This week, the European Parliament voted to introduce new regulatory measures that would make it much more difficult for anonymous cryptocurrency transactions to take place within their respective countries. Members of the EU legislature passed a proposal that would require cryptocompanies, exchanges or other firms associated with digital assets to collect personal information about coin users. This is relevant for cryptocurrency enthusiasts whose transactions of more than a thousand euros are associated with wallets not owned by official intermediary companies. Thus, the problem of privacy of users of digital assets has become much more serious. Here are the details of what is happening.
Representatives of the European Parliament want to regulate what happens with so-called non-custodial wallets. We are talking about software that does not depend on a single authority – as is the case with cryptocurrency exchanges. Its key feature is the need to record a Sid-phrase when creating an address. It is what allows you to dispose of cryptocurrencies and call yourself their full owner.
What will happen to cryptocurrency wallets?
As a result of the vote, the European Parliament as a whole approved the earlier proposals we wrote about in this article. To formally pass the bill, it must also first undergo tripartite meetings between the EU Parliament, the European Commission and the European Council. Nevertheless, this process is not expected to prevent a final positive verdict.
According to Decrypt’s sources, the vote follows a debate among politicians and the crypto industry over whether such wallets should be subject to mandatory customer identification (KYC) requirements. KYC is now a mandatory measure for almost any major cryptocurrency exchange.
As a reminder, the aforementioned wallets are not affiliated with official crypto-service providers. Examples of such services are MetaMask, WalletConnect or hardware wallets like Ledger. That is, the measures taken by the European Parliament will affect a huge number of crypto-enthusiasts, who just used third-party wallets to avoid links with centralized platforms like exchanges.
Many crypto-enthusiasts have spoken out against the European Parliament’s decision, as not all of the wallet addresses that have fallen under the new restriction are associated with individual users. For example, the CEO of U.S. cryptocurrency exchange Coinbase, Brian Armstrong, tweeted that the proposal is “anti-innovation and anti-legislative.” According to him, it puts the cryptocurrency market in a different environment than conventional currencies.
Imagine if the EU had obliged your bank to report you to the authorities every time you pay your rent, just because the transaction amount exceeds 1,000 euros.
In general, the measure is really radical and very “unpleasant” for most cryptocurrency users. If earlier when working with MetaMask crypto-enthusiasts did not have to “shine” their data anywhere, now they cannot count on any anonymity at all when sending relatively large amounts of coins. This clearly negates the advantages of crypto compared to conventional money.
Hayden Adams, the creator of the already familiar decentralized exchange Uniswap, also criticized what is happening. He shared his outrage on Twitter.
A private key in the Etherium network is a random number that can be chosen from 1 to 2^256. And only you know it. You need this unique number to sign a transaction. Therefore, blocking non-castodial wallets is essentially a ban on selecting a random number that only you know.