I wanted to write this to provide some basic legal analysis to the anyone who wishes to better understand how the laws may or may not affect them in developing or trading in cryptocurrencies. I was led to grin because I saw some problems with the bitcoin blockchain as a form of payment and a store of value. I am concerned with data privacy and bitcoin leaks a tremendous amount of data, so in my opinion it is not safe and not suited as a store of value, primarily because it is not safe out of the box i.e. privacy is not built in by default.
A cryptocurrency should be safe out of the box and by default because average users are usually not sophisticated enough to protect their own privacy. Hopefully the work of the grin council and the work of both the paid and unpaid developers can make Grin contain privacy by default. It seems like the last remaining task is to obfuscate the grin transaction graph. I want to say thanks to all of those contributors for their hard work.
I am writing these opinions from the perspective of an American Lawyer and this post does not constitute legal advice and does not create an attorney client relationship. The laws of your country are going to be different.
Why is crypto legal? Right now in America crypto coding is considered as a form of Free Speech and entails all of the same freedoms as other forms of free speech like writing and music. In 1996 crypto was not legal. Encryption software was considered to be munitions and required special licenses if you wanted to write or publish any work related to them. If you published any form of encryption without a license you would likely get a knock at the door by the ATF or FBI. Who granted the licenses? First it was the U.S. Department of State and then the Department of Commerce. Who is Dr. Bernstein? Dr. Bernstein while a PHD Candidate wrote a very basic encryption source code called snuffle. It was based on a one way hash function but he did not include the one way hash function in the code. He wanted to publish this code and discuss it in the Academic arena but was prevented from doing so by the US Government. You can read more directly from Dr. Bernstein himself [1]. Here is a quote from Dr. Bernstein that seems relevant:
“Unbreakable cryptographic software has been widely available for a long time. (Recent research has focused on making cryptography faster and more convenient for legitimate users; but inconvenience doesn’t seem to stop terrorists.) Even if we burned every book on cryptography, erased every legitimate copy of cryptographic software, and swore never to breathe a word about cryptography again, terrorists would still be able to communicate in secret. As one judge put it: ``The barn doors are open and the pigs have fled.’’”
The link to the decision of Bernstein v. U.S. is also provided below[2]. The Ninth Circuit Court of Appeals ruled that encryption code is free speech and cannot be restrained.
Basically encryption software was outlawed by the US government because they considered it to be dangerous to national security. They said it was dangerous to national security because spies could use it to communicate with their spymasters without the US being able to monitor their communications freely and easily like they can now when people do not use encryption software. They equated publishing encryption literature and code like burning the American Flag. However the Court ruled in Dr. Bernstein’s favor stating the encryption code is free speech. Why is free speech protected in America? Well the US Supreme Court has stated the following:
“It is axiomatic that “prior restraints on speech and publication are the most serious and least tolerable infringement on First Amendment rights.” Nebraska Press Ass’n v. Stuart, 427 U.S. 539, 559 (1976).”
The full text of the concluding comments are provided below but one line that struck me is the following from the court:
“First, we note that insofar as the EAR regula-
tions on encryption software were intended to slow the spread
of secure encryption methods to foreign nations, the govern-
ment is intentionally retarding the progress of the flourishing
science of cryptography.”
The Court further stated that encryption is necessary in our modern age to protect our privacy and the Governments efforts probably violate more than just the 1st amendment:
"Viewed from this perspective, the government’s efforts to retard progress in
cryptography may implicate the Fourth Amendment, as well
as the right to speak anonymously, see McIntyre v. Ohio Elec-
tions Comm’n, 115 S. Ct. 1511, 1524 (1995) , the right against
compelled speech, see Wooley v. Maynard, 430 U.S. 705, 714
(1977), and the right to informational privacy, see Whalen v.
Roe, 429 U.S. 589, 599-600 (1977). "
I have provided a link below that shows the status of encryption laws by country[3]. You will see that currently Germany, UK, France and many others still have laws restricting encryption technology. Especially if you are a foreign national in one of those countries using encryption software then you can be expected to be monitored by that Government. You may face other problems as well. You should probably look into the laws of your country and find more legal information.
Resources:
[1] https://cr.yp.to/export/problem.html
[2] Bernstein v. USDOJ (9th Cir. May 6, 1999)
[3] World map of encryption laws and policies | Global Partners Digital
This is from the 9th Circuit Opinion Defining Cryptography see [2] above:
"Cryptography is the science of secret writing, a science that
has roots stretching back hundreds, and perhaps thousands, of
years. See generally DAVID KHAN, THE CODEBREAKERS (2d ed.
1996). For much of its history, cryptography has been the
jealously guarded province of governments and militaries. In
the past twenty years, however, the science has blossomed in
the civilian sphere, driven on the one hand by dramatic theo-
retical innovations within the field, and on the other by the
needs of modern communication and information technolo-
gies. As a result, cryptography has become a dynamic aca-
demic discipline within applied mathematics. It is the
cryptographer’s primary task to find secure methods to
encrypt messages, making them unintelligible to all except the
intended recipients:
Encryption basically involves running a readable
message known as "plaintext" through a computer
program that translates the message according to an
equation or algorithm into unreadable "ciphertext."
Decryption is the translation back to plaintext when
the message is received by someone with an appro-
priate "key."
Bernstein III, 974 F. Supp. at 1292. The applications of
encryption, however, are not limited to ensuring secrecy;
encryption can also be employed to ensure data integrity,
authenticate users, and facilitate nonrepudiation (e.g., linking
a specific message to a specific sender)."
Here are the concluding comments to the 9th Circuit case in case you are too busy contributing to Grin to read the whole opinion:
"C. Concluding comments.
We emphasize the narrowness of our First Amendment
holding. We do not hold that all software is expressive. Much
of it surely is not. Nor need we resolve whether the chal-
lenged regulations constitute content-based restrictions, sub-
ject to the strictest constitutional scrutiny, or whether they are,
instead, content-neutral restrictions meriting less exacting
scrutiny. We hold merely that because the prepublication
licensing regime challenged here applies directly to scientific
expression, vests boundless discretion in government offi-
cials, and lacks adequate procedural safeguards, it constitutes
an impermissible prior restraint on speech.
We will, however, comment on two issues that are
entwined with the underlying merits of Bernstein’s constitu-
tional claims. First, we note that insofar as the EAR regula-
tions on encryption software were intended to slow the spread
of secure encryption methods to foreign nations, the govern-
ment is intentionally retarding the progress of the flourishing
science of cryptography. To the extent the government’s
efforts are aimed at interdicting the flow of scientific ideas
(whether expressed in source code or otherwise), as distin-
guished from encryption products, these efforts would appear
to strike deep into the heartland of the First Amendment. In
this regard, the EAR regulations are very different from
content-neutral time, place and manner restrictions that may
have an incidental effect on expression while aiming at sec-
ondary effects.
Second, we note that the government’s efforts to regulate
and control the spread of knowledge relating to encryption
may implicate more than the First Amendment rights of cryp-
tographers. In this increasingly electronic age, we are all
required in our everyday lives to rely on modern technology
to communicate with one another. This reliance on electronic
communication, however, has brought with it a dramatic dim-
inution in our ability to communicate privately. Cellular phones
are subject to monitoring, email is easily intercepted,
and transactions over the internet are often less than secure.
Something as commonplace as furnishing our credit card
number, social security number, or bank account number puts
each of us at risk. Moreover, when we employ electronic
methods of communication, we often leave electronic
“fingerprints” behind, fingerprints that can be traced back to
us. Whether we are surveilled by our government, by crimi-
nals, or by our neighbors, it is fair to say that never has our
ability to shield our affairs from prying eyes been at such a
low ebb. The availability and use of secure encryption may
offer an opportunity to reclaim some portion of the privacy
we have lost. Government efforts to control encryption thus
may well implicate not only the First Amendment rights of
cryptographers intent on pushing the boundaries of their sci-
ence, but also the constitutional rights of each of us as poten-
tial recipients of encryption’s bounty. Viewed from this
perspective, the government’s efforts to retard progress in
cryptography may implicate the Fourth Amendment, as well
as the right to speak anonymously, see McIntyre v. Ohio Elec-
tions Comm’n, 115 S. Ct. 1511, 1524 (1995) , the right against
compelled speech, see Wooley v. Maynard, 430 U.S. 705, 714
(1977), and the right to informational privacy, see Whalen v.
Roe, 429 U.S. 589, 599-600 (1977). While we leave for
another day the resolution of these difficult issues, it is impor-
tant to point out that Bernstein’s is a suit not merely concern-
ing a small group of scientists laboring in an esoteric field, but
also touches on the public interest broadly defined."