The European Parliament is moving towards strong oversight of self-hosted wallets
As a reminder, self-hosted wallets are those that do not depend on a centralized entity to hold cryptocurrencies. We can put in this category “hardware wallets”, such as those offered by Ledger, as well as all those where the user has his own private key.
These wallets are logically little monitored, unlike a wallet offered by an exchange platform. This is not to the liking of certain European legislators, who wish have a look at the cryptocurrencies that pass through these means.
At the beginning of the week, we explained to you that the vote on an amendment on this subject was planned by the ECON Commission. It provided for two strong measures:
- Information gathering on cryptocurrency transfers by regulated serviceswhatever the amount
- Monitoring of self-hosted wallets, with regulated platforms that would be required to collect information on the nature of the transfers and the fund holders
Contrary to what we have read here and there, it is therefore not not a ban on self-hosted walletsbut in reality, this would make the work of companies extremely complicated. This of course raises questions of feasibility: how to monitor such transactions, on a large scale? And above all, why would the European Union give itself the right to monitor digital wallets so closely, when it does not do so for other types of transactions?
👉 To go further – Contrary to popular belief, Bitcoin is NOT anonymous…
The monitoring of cryptocurrencies in progress
The vote was validated yesterday in committee, so this is a first step towards more monitoring. As we know, cryptocurrencies are generally already traceable, transactions being recorded in often public registers. This type of measure would therefore be a considerable obstacle to the fluidity of transferss, and poses major logistical problems.
The hope for the ecosystem is that this vote is by no means final. The amendment must be examined and discussed by several bodies of the European Union. The proposal will be put on the table again in mid-April, with a discussion including the European Parliament, the European Commission and the Council of Europe.
This phase should take a few weeks, and will make it possible to introduce changes to the proposal. Nothing is therefore set in stone for the moment, but the vote has shown a desire to go in the direction of surveillance :
2/ Very thin margins.
Compromise D: 58 yes | 52 no | 7 abstentions
Compromise E: 62|51|5
It appears that a majority of (most) S&D, GUE, Greens and Renewal MEPs voted yes, while a minority of (most) EPP and ID MEPs voted vs. ECR seems more divided (TBD).
-Patrick Hansen (@paddi_hansen) March 31, 2022
Everything will therefore be decided in the weeks to come, and we will see whether changes will be made regarding this project.
👉 More info on this subject – European Union: all cryptocurrency transactions soon to be monitored?
The ecosystem of cryptocurrencies in danger?
As mentioned above, this proposal does not only pose ethical problems. If it were validated, it would be such a brake for the exchange platforms that the smallest could well decide no longer allow transfers to self-hosted wallets. For others, like Binance or Coinbase, this would drastically increase processing costs:
3/ As this is totally impractical, we expect companies like Coinbase to only allow transfers to non-hosted wallets linked to their own customers and verified via a private key signature (which makes such transfers more complicated and expensive ).
— Unstoppable Finance (@UnstoppableDeFi) March 31, 2022
It also means that identifying information such as cryptocurrency holders’ names, addresses, or other sensitive data would be linked to their wallet addresses and all of their transactions on the blockchain.
The crypto industry is currently mobilizing to voice its concerns about this. The measure is not only contrary to the ideals defended by the ecosystem, it could have considerable consequences on its long-term development. We will therefore closely monitor the developments and the next key dates which will give us more indications on the future of cryptocurrencies in Europe.
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