EU votes in favor of sweeping crypto laws targeting ‘unhosted wallets’

New EU crypto tracing measures, branded an innovation-stifling surveillance regime, have been given the thumbs-up by lawmakers.
Listen to this article.

New EU crypto tracing measures, branded an innovation-stifling surveillance regime by one of the world’s biggest exchanges, have been given the thumbs-up by lawmakers after a vote last week.

As reported by Reuters, the changes to the EU’s Transfer of Funds Regulation first surfaced in a draft last year.

If passed, they will compel crypto firms to collect and hand over details of those involved in transfers, including individuals who transact with their customers but may not be users themselves. This is regardless of the size of the transaction.

The EU’s Executive Commission originally floated the idea of demanding information on transfers worth €1,000 ($1,105) or more. However, this fizzled out during the most recent round of negotiations, which have favored stricter measures.

The new regulations, to be discussed further with member states before they’re set in stone, would make it easier for authorities to identify, deal with, and discourage illegal crypto transactions, some lawmakers say.

The EU currently has no sweeping laws in place with regards to tracing crypto.

The EU has also agreed that it would be a good idea to turn its spotlight on “unhosted wallets” held by individuals — a decision that has gone down about as well as you’d expect.

Unhosted wallets, as regulators call them, are simply cryptocurrency addresses not maintained by a third party.

Think regular Bitcoin and Ethereum addresses accessible by any non-custodial wallet application, like Bitcoin Core or MetaMask.

Coinbase says EU crypto law peddles ‘bad facts’

The proposal means that crypto businesses such as exchanges would have to collect personal information from anybody transacting with users for more than €1,000 ($1,100).

One of the loudest critics of the new EU crypto tracing measures is US-based exchange Coinbase. In the US, crypto proponents have been fighting similar battles to keep unhosted wallets out of ratified regulatons.

In a blog post, published last Monday, Chief Legal Officer Paul Grewal called for traders to “make your voices heard.”

Grewal went on to list a number of perceived inaccuracies in the EU’s proposal, which he labeled “bad facts.”

These include:

  • The EU’s statement that digital assets are a primary way criminals hide and move money.
  • The idea that law enforcement agencies have no way to track these transfers.
  • The claim that the collection and verification of personal data associated with self-hosted wallets is not a violation of privacy.

“If adopted, this revision would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets,” wrote Grewal.

Meanwhile, Coinbase chief Brian Armstrong was tweeting his thoughts.

“Imagine if the EU required your bank to report you to the authorities every time you paid your rent merely because the transaction was over 1,000 euros,” wrote Armstrong, our emphasis.

However, members of the European Parliament hit back. Dutch rep Paul Tang claimed that the new measures were just another step to tackling crime and corruption.

Responding to EU member from Germany Markus Ferber’s call to not ban unhosted wallets, Paul Tang claimed that the EU’s approval of the crypto tracing laws was good news.

Read more: [Coinbase chief ‘sorry’ for ominous email demanding bank statements]

“Because in today’s vote we will not be banning anything. Instead we oblige verification to prevent crime and corruption through unhosted wallets,” wrote Tang, our emphasis.

“Crime and corruption aren’t innovation, I’m sure a law-and-order party like the German EPP would agree?”

Looking for bite-sized news? We’re on Twitter.

Out now: the first four episodes of our ongoing investigative podcast series Innovated: Blockchain City.