European Union lawmakers voted today in favor of controversial measures to outlaw anonymous crypto transactions, a move the industry said would stifle innovation and invade privacy. The proposed measures would crack down on bitcoin and cryptocurrency transfers between self-hosted wallets and require firms to identify sender and receiver.
The proposals are intended to extend anti-money laundering (AML) requirements that apply to conventional payments over EUR 1,000 ($1,114) to the crypto sector. They also scrap the floor for crypto payments, so payers and recipients of even the smallest crypto transactions would need to be identified, including for transactions with unhosted or self-hosted wallets.
The move could have some tangible, worrisome consequences.
Brian Armstrong, the co-founder and CEO of Coinbase, shared his concerns on Twitter about the new rules ahead of the vote, calling it an “anti-innovation, anti-privacy, and anti-law enforcement” proposal. “This means before you can send or receive crypto from a self-hosted wallet, Coinbase will be required to collect, store, and verify information on the other party, which is a not our customer, before the transfer is allowed.”
Bitfinex CTO Paolo Ardoino today echoed Armstrong’s comments, reiterating that the legislation entails heavy security risks and privacy violations.
“Requiring crypto service providers to collect and verify personal data related to self hosted wallets transfers raises major data and privacy concerns, and represents a big step back for human rights,” Ardoino tweeted. “Hope the ECON Committee will draft a text that would incentivise innovation, transparency as well as consumers protection in the EU.”
Under the new rules, Coinbase would have to report to the authorities any time a customer received over EUR 1,000 of crypto from a self-hosted wallet, the exchange’s CEO Brian Armstrong warned in a tweet posted Wednesday.
“Today’s agreement is an important step towards closing the gaps in our financial systems that are malevolently used by criminals to launder unlawful gains or finance terrorist activities,” Andrej Šircelj, Slovenian Minister for Finance, said in a statement at the time. “Crypto-assets are more and more at risk of being exploited for money laundering and criminal purposes, and I’m glad the Council could make swift progress on this urgent proposal.”
“As illustrated by all the recent money-laundering scandals, from the Panama Papers to the Pandora Papers, criminals thrive where rules allowing for confidentiality allow for secrecy and anonymity,” Ernest Urtasun, co-rapporteur for the ECON said in a statement.
Contrary to common belief, however, Bitcoin is not criminals’ best tool for the job. Blockchain analysis company Chainalysis co-founder Jony Levin explained to Sen. Elizabeth Warren earlier this month that Bitcoin’s transparency makes it hard for nefarious actors to conceal their activity and enables companies like his to work with law enforcement to trace funds with illegal origins.
Furthermore, the usage of BTC in criminal activity is also not elevated. The phenomenon has been accounting for an ever-smaller share of total cryptocurrency activity, recently reaching 0.15% of total transaction volume, according to a Chainalysis report.
The proposal voted on today by the committees still needs the approval of the parliament and the EU Council to pass into law, per a CoinDesk report.