Today we are publishing a comprehensive report on constitutional law and anonymous cryptocurrencies—what we call electronic cash—and decentralized exchange software. As Jerry argued in our report from last month, electronic cash is essential for preserving human dignity and autonomy as the world moves increasingly toward fully intermediated payments technologies like Alipay or WeChat. Today’s report explains why anonymous electronic cash and decentralized exchange software is the endgame for all cryptocurrency networks, and how this evolution will result in much less publicly available information about cryptocurrency transactions. Postulating that this shift could trigger calls for more aggressive financial surveillance policies, the report explains why two potential policy responses would be unconstitutional:

Regulating cryptocurrency software developers and individual users of that software under the Bank Secrecy Act, a federal surveillance statute, would be unconstitutional under the Fourth Amendment because it would be a warrantless search and seizure of information private to cryptocurrency users. Furthermore, any law or regulation attempting to ban, require licensing for, or compel the altered publication (e.g. backdoors) of cryptocurrency software would be unconstitutional under First Amendment protections for speech.

This report digs deep into over fifty years of U.S. case law, uncovering long-ignored questions about how the Fourth Amendment’s warrant requirement can and cannot be reconciled with the Bank Secrecy Act, and why there is reason to doubt the full constitutionality of that law as currently applied. It investigates why lower court opinions from the Crypto Wars of the 1990s are often misguided (even though many did protect encryption code as speech) and why recent Supreme Court case law provides a more robust shield against any attempt to regulate persons who are merely engaged in developing software.

This is not a mic-drop, “code is law,” “you can’t regulate math” approach to policy. As we’ve long argued, there are many activities performed using cryptocurrency that will be regulated, and some uses that will even be illegal. Nonetheless, an aggressive attempt to regulate software developers and individual users, as postulated in this report, would be a severe and unconstitutional overreach into our privacy and speech rights. Drawing that line will mean reduced tools for crime fighters and regulators, but that tradeoff has always been fundamental to American values and to open societies.

As Benjamin Franklin put it, “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.” And as Justice Douglas remarked in a dissenting opinion in the case that found the Bank Secrecy Act (as applied in the 1970s) to be constitutional: “I am not yet ready to agree that America is so possessed with evil that we must level all constitutional barriers to give our civil authorities the tools to catch criminals.”

Nor does today’s report suggest that law enforcement should have no path to the information it needs to investigate crime effectively. However, the correct path involves particular suspicion and a judge-granted search warrant, not the indiscriminate collection of electronic data or an order to developers that they must weaken the tools they work so diligently to make secure. As Justice Clark wrote in a case finding warrantless electronic eavesdropping unconstitutional,

[W]e cannot forgive the requirements of the Fourth Amendment in the name of law enforcement. … [I]t is not asking too much that officers be required to comply with the basic command of the Fourth Amendment before the innermost secrets of one’s home or office are invaded. Few threats to liberty exist which are greater than that posed by the use of eavesdropping devices.

And as Justice Douglas wrote,

It would be highly useful to governmental espionage to have like reports from all our bookstores, all our hardware and retail stores, all our drugstores. These records too might be ‘useful’ in criminal investigations. One’s reading habits furnish telltale clues to those who are bent on bending us to one point of view. What one buys at the hardware and retail stores may furnish clues to potential uses of wires, soap powders, and the like used by criminals. A mandatory recording of all telephone conversations would be better than the recording of checks under the Bank Secrecy Act, if Big Brother is to have his way. The records of checks—now available to the investigators—are highly useful. In a sense, a person is defined by the checks he writes. By examining them, the agents get to know his doctors, lawyers, creditors, political allies, social connections, religious affiliation, educational interests, the papers and magazines he reads, and so on ad infinitum. These are all tied to one’s social security number; and now that we have the databanks, these other items will enrich that storehouse and make it possible for a bureaucrat—by pushing one button—to get in an instant the names of the 190 million Americans who are subversives or potential and likely candidates.

The world Douglas described is now real, embodied by China and other repressive surveillance states that depend on financial intermediaries for their window into peoples’ lives. Fortunately, America has yet to fully travel down this road and, as our report today shows, our constitution bars us from choosing that path whenever moral panics over new technologies drive some to seek safety and control over human dignity and individual autonomy.