Written by: Liam
In the world of cryptocurrency, government regulation is often seen as the biggest obstacle to the development of privacy technologies.
However, on August 4, SEC Commissioner Hester Pierce delivered a stunning speech at the University of California, Berkeley, where she quoted A Cypherpunk's Manifesto, publicly criticized the American financial surveillance system, and advocated for privacy technologies such as zero-knowledge proofs and decentralized networks.
The regulator known as "Crypto Mom" rarely stood on the side of the regulated, even being more radical than many crypto geeks.
This is an awakening of the regulator.
Peanut Butter and Watermelon: An Overseer's Awakening
On August 4, at the University of California, Berkeley.
SEC Commissioner Hester Pierce delivered a speech that left the audience stunned. The speech was titled (Peanut Butter and Watermelon: Financial Privacy in the Digital Age), which at first sounds like a food sharing, but in fact, it was a fierce attack on the existing financial regulatory system.
Pierce opened with a family story: her grandfather hated eating watermelon and would always slather it with a thick layer of peanut butter to get it down. This odd combination often attracted neighborhood kids during summer picnics. Years later, when a telephone operator answered her grandfather's call, she asked, "Are you the Mr. Pierce who puts peanut butter on watermelon?"
It turns out the operator was one of the kids who used to watch.
Pierce was not interested in the combination of peanut butter and watermelon; her focus was on the telephone operator, a profession soon to be eliminated by technology. The later automatic switching systems allowed people to dial directly without the need for human intermediaries, and more importantly, there were no neighbors eavesdropping on your private calls anymore.
Hester Pierce should have been a staunch defender of financial regulation. She graduated from the Case Western Reserve University School of Law and worked for years on the Senate Banking Committee before being appointed as an SEC Commissioner by Trump in 2018.
The crypto industry practitioners gave her a loud nickname, "Crypto Mom," because she is much friendlier toward cryptocurrency than other regulators. But in this speech, she completely tore off her gentle mask and laid her cards on the table.
"We cannot expect the government, corporations, or other large, indifferent organizations to provide us with privacy protection out of goodwill."
The quote she referenced comes from Eric Hughes's 1993 work (A Cypherpunk's Manifesto), a piece by a technological anarchist. It's as strange as a government official quoting an anarchist to criticize the government, much like a police officer quoting a criminal to criticize the enforcement system.
But Pierce was still not satisfied.
She then said, "Where the law cannot protect us due to design flaws or insufficiencies, technology may be able to."
It sounds nothing like what a civil servant should say; it rather resembles a rallying cry for a technological revolution.
Universal Hammer
Pierce's real firepower is focused on the existing financial surveillance system.
She first harshly criticized the "third-party theory," a legal concept that allows law enforcement to obtain information you give to banks without a search warrant. As a government employee, she slammed her employer for using this theory as a universal hammer.
"The third-party theory is a key pillar of financial surveillance in this country," she pointed out an absurd phenomenon: banks can use encryption technology to protect customer data from theft, but under the third-party theory, customers still have no expectation of privacy regarding this encrypted data. In other words, banks can protect your data from thieves, but the government can look at it whenever it wants.
Next, she turned her attention to (the Bank Secrecy Act). This nearly 60-year-old law requires financial institutions to establish anti-money laundering programs, effectively making banks act as informants for the government.
The data is shocking.
In the fiscal year 2024, 324,000 financial institutions submitted over 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 said bluntly. The government has created an atmosphere of "better to mistakenly kill a thousand than let one escape," encouraging banks to report any suspicious transactions, resulting in a flood of useless information drowning out truly valuable leads.
What’s worse is that Pierce does not spare her own agency.
The SEC's Consolidated Audit Trail (CAT) can monitor every transaction in the stock and options markets, tracking from order to execution. She and her colleagues directly described this system as "a product of a dystopian surveillance state." This system not only burns money like water, having spent $518 million by the end of 2022 without being completed, almost eight times its budget, but it also allows thousands of SEC employees and private sector workers to view anyone's trading records at any time, crucially without any suspicion of crime.
Imagine an FBI agent publicly criticizing wiretapping laws, or a tax official defending tax evasion; Pierce stood on the opposite side of the system.
Technological Redemption
Since the law cannot be relied upon, Pierce places her hopes in technology.
She publicly advocated for a series of privacy protection technologies: zero-knowledge proofs (ZK), smart contracts, public blockchains, decentralized physical infrastructure networks (DePIN). If you are an old cryptocurrency veteran, you must be very familiar with these concepts.
The charm 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 obscure your income, donations, and purchase records; decentralized networks simply kick centralized service providers out. Some blockchains come with privacy features, just like private telephone lines of the past that protect sensitive information.
Pierce even expressed the radical viewpoint hinted at by Hughes in the (Manifesto): these technologies must be allowed to develop freely, "even if someone might use them for bad things."
This statement is particularly powerful coming from a government regulator.
She also brought up historical lessons. In the 1990s, the government, citing national security concerns, wanted to keep strong encryption technology under its control. However, the development of the internet depended on encryption technology, and a group of determined cryptographers rose up in resistance, ultimately persuading the government to allow private use of encryption technology.
Phil Zimmermann, the developer of PGP software, is one of the heroes.
It is thanks to their efforts that we can safely send emails, make online bank transfers, and shop online today. Pierce elevated privacy protection to a constitutional level. She quoted Supreme Court Justice Brandeis's famous saying: "When the government's purpose is good, we must be most vigilant in protecting freedom."
She called on the government to protect people's "ability to communicate privately and transfer value privately, just like people used cash transactions back when the Fourth Amendment was drafted."
"The key to human dignity is her ability to decide to whom she reveals her information."
She emphasized, "The American people and the government should eagerly protect people's rights to live privately and use privacy technologies."
The timing of the speech coincided with the trial of Roman Storm, co-founder of Tornado Cash, a typical example of the government's crackdown on privacy technology. Pierce clearly stated, "Developers of open-source privacy software should not be held responsible for how others use their code."
More radical than geeks
Interestingly, Pierce's views are not entirely consistent with Hughes's and are even more radical.
Hughes wrote in the (Manifesto), "If two parties have a transaction, each party will remember this interaction. Each party can discuss their memory; who can stop them?" This is essentially defending the third-party theory; since you gave the information to the bank, the bank can certainly tell the government.
But Pierce was precisely attacking this theory, arguing that even if information is in the hands of a third party, individuals should maintain control over their privacy.
This divergence is interesting; Hughes, as a technological anarchist, somewhat accepts the harshness of reality, while Pierce, as an insider, calls for more thorough privacy protection.
In my view, this seems to be a kind of "convert's zeal," akin to Korean Christians who fervently travel around the world to spread their faith.
Of course, as a regulator, she understands the problems with the existing system better than anyone. Her long regulatory experience has made her realize that true protection may not come from more regulation but from the solutions that technology itself provides.
However, changing societal perceptions is not easy.
Hughes once said, "To make privacy ubiquitous, it must become part of the social contract."
Pierce also acknowledged this challenge. Whenever she criticizes financial surveillance, there are always those who say, "I haven't done anything wrong; what's wrong with the government monitoring everyone to catch bad guys?" She quoted privacy scholar Daniel Solove's rebuttal: "This notion of 'I have nothing to hide' represents a narrow view of privacy that deliberately ignores the other problems brought about by government surveillance programs."
More than thirty years ago, Hughes wrote, "We cypherpunks seek your problems and concerns, hoping to engage in dialogue with you."
Thirty years later, Pierce responded to this call with her speech.
Pierce's identity contradiction is precisely what makes this speech the most fascinating—an overseer waving a flag for the regulated technology, a government official quoting an anarchist to criticize government policy, a guardian of the traditional financial system standing up for a decentralized revolution.
If Hughes were alive today and heard Pierce's speech, he might feel reassured and then say, "You are one of us!"