Opinion by: Daniel Taylor, head of policy at Zumo
Peer inside the average crypto regulatory consultation meeting, and you will quickly notice a distinctive pattern: throngs of TradFi lawyers and ex-financial services personnel responding to documents written by financial services regulators, laying down the law of how crypto asset activities will be carried out in the future.
It speaks to the almost parallel worlds we have seen in crypto. On the one hand, there are the integrators, the assimilators and the “mainstream adopters.” On the other hand, the technological cutting edge is almost wholly removed.
Crypto technologists might think this has nothing to do with them — that regulation and compliance are not areas that deserve any of their attention.
Taking this stance is a direct threat to today’s crypto users.
The crypto-TradFi disconnect
In May 2025, Coinbase suffered a data breach exposing personal customer data gathered by regulatory obligation during the Know Your Customer (KYC) process. It has set aside between $180 million and $400 million to reimburse customers defrauded during subsequent social engineering attacks.
The crypto world responded to state what will be evident to many in the crypto sector: that the technology solutions exist to make such mass data collection redundant.
This is achievable through the widespread use of decentralized digital identities and zero-knowledge cryptography to prove claims without exposing sensitive data. If businesses don’t possess customer data, they can’t compromise it.
The urgent need for privacy-enhancing technologies
This is not a question of minor annoyance — relevant only to centralized exchanges and the neo-crypto intermediaries that dominate today’s crypto user landscape.
Whether we like it or not, exchanges remain core on- and off-ramps to the rest of the (non-custodial) crypto ecosystem. KYC is not the only data-heavy requirement to which crypto exchanges are exposed.
Other UK requirements, both current (Travel Rule) and future (Cryptoasset Reporting Framework), point toward a future where users’ transaction data and real-world identities and addresses are neatly labeled and packaged under the historically inept, if not downright exploitative, auspices of corporate and public authority data guardianship.
Crypto users are in danger
With the rise of physical “wrench attacks” on known crypto asset holders in France and elsewhere, this should be ringing all our alarm bells and inspiring us with a sense of collective urgency.
Recent: Violent crypto robberies on the rise: Six attacks that targeted investors
Failing to build in privacy-enhancing technologies within crypto intermediaries and within applications at large is a crypto (not to mention societal) disaster in the making. And not questioning how crypto-native technologies could be applied to achieve equivalent outcomes is increasingly inexcusable.
Changing the picture requires representing that opinion in the regulatory conversations that matter and providing technology solutions that bridge the obvious need. Crypto consumers deserve digital solutions that provide more individual security and more individual privacy as default.
How crypto technologists lead
The good news is the crypto industry has a track record in introducing techno-regulatory innovations. Proof-of-reserve systems have become a commonplace way to make claims about platforms and backing assets. Privacy pool concepts explore maintaining onchain privacy while adhering to compliance expectations. And solutions are emerging to bring critical legal functions entirely onchain. We need more technology advocates and techno-lawyers who can marry technological innovation with the needs of the regulatory environment.
And if we don’t? We shouldn’t hold any illusions that, on the present trajectory, current regulations being finalized are based almost entirely on legacy systems and rulemaking and surely aren’t taking any such factors into account.
If the sector wants the future to be different, we must ensure that the policy conversation is not held solely in a room of incumbents, TradFi lawyers and suits but rather takes wider perspectives into account.
Merging the old world and the new
Crypto regulatory frameworks are in danger of being legislated by those with the old world as their default scope of reference and with no imagination to see beyond it. We must act fast to represent more tech-based and crypto-native views in regulatory engagement. Otherwise, we risk finding ourselves saddled with rules that fail to innovate and tailor to the unique properties and potential of the crypto asset sector.
That means no more burying heads in the sand on regulatory realities and standing up to shape the regulatory future. That means more technologists must join the regulatory conversation to champion privacy-enhancing technologies and crypto-native solutions.
Opinion by: Daniel Taylor, head of policy at Zumo.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
