Coinbase Urges US Regulators: Deploy AI and Blockchain to Crush Crypto Fraud

Tech giants push regulators toward next-generation enforcement tools.

Artificial Intelligence Meets Blockchain

Coinbase throws down the gauntlet—urging Washington to weaponize emerging technologies against digital asset scams. The exchange argues existing frameworks can't keep pace with sophisticated fraudsters exploiting regulatory gaps.

Smart Contracts as Watchdogs

Automated compliance protocols could flag suspicious transactions in real-time. Machine learning algorithms would analyze patterns across decentralized networks—spotting pump-and-dump schemes before they peak.

Regulatory Resistance

Some agencies remain skeptical about adopting technologies they barely understand. The SEC continues preferring paperwork mountains over Python scripts—because nothing fights digital crime like triplicate forms.

Future-Proofing Finance

As crypto volumes surge, manual oversight becomes impossible. Either regulators evolve their toolkit or watch fraudsters out innovate them—Wall Street bankers would be proud of either outcome.

Grewal calls on the US government to use cutting-edge technologies

Earlier, Coinbase’s chief legal officer highlighted that blockchain and other cutting-edge technologies are essential in addressing emerging dangers in the crypto ecosystem. Therefore, he urged that the Treasury and other policymakers should encourage their use to identify and stop illegal activities. 

“This would align with a primary objective of the Anti-Money Laundering Act of 2020, which aimed to update the Bank Secrecy Act,” he continued. 

Faryar Shirzad, a Chief Policy Officer, weighed in on the topic of discussion. In an X post, Shirzad greatly supported Grewal’s view, arguing that the US government needs to draw inspiration from crypto exchanges by utilizing reliable digital tools, such as AI, APIs, digital IDs, and blockchain analytics, to update and improve its anti-money laundering efforts.

As one of Grewal’s several recommendations for the Treasury, he wants the government department to consider establishing a special rule under the Bank Secrecy Act for businesses that use AI and Application Programming Interfaces (APIs) driven monitoring tools.

In a follow-up post on X on Monday this week, he mentioned that the criteria for that safe harbor should focus on governance and outcomes instead of applying a one-size-fits-all approach. 

Coinbase’s chief legal officer made these remarks after he observed that companies have been hesitant to fully use AI in anti-money laundering efforts because of unclear regulations in place. He also expressed that APIs face challenges like inconsistent standards and regulatory differences.

Hence, Grewal suggests that offering clear guidelines on acceptable use cases would be beneficial. This is because it would clearly define data privacy requirements and standards for interoperability, boosting the confidence of firms to adopt and integrate APIs into their systems. 

The Treasury’s recommended guidelines sparks controversy in the crypto ecosystem 

Coinbase’s chief legal officer also wants the Treasury to provide guidelines that acknowledge and encourage the use of decentralized IDs and zero-knowledge proofs as legitimate forms of customer verification, in addition to blockchain analytics clustering for compliance with anti-money laundering laws.

This recommendation was made after Grewal noted that the new guidance should encourage the sharing of information related to potential illicit activities involving blockchains, while ensuring that those involved in a blockchain transaction are not dealing with too much record-keeping. 

Meanwhile, in its notice dated August 18, the US Treasury had asked the public for comments on innovative methods to identify crypto-related illegal activities as required by the GENIUS Act.

Jim Harper, a non-resident Senior Fellow at the American Enterprise Institute, shared a different perspective. He argued that a system should be established for communication, enabling law enforcement agencies to ask crypto firms for details required in their investigations directly.

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