An SEC official stopped pretending

Author: Liam

In the cryptocurrency world, government regulation is often considered the biggest obstacle to the development of privacy technology.

However, on August 4th, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce delivered a striking speech at the University of California, Berkeley. Citing the Cypherpunk Manifesto, she openly criticized the U.S. financial surveillance system and championed privacy technologies like zero-knowledge proofs and decentralized networks.

This regulator, known as "Crypto Mom," took a rare stand on the side of the regulated, even more radically than many crypto geeks.

This is a regulator's awakening.

Peanut Butter and Watermelon: A Regulator's Awakening

August 4th, University of California, Berkeley. SEC Commissioner Hester Peirce delivered a speech that stunned the audience. Titled "Peanut Butter and Watermelon: Financial Privacy in the Digital Age," it might sound like a delicious treat, but it was actually a fierce attack on the existing financial regulatory system. Peirce opened with a family story: Her grandfather hated watermelon and always slathered it with peanut butter to make it easier to swallow. This unusual combination always attracted the attention of neighborhood children at summer picnics. Years later, a telephone operator, answering the phone for her grandfather, unexpectedly asked, "Are you Mr. Peirce, the one who smeared peanut butter on the watermelon?" It turned out the operator had been one of the children who had watched. Peirce wasn't interested in the peanut butter and watermelon combination; her focus was on telephone operators, a profession poised to be eliminated by technology. Later, automated exchange systems allowed people to dial directly to communicate, eliminating the need for human intermediaries and, more importantly, eliminating the possibility of neighbors eavesdropping on your private calls. Hester Peirce was supposed to be a staunch defender of financial regulation. A graduate of Case Western Reserve University's law school, she served on the Senate Banking Committee for many years before being appointed by Trump to the SEC in 2018. Crypto industry professionals nicknamed her "Crypto Mom" because she was far more friendly toward cryptocurrencies than other regulators. But in this speech, she completely shed her mask of moderation and came clean. "We cannot expect governments, corporations, or other large, impersonal organizations to provide us with privacy protections out of the goodwill of their hearts." She quoted a line from Eric Hughes's 1993 "Cyberpunk Manifesto," a work of techno-anarchism. A government official quoting anarchists to criticize the government is as odd as a police officer quoting criminals to criticize the law enforcement system. But Pierce wasn't satisfied. She then added, "Where the law, through flawed design or inadequacy, fails to protect us, technology might." It sounded nothing like the words of a public servant, but more like a rallying cry for technological revolution. Pierce's real fire was focused on the existing financial surveillance system. She began by harshly criticizing the "third party doctrine," a legal concept that allows law enforcement to obtain information you've given your bank without a warrant. As a government employee, she criticized her employer for using this doctrine like a sledgehammer. "The third-party theory is a key pillar of financial surveillance in this country," she said, pointing out the absurdity: banks can use encryption to protect customer data from theft, but according to the third-party theory, customers still have no expectation of privacy in this encrypted data. In other words, banks can protect your data from thieves, but the government can access it whenever it wants. She then took aim at the Bank Secrecy Act. This nearly 60-year-old law requires financial institutions to establish anti-money laundering programs, effectively making banks informants for the government. The data is shocking. In fiscal year 2024, 324,000 financial institutions submitted more than 25 million transaction reports to the government, including 4.7 million "suspicious activity reports" and 20.5 million "currency transaction reports." "The Bank Secrecy Act has turned American financial institutions into de facto law enforcement investigators," Pierce bluntly stated. The government fostered an atmosphere of "better to kill a thousand wrongly than to let one go," encouraging banks to report any suspicious transactions. The result was a flood of useless information that drowned out truly valuable leads. Even more egregious, Pierce targeted even her own agency. The SEC's Comprehensive Audit Trail (CAT) system monitors every trade in the stock and options markets, from order placement to execution. She and her colleagues described it as "a product of a dystopian surveillance state." Not only was the system a lavish expense—$518 million had already been spent by the end of 2022, nearly eight times the budget—it also enabled thousands of SEC employees and private sector workers to access anyone's trading records at any time, without requiring any criminal suspicion. Imagine an FBI agent publicly criticizing wiretapping laws or a tax official defending tax evasion. Pierce is standing against the system. Technology Redemption Since the law is unreliable, Pierce places her hopes on technology. She publicly advocates for a range of privacy-preserving technologies: zero-knowledge proofs (ZK), smart contracts, public blockchains, and decentralized physical infrastructure networks (DePIN). If you're a seasoned cryptocurrency investor, these concepts are undoubtedly familiar. The appeal of these technologies lies in their ability to bypass traditional intermediaries. Zero-knowledge proofs allow you to prove your identity or age without revealing other information; privacy mixers can mask your income, donations, and purchases; and decentralized networks simply eliminate centralized providers. Some blockchains have built-in privacy features, protecting sensitive information much like private phone lines did in the past. Pierce even expressed the radical view hinted at in Hughes's "Manifesto": these technologies must be allowed to develop freely, "even if some might use them for evil." Coming from a government regulator, these words are particularly powerful. She also drew on historical lessons. In the 1990s, for national security reasons, the government sought to control strong encryption technology. However, the internet's development depended on encryption, and a group of determined cryptographers rose up in resistance, ultimately persuading the government to allow private use of encryption. Phil Zimmerman, the developer of PGP, is one of these heroes. Thanks to their efforts, we can now securely send emails, bank online, and shop online. Pierce elevated privacy protection to the level of constitutional law. She quoted Supreme Court Justice Brandeis's famous words: "When the purposes of government are benign, we must most vigilantly protect liberty." She called on the government to protect citizens' "ability not only to communicate privately but also to transfer value privately, just as people used to exchange cash in the era of the Fourth Amendment." "Critical to human dignity is the ability to decide with whom to disclose information about oneself." She emphasized that "both the American people and their government should fervently protect the right of individuals to lead private lives and use privacy-focused technologies." The speech coincided with the trial of Tornado Cash co-founder Roman Storm, a case that exemplified the government's crackdown on privacy technology. Pierce made a clear statement: "Developers of open-source privacy software should not be held responsible for how others use their code." More Radical Than a Geek Interestingly, Pierce's views don't entirely align with Hughes's; in fact, they're even more radical. In his "Manifesto," Hughes wrote: "If two parties engage in a transaction, each remembers the interaction. Each can talk about its memories; who can prevent it?" This effectively defends the third-party theory: since you've given your information to a bank, the bank can certainly tell the government. But Pierce attacks this very theory, arguing that even if information is in the hands of a third party, individuals should retain control over their privacy. This divergence is intriguing: Hughes, as a techno-anarchist, accepts the harshness of reality to a certain extent; while Pierce, as an insider, demands more thoroughgoing privacy protections. In my opinion, this seems like a case of "convert fervor," much like Korean Christians who are more eager to travel the world as missionaries. Of course, as a regulator, she understands the problems of the existing system better than anyone else. Her long regulatory experience has taught her that true protection may not come from more regulation, but from the solutions provided by technology itself. However, changing social perceptions is not easy. Hughes said, "For privacy to become universal, it must become part of the social contract." Pierce also acknowledged this challenge. Whenever she criticizes financial surveillance, some people always say, "I've done nothing wrong. What's wrong with the government monitoring us and catching bad guys?" She refutes this, quoting privacy scholar Daniel Solove: "This argument that I have nothing to hide reflects a narrow view of privacy that deliberately ignores the other problems raised by government surveillance programs." More than thirty years ago, Hughes wrote, "We cypherpunks seek your questions and concerns, and hope to engage in dialogue with you." Thirty years later, Pierce responded to this call with this speech. Compared to others, Pierce's contradictory identity is what makes this speech so captivating: a regulator championing regulated technology, a government official quoting anarchists to criticize government policies, and a defender of the traditional financial system championing the decentralized revolution. If Hughes were still alive today, hearing Pierce's speech, he might feel comforted and say, "You're one of us!"