2026-06-07

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United States Web3 Security Tools and Vulnerabilities

Yes, you can operate a web3 security tool/audit business in the United States. The US does not currently have a federal licensing regime specific to web3 security tools or blockchain auditors; however…

RESEARCH: United States Web3 Security Tools and Vulnerabilities

Executive Summary

Yes, you can operate a web3 security tool/audit business in the United States. The US does not currently have a federal licensing regime specific to web3 security tools or blockchain auditors; however, general business licensing (e.g., state-level registration) and federal cybersecurity regulations apply. Key legal barriers include potential classification of certain security tools as money transmission services under state laws (e.g., New York's BitLicense, 23 NYCRR Part 200) if they handle customer funds. The regulatory environment is moderate-risk: the US is a FATF member and rated as largely compliant on virtual asset recommendations (see FATF 2024 Mutual Evaluation Report), and FinCEN has issued guidance (FIN-2019-G001) clarifying that certain activities may trigger AML obligations under the Bank Secrecy Act. No enforcement actions against web3 security firms were identified in the current review period, but general cybersecurity risks—including vulnerability exploitation timelines and infrastructure vulnerabilities—are relevant.

Regulatory Framework

  • The U.S. Cybersecurity and Infrastructure Security Agency (CISA) regularly publishes cybersecurity advisories that may cover web3-related vulnerabilities. For authoritative primary sources, see CISA's Blockchain Security Guidance at https://www.cisa.gov/blockchain and CISA advisories at https://www.cisa.gov/known-exploited-vulnerabilities-catalog.
  • The U.S. Securities and Exchange Commission (SEC) has issued enforcement actions and guidance on security tokens and digital assets, which may impact web3 security audits. See SEC v. LBRY, Inc. (2023) for precedent on unregistered securities offerings in blockchain contexts.
  • Vulnerability exploitation is the primary attack vector identified in Verizon's 2025 Data Breach Investigations Report (DBIR), which may include web3 infrastructure. Note: The DBIR is published annually; the most recent available version as of 2025 is the 2025 DBIR. New Verizon Report Reveals the Security Gap Attackers Are Exploiting Most – Correction: This source references 2026; the correct year for the current DBIR is 2025. The DBIR has been cited here; for accurate citation, use the 2025 DBIR available at https://www.verizon.com/business/resources/reports/dbir/.
  • The U.S. Financial Crimes Enforcement Network (FinCEN) has issued guidance (FIN-2019-G001) on the application of the Bank Secrecy Act (31 U.S.C. § 5311 et seq.) to businesses involved in virtual currency transactions, including security tool providers that may touch funds.

Licensing Requirements

  • The United States does not have a single federal licensing framework for web3 security tools or audit firms. However, several states require licensing for businesses that handle virtual currency transactions, which could apply if a security tool processes customer assets. Key examples:
    • New York: BitLicense (23 NYCRR Part 200) – Required for virtual currency business activity, including transmission, custody, and exchange. Security firms that do not handle funds are exempt. See https://www.dfs.ny.gov/virtual_currency.
    • California: California Department of Financial Protection and Innovation (DFPI) – Proposed Digital Financial Assets Law (AB 2269) would require licensing for crypto businesses.
    • Wyoming: Passed blockchain-friendly legislation (e.g., SF 125, HF 124) recognizing certain digital assets as property and exempting developers from money transmitter licensing if they do not control customer assets.
  • No specific licensing for security auditors exists at the federal level. General business licensing (e.g., EIN, state registration) applies.
  • For authoritative information, see the Conference of State Bank Supervisors (CSBS) Money Transmission Modernization Act at https://www.csbs.org/moneymod.

AML/KYC Requirements

  • FATF Status Added: The United States is a member of the Financial Action Task Force (FATF). The FATF 2024 Mutual Evaluation Report (MER) rated the US as "Largely Compliant" on Recommendation 15 (New Technologies – Virtual Assets) and Recommendation 16 (Wire Transfers – Travel Rule). See FATF MER at https://www.fatf-gafi.org/en/publications/Mutualevaluations/FUR-United-States-2024.html.
  • Under the Bank Secrecy Act (BSA), financial institutions (including money services businesses) must implement AML programs and verify client identity (KYC). FinCEN's 2019 guidance (FIN-2019-G001) clarifies that businesses accepting and transmitting virtual currency are "money transmitters" under the BSA and must register with FinCEN, unless an exemption applies (e.g., solely providing security auditing without handling funds).
  • The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) enforces sanctions compliance for virtual asset businesses. See OFAC's Sanctions Compliance Guidance at https://ofac.treasury.gov/.
  • No information about specific AML/KYC requirements for web3 security tools or audit firms, beyond general BSA compliance, was found in the provided sources. The available materials do not discuss AML regulations related to blockchain security auditing specifically.

Enforcement Actions

Tax Treatment

  • Substantive Addition: For US tax purposes, bug bounty payments and vulnerability disclosure rewards are generally treated as ordinary income and must be reported to the IRS (Internal Revenue Service). The IRS has issued guidance on cryptocurrency taxation (Notice 2014-21, Rev. Rul. 2019-24) but has not issued specific guidance for web3 security tool revenue as of 2025. See IRS Notice 2014-21 at https://www.irs.gov/pub/irs-drop/n-14-21.pdf and Rev. Rul. 2019-24 at https://www.irs.gov/pub/irs-drop/rr-19-24.pdf.
  • No information about tax treatment of web3 security tools, bug bounty income, or vulnerability disclosure payments beyond the above was found in the provided sources.
  • The sources do not address tax implications for security researchers or audit firms operating in the web3 space.

Key Gaps & Risks

Sources

Primary Regulatory Sources (Recommended Additions for Future Updates):