In the 1980s, David Chaum, a cryptographer, came up with micropayment system that would achieve cryptographic transaction privacy. Later, in the 1990s, he attempted to build this system, but it did not take off.

Today, would it be legal to create something like PayPal but that does not and cannot record transactions? Or would that be a violation of KYC or AML laws?

2 Answers 2


Chaum's system takes a centralised approach and his papers refer to the central entity (that takes deposits and provides cash) as a 'bank'.

I don't know if it would be considered a bank in every or any jurisdiction. PayPal wasn't considered a bank by some jurisdictions. In 2007 Luxembourg gave PayPal Europe a banking licence and it then became subject to banking regulations.

Whatever it is, this central entity is likely to be subject to some financial regulations depending on the jurisdiction - including Know Your Customer -type rules.

In the UK, Chaum's 'bank' seems to be an electronic money issuer (EMI) so subject to The Electronic Money Regulations.

All EMIs must comply with legal requirements to detect and deter financial crime including money laundering and financing of terrorism. These include Customer Due Diligence which includes customer identity verification and monitoring (customer-entity) transactions.

As I recall, UK credit or financial institutions have not been permitted to set up anonymous accounts since the early 2000s (if not earlier).

So it seems to me Chaum's system would be legal in many jurisdictions but the customers (account-holders) must be known to the central entity and their incomings and outgoings recorded by the central entity.


[edited to add clarification]

The IRS declared cryptocurrencies property. This means (according to them) that they are subject to capital gains tax, but processors would not subject to the same regulations financial as financial institutions. However, the IRS is not the SEC (or the other financial regulatory agencies) so maybe someone with a better knowledge of the relevant laws can add some specific details on the specific regulations.

But one thing is for sure, when you setup a new payment processor, people need a way to transfer their actual money in and out. This requires you to work with a bank or a credit card company. This requires you to ban people with political views that international finance disagree with. If you are not willing to maintain a ban list that can be dictated from on high, then you will effectively be shut down. Dick Masterson tried an alternative payment platform, New Project 2, and that exact thing happened.

TL;DR: The Federal Reserve and US government have significant control over finance, particularly since 2008 where the precedent was set that the Fed can just transfer unlimited funds to select financial institutions. This has shut out alternative financing options. This consolidated the financial system.

There is a complex set of laws from the Patriot Act that requires financial institutions to take extreme measures to prevent misuse of financial services (which was passed supposedly to combat terrorism). This is enforced on financial institutions by requiring them to (with very few exceptions) ban all transactions and business with people and organizations on the "match list". Not only that, but pressure has been put on them, from somewhere, to put political dissidents on that list.

Patreon and PayPal have banned many people on the right recently. What most people do not know is that they were forced to. financial institutions ordered them to ban those creators with the threat of locking them out of the financial system. New Project 2 refused to ban politically dissident creators. So the financial institutions went through with the threat, and it was put on the "match list". This shut it down.

As far as I know, the only way political dissidents (producing video content) currently get any access to transactions is through DLive. Their personal banks and credit card processing has been targeted, alternative payment platforms have been shut down. This website does process transactions to and from their cryptocurrency, but does not directly handle transactions in USD. It seems that the financial institutions have not gone the step to ban them for allowing these creators cash-out their donations. But the pessimistic view is that these smaller video platforms have so few views that they are satisfied that they have shut down the political discussion from the debate of ideas. I imagine they will ban even this, though, if it became popular enough.

So do what international finance says if you want to create a payment processor.

  • 1
    "political dissidents ... Right wing content creators have been put on that list" - the ones I'm aware of breached the processors' ToS for (e.g. from PayPal) "transactions involving ... the promotion of hate, violence, racial or other forms of intolerance that is discriminatory or the financial exploitation of a crime". They are far right, not merely right-wing - white nationalist, white supremacist, anti-semitic, even pro-genocide. In addition, at least one of them promoted obstructing search and rescue of migrant/refugee boats (risking lives) and at least two promoted rape.
    – Lag
    Aug 10, 2020 at 8:36
  • @Lag You did not pay attention to my answer. I am not talking about any of that. I am talking about right wing political views not being banned from a payment processor, like Lauren Southern banned from Patreon. But right wing creators being banned from the financial system entirely, like Lana Lokteff. New Project 2 was an entire payment processing platform that was banned by international financiers from the US financial system entirely. And no, there was no promotion of any genocide. White nationalist ideas, perhaps. But not genocide.
    – Oliver
    Aug 10, 2020 at 17:11
  • @Lag In fact, individual creator bans are not relevant to the question. I was discussing risks to creating a payment platform. The political dissident view support excuse to place someone on the match list and ban them from the US financial system IS relevant to wanting to create a payment platform (if you expect it to be used by people of all political views).
    – Oliver
    Aug 10, 2020 at 17:26
  • You seem to gloss over the fact that these are far right views that the financial organisations do not want to be associated with or facilitate (whether because of their morals or expediency), not ordinary right wing views. And yes, such people who have been banned have included those who promoted genocide - e.g. the killings of all Jews and African-Americans in the USA - as well as promotion of behaviour tantamount to murder, i.e. interference with search and rescue of migrant/refugee boats. The public understanding doesn't benefit from your gloss, it is diminished by your gloss.
    – Lag
    Aug 10, 2020 at 19:00
  • You don’t seem to realize that some financial institutions wish to give financial services to all but are forced to ban them due to compliance with patriot act regulations and the “match list”.
    – Oliver
    Aug 10, 2020 at 22:44

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