Crypto News: Coinbase urges US to adopt blockchain to better combat crypto crime

Crypto exchange Coinbase is calling on the US government to embrace blockchain technology and artificial intelligence (AI) to better fight crime involving digital assets.

The company argues that money laundering and other financial crimes have increasingly become complex and sophisticated, requiring modern tools to detect and prevent illicit activities effectively.

Coinbase’s Chief Legal Officer, Paul Grewal, in a letter to the US Department of the Treasury, underscored the urgency of updating outdated regulations like the Bank Secrecy Act (BSA) to incorporate advanced digital tools.

He emphasized that government and policymakers should modernize anti-money laundering (AML) efforts by leveraging blockchain analytics, AI, application programming interfaces (APIs), decentralized IDs, and zero-knowledge proofs.

Grewal stated , “When bad guys innovate in financial crime, good guys need innovation to keep pace.”​

Modernizing Crime Fighting Tools

Coinbase highlighted that existing AML systems often generate low-value alerts that overwhelm regulators while exposing sensitive personal data.

Instead, smarter technologies can reduce false positives and speed up investigations.

The company proposes regulatory “safe harbor” provisions to encourage firms to responsibly deploy AI-driven compliance systems without fear of penalties.

These protections would focus on governance and real outcomes rather than rigid, one-size-fits-all rules.

Additionally, Coinbase advocates adopting decentralized identification methods and zero-knowledge proofs for identity verification.

These innovations allow verification without disclosing full personal details, significantly reducing the risk of data breaches.

The exchange also supports "know-your-transaction" (KYT) frameworks that analyze blockchain transactions directly to detect suspicious behavior more effectively than traditional "know-your-customer" (KYC) approaches.​

Furthermore, Coinbase recommends regulatory sandboxes to enable firms and regulators to test new compliance technologies in controlled environments before formalizing rules.

This approach would foster innovation while ensuring security and effectiveness. The company urges a shift from strict procedural compliance to outcome-based assessments, focusing on how well firms prevent financial crime. This would streamline resources and improve real-time crime detection.

The debate over crypto regulation in Washington remains lively. Some lawmakers push for expanded AML rules covering decentralized finance (DeFi), while industry voices caution about overregulation stifling financial innovation.

Coinbase’s stance favors innovation, public-private collaboration, and smart tech adoption as superior to heavy-handed enforcement.

This call for modernization aligns with Coinbase’s broader mission to secure the crypto ecosystem while enabling compliant innovation.

As crypto markets and technologies evolve, the company believes regulatory frameworks must keep pace with emerging tools to safeguard national security and consumer interests.