political [00:44:00] move.

Yeah. To try to carry favor, to try to, to try to better position Gensler for other roles and they missed that opportunity. The playbook would've been divided., divide the industry, work with certain players and give that pathway versus taking everything on and just being, what I would say largely ineffective.

They can't do a, they can't do an end zone dance like Kim Kardashian when the whole crypto market's down and projects, a number of projects are just from an economic perspective, may not be proceeding. 

JW: Yeah. There's a. So, one of the things I asked in January, I sent him a note a request for public request for rulemaking.

Just open up a call for comment about regulation of crypto and just hear from all the smart lawyers in the space. Why don't I just do that? I mean they do a concept release. Yeah, do a concept 

Eric: release. Yeah. Could have done it 

JW: earlier. Yeah., 

Eric: but [00:45:00] people would've been unhappy, but at least the voices got heard.

Listen, we all know regulations coming, that's really not the issue, right? Yeah. 

JW: And it's, and there's lots of things we should, this is reflected in the RegX proposal and in others. There are things we'd like to know about crypto projects that aren't in Reg, SK or Reg.

even if they're registered technomics and are the whale dumping and security audits of the protocol. That stuff is not in rag x and that's what we actually need to know about. We don't need to know about half the stuff that's in there. And they don't have boards again and they don't have CFOs and stuff like that.

Eric: Yeah. Block Stack was like, why am I a security again? Block one black, ack, 

JW: Yeah. And how much did they spend for their failed reggae offering? They spent like a couple million dollars. Yeah. Boy, that so if the rule is the only way to build a protocol is to spend $2 [00:46:00] million in compliance, it's not gonna, it's not gonna work.

It's gonna be like crowdfunding, which is, to be honest, like a joke at. Yeah. The market cap for crowdfunding in New Zealand is larger than the market cap for crowdfunding in the United States. That's a regulatory failure. I don't wanna 

Eric: see that happen at crypto. Yeah. Listen I did do a podcast on crowdfunding.

Okay. I'm not as despondent on the possibilities for crowdfunding. Okay. You can raise 5 million a year and that's not exclusive of Reg D. So, I, I actually think if you're a struggling project, that's an option. I could, I do think that the lack of a secondary market for those projects is one of the inhibitors of it long term.

But anyway, so let's how do you see like the, going back to this forensics field as a former accountant, and we touched on it, how do you see this field of forensic. [00:47:00] Evolving as it relates to crypto? 

JW: One of the ways in which so I'm a practicing forensic accountant, and one of the ways I get involved in that is people who, if they read my, the book that once my book's published, it's gonna be a while before it's published, but if they read my book and they did everything right, they would get away with everything.

But they won’t. The vast majority of people won't. They will make some mistake along the way, and I think forensic experts can come in and help. So mostly at this point, a lot of it's about divorce cases and it's a pretty simple effort of just using block explorers and a combination of subpoenas to exchanges and block explorers and then saying, hey, there have been about four or five hops.

Is this publicly? and they're like oh, I must have forgot to mention that in the divorce filing. [00:48:00] So that's pretty simple. If people get smart and they start using coin joints or privacy coins then it'll be a lot more complicated. But as 

Eric: they use the term coin 

JW: joins? Yeah, coin joins.

That's Whirlpool, which I think Okay. I would say is more, a lot more effective than using central. 

Eric: And how does Whirlpool work? 

JW: So, Whirlpool its ha has a pool of bitcoins in the Whirlpool. And you put yours in and it goes into coin joint transaction and it comes back out.

And what I love about the Samurai Wallet is it's designed to work with Whirlpool and to coin join your coins and. It is a Bitcoin privacy wallet created by the people who've been thinking about Bitcoin privacy since 2013. So, like the diehards, [00:49:00] everything about it is privacy by default, from the default of using tour to connect to whirl.

So, your transactions go through tour by default. Your, you, it generates new addresses for every time there's a movement of anything. It generates a new Bitcoin address. So, you're never reusing addresses. It doesn't let you when you have change, right? It doesn't let you spend the change in a way that the unmixed change might be used to connect to the.

Coins and thus leave some transaction history that would make it traceable. And then on the way out it also uses Stonewall to do a few hops between different addresses so that on the way out it adds additional obscurity. So, I love it. I like to tell people crypto [00:50:00] privacy is like a game of hide and go seek if you want to.

stay hidden. Don't poke your head up, don't move around, right? Privacy is about staying, still hiding and staying still. So, you gotta keep your assets shielded for a long period of time. Otherwise, it becomes statistically a lot easier to connect the shielding transaction and the unshielding transaction, including that could happen on chain or that could also happen fiat on-ramp and fiat offer ramp.

So, there'll be room for forensic analysis and kind of net worth. Did you suddenly a million dollars disappeared three years ago? Suddenly it appeared. Now then I can infer that it was hidden in crypto for a while. So that kind of net worth analysis and trying to statistically link shielding with un shielding is probably, I think most of the game in forensic analysis of crypto that.

Technical analysis, which, you get a chain analysis subscription and you play with their [00:51:00] tools, which I don't have because I have some philosophical issues with chain analysis and some of the things they do. But yeah, I think that's how forensic analysis will work.

If you do it right, you can avoid that. 

Eric: And do you think it's an area that's gonna start getting a lot of a lot of hires? Is that a big growth area for prospectively? Yes, 

I do. 

Excellent. Now you all did, you collaborated with Jay Clayton, correct. He 

JW: put me on the s SEC's investor advisory committee, which is meets once a quarter debates ideas, and so yes, I did.

And got to know him through that. And, debated crypto with him quite a few times. 

Eric: Yes. And how do you view [00:52:00] him, his approach versus Gary Gensler? I know you're probably like, most probably have a little more visceral reaction to Gary versus Jay but how do you think, how do you contrast their worldviews?

Do you know what they brought to the commission? 

JW: Yeah, I think he cared. Jake cared about getting it right. He cared about not politicizing the commission. And I don't think that's true, Gary, unfortunately, and I, I think every, since I've been a securities lawyer since 2007, every chairman I've seen has cared about the agency, cared about trying to avoid politics to the extent there can, which it's hard, but trying to, Mary Shapiro, mayor Joe White, were very much, they were securities lawyers first before they were DC operatives.

Gary's a DC operative. He's not a securities lawyer. I, so I don't think he cares about doctrine the way I do and the way they did and the way Jay did. Of course, I disagree with his approach to crypto. I [00:53:00] disagree with the Ripple case and I wish he had done more to provide some kind of reg regulatory exemption for crypto fundraising.

I understand. how in 2017 you look over the ICU landscape and say, whoa, there's a lot of junk here. Because there was a lot of trash coins. But I think and there was some helpful guidance. The fact that there's paper that says decentralization can obviate the Howie test.

That's helpful. Nobody had done that before, and Gary won't say that now, but it's helpful. It wasn't enough, but it was. But I hope they lose the Ripple case. And now, there's just, so far there's been nothing 

Eric: helpful. Agreed. So, people wanna learn more about the Crypto Freedom Lab.

Yes. Where would they go? 

JW: Yes. Go to follow my Twitter account at JW Burette. And I'm always [00:54:00] I always have a lot of opinions about. and other things. And you can go to crypto freedom lab.com. We're gonna be, it's another way to follow me and you can donate using Manero and Zcash as well.

You can donate privately if you like. I think I've raised about 50 cents worth of an arrow so far. Yes, and hopefully we'll have a lot more updates coming. For you all and thanks for having me on, man. I love, I love the podcast. There 

Eric: you go, All right. Thanks so much, jw.

JW: Thank you, 

Eric. [00:55:00]