European Union lawmakers voted on Thursday in favor of a de-facto surveillance regime for Bitcoin and cryptocurrency transactions as the region seeks to gather identifying information on transfers between private, self-custody wallets.
The EU Committees on Economic and Monetary Affairs (ECON) and on Civil Liberties, Justice and Home Affairs (LIBE) voted to extend anti-money laundering requirements that currently apply to fiat payments over EUR 1,000 ($1,115) to the cryptocurrency sector. However, the rules scrap the floor for payments in bitcoin and cryptocurrency, so parties of transactions of any size would need to be identified.
The rules also crack down on wallets whose private keys are held by the funds’ owner, usually referred to as self-hosted or self-custody wallets, and require cryptocurrency firms to keep track of those transacting cryptocurrency beyond their customers. The move could have some tangible, terrible 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.
“Every crypto transaction (and not just those with a 1,000 euro threshold, as is the case with fiat) would be ‘travel rule eligible,’” Armstrong tweeted yesterday. “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.”
EU ambassadors in December agreed on a mandate to negotiate with the European Parliament on a proposal to extend the scope of rules on information accompanying transfer of funds of certain cryptocurrencies. Requirements for cryptocurrency transfers between service providers and self-hosted wallets were introduced.
“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.”
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.