SEC Commissioner Urges Legal Protections for Crypto Privacy Tool Developers

On August 5, 2025, SEC Commissioner Hester Peirce urged greater legal protections for developers of open-source crypto privacy software, emphasizing that they should not be held liable for how their tools are used by others. Speaking at the Science of Blockchain Conference, Peirce highlighted the importance of safeguarding individuals' rights to conduct private transactions, drawing comparisons to the use of physical cash under the Fourth Amendment. She argued that open-source protocols, being immutable and decentralized, cannot be effectively regulated through financial surveillance, and that overreach in this area could undermine innovation and freedom in the digital economy [1].

Peirce’s remarks came amid ongoing legal proceedings against developers of crypto mixing services, including Roman Storm, co-founder of Tornado Cash. Storm faces trial in New York on allegations of facilitating money laundering through the platform. His defense asserts that the software is a neutral tool and that developers should not be held responsible for its misuse. Similar legal cases involving other crypto mixing protocols have underscored the growing tension between privacy technologies and regulatory enforcement [1].

Peirce also criticized the proposed DeFi broker rule, which would have required decentralized platforms to report user transactions to tax authorities. The rule, which was ultimately withdrawn, would have imposed surveillance obligations on intermediaries, potentially undermining privacy and freedom in peer-to-peer crypto transactions. Peirce argued that such measures are impractical for permissionless technologies and would harm civil liberties [1].

Historical parallels were drawn between today’s crypto privacy debates and the 1990s cryptography battles, where advocates like Phil Zimmermann championed the right to strong encryption despite government resistance. Peirce noted that the widespread adoption of encryption technologies in that era was critical for secure online communication and commerce, and that stifling privacy technologies today could have similarly negative consequences for innovation and digital rights [1].

The legal landscape remains uncertain as trials of privacy tool developers continue to set precedents that could shape the future of crypto regulation. Peirce stressed the need to protect these tools to foster innovation and preserve fundamental freedoms, arguing that open-source protocols cannot be effectively controlled and that surveillance mandates are both impractical and harmful [1].

Source: [1] [SEC Commissioner Suggests Protecting Tornado Cash Developers Amid Privacy Software Legal Debates](https://en.coinotag.com/sec-commissioner-suggests-protecting-tornado-cash-developers-amid-privacy-software-legal-debates/)