Democratic Rep Says Self-Custody Wallets Should Have Federal Digital Identities

Bill Foster doubles down on his favorite point: The crypto industry needs license plate-like identities to track illicit activity

article-image

Novikov Aleksey/Shutterstock modified by Blockworks

share

A Democratic representative laid into witnesses during Wednesday’s joint hearing on crypto regulation, arguing that there is no way to effectively regulate crypto markets when they are subject to such “massive market manipulation.”

House Financial Services Committee member Bill Foster, D-Illi., argued that wash trading cannot be controlled without establishing federally-regulated “traceable digital identities” for all wallets and users. 

“If we wish to prevent wash trading…is there any alternative to having both sides of every crypto transaction associated with a traceable digital identity and have that digital identity issued by a government with which we have extradition treaties and a common concept of financial fraud, is there any alternative to that?” Foster asked the panel of witnesses. 

Read more: What Is Decentralized Identity?

Marco Santori, chief legal officer of Kraken Digital Asset Exchange, said he believed there are “several alternatives” and added that Kraken monitors the exchange for suspicious activity. 

“On the exchange, but you accept bitcoin that gets traded on the web without that, so you’re basically a portal to that,” Foster responded. “There are wash trades happening with self custody that you cannot control, for example.” 

“I would be surprised if wash trades happened in any meaningful sense, trades cost, they are expensive to do on chain, particularly en masse,” Santori said. “Wash trading on chain is regularly detected by forensic” analysts. 

Witness Matthew Kulkin, former director of the CFTC division of swap dealer and intermediary oversight, added that if the CFTC had authority over the spot market, they would be able to impose more know-your-customer requirements. 

It’s not the first time Rep. Foster has dug his heels in over digital identities during a Congressional hearing. He posed the same question weeks ago at the House stablecoin hearing

“Right now, is there a technology that stops ransomware if we allow self-custody on anonymous transactions?” Foster asked witnesses. 

Witnesses mentioned “freeze and seize” technology with stablecoins and increased on-chain scrutiny as potential solutions. 

Wednesday’s hearing was a joint effort between the Financial Services and Agriculture Committees. It was announced by crypto-friendly chairs Dusty Johnson, R-S.D., and Patrick McHenry, R-N.C., last month.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Research Report Templates (3).png

Research

Pear Protocol has proven its market fit through its pair-trading infrastructure, sustaining consistent trading activity despite recent headwinds. Its strategic pivot toward Hyperliquid integration represents a major growth catalyst amid industry consolidation. While short-term token unlocks present challenges, current valuations and liquidity conditions may offer compelling opportunities for investors.

article-image

The House embraces crypto — but keeps the fences up

article-image

The network got slower in June — and it wasn’t for tech-related reasons

article-image

After a jittery few months, recent economic data is hinting at a resilient economy that is beginning to re-accelerate

article-image

The stablecoin bill now heads to the president’s desk

article-image

The House on Thursday passed the CLARITY Act, a landmark cryptocurrency market structure bill

article-image

Interchain Labs will focus on sovereign L1s and institutional demand, abandoning plans for smart contracts on the Cosmos Hub