Crypto 101: Hardware wallets

Written by Erik Weijers 2 months ago

European Union wants to ban anonymous crypto transactions

The European Parliament voted yesterday in favor of a proposed, hotly contested amendment to ban anonymous crypto transactions. It is a proposal that, as many crypto proponents pointed out, goes against the spirit of the crypto industry and violates privacy. Should the amendment indeed take effect, in practice, it will mean a lot of paperwork when transferring crypto from, for example, your exchange account to your own wallet. The measure, therefore, discourages keeping your crypto in your own wallet, even though this is one of the pillars of the invention that is called crypto.

The amendment falls within the so-called Transfer of Funds Regulation (TFR) that the Committee on Economic and Monetary Affairs (ECON) is working on. This package of proposals was originally rolled out for the traditional financial industry as part of anti-money laundering goals. But now the package may be extended to crypto, in a stricter form, which may have unintended adverse consequences.

Not yet final

By the way, the amendment is not yet final. The so-called trialogue negotiations will begin in the coming weeks. EU parliamentarians can, provided they do so in sufficient numbers, still ask for a vote to amend the proposal. Also during the trialogue negotiations, adjustments to the law can still be made. Citizens and companies can approach members of the EU parliament and thus make sure there is plenty of pushback.

Stifling for the crypto industry

The measure is condemned by crypto advocates and companies as stifling the innovation of an emerging industry and the privacy of users. It would burden crypto exchanges doing business with European customers with a ton of paperwork, potentially causing them to scrap these types of transactions altogether.

What does the proposed amendment mean in concrete terms?

  • Say I want to transfer Ether from my account on an exchange to a friend's private wallet. Then I would have to provide the details of that friend, who is not even a customer of the exchange. As this is very impractical, exchanges will feel compelled to make these transactions impossible.
  • For every transaction of more than a thousand euros, exchanges must report your data to the anti-money laundering authorities. Imagine if this were the case for every bank transaction of more than a thousand euros. Banks would drown in paperwork and would have to close shop.

It is conceivable that some exchanges, to get rid of the hassle, will make transactions to private wallets impossible altogether.

Conclusion

A few weeks ago we were relieved that the EU would not ban Bitcoin but this new development does not make crypto owners happy. It shows that the EU does not want to embrace the crypto industry as a bringer of innovation and employment. Of course, everyone is against money laundering. But the proportion of crypto transactions used for criminal activities is only a fraction of one per cent of the total. If the proposed measures will take effect in their current shape, they will mean an unprecedented degree of financial surveillance, which will make it impossible for citizens to shield their assets in private wallets from outsiders.

The surveillance capabilities gained by governments and, for that matter, crypto companies, would increase dramatically. Just think: your home address will be linked to your blockchain address. Setting aside the surveillance options of companies and the state, criminals who hack into this data could send phishing emails or even know whose door to knock on.

To conclude, let’s try to zoom out and take a bit more favourable view of these developments. It is becoming increasingly clear that crypto will get a place within the financial system and will not be banned. Ultimately, the state just wants to be able to tax stuff and prevent money laundering. That's fine but it doesn't take away from the fact that this proposal, in its current form, could overshoot the mark by a long stretch. There will be little tax to be levied on citizens and an industry that will be tempted to leave Europe!

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