Posted 6 months ago | by @devadmin
The U.S. Treasury has released its proposal to restrict money services businesses pertaining to dealing with self-hosted wallets.
In the announcement, published by the U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN arm, the regulator announced recommended rules demanding enrolled crypto exchanges to verify the “identity of their customers, if a counterparty uses an unhosted or otherwise covered wallet and the transaction is greater than $3,000.”
The rule is currently just a proposal and has not gone into effect yet. The U.S. Treasury has given 15 days for responses from the community. Erik Voorhees the CEO of ShapeShift tweeted out the new proposed rules.
"Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital
— Erik Voorhees (@ErikVoorhees) December 18, 2020
Rumors of the proposed rules have been well known to Bitboy Crypto who was one of the first outlets to report that strict KYC rules were coming in early September. Brian Armstrong then posted a ranting thread about it in late November further echoing wanrings as Bitboy Crypto reported.
If the cryptocurrency regulations do go into effect, as Bitboy Crypto warned from two insider sources in September, it would mean crypto businesses would be forced to know every person their users’ crypto transactions, keeping logs, and verifying identities (KYC) even before a transfer can go through for sending crypto.
It would also mean that decentralized finance (DEFI) would be dead in the water as it would be impossible for smart contracts to function in a decentralized manner with KYC required or integrated. What would be possible is a hybrid of DEFI and CEFI using crypto assets and blockchain technology as medium of exchange for lending and borrowing services. But that’s far too complex to get into in this article at this time.
Armstrong further stated that the regulation “would be a terrible legacy and have long-standing negative impacts for the U.S.”
Numerous lawmakers voiced their concerns with the proposed rules, in a Dec. 9 letter addressed to Treasury Secretary Mnuchin.
The authors four members of the Congressional Blockchain Caucus, Warren Davidson, Tom Emmer, Ted Budd and Scott Perry argued in their letter that such limitations:
“Would hinder American leadership and preclude meaningful participation in the technological innovation currently underway throughout the global financial system.”
The four lawmakers further outlined their “concern regarding reports that the Treasury Department is considering issuing regulations that would restrict the use of self-hosted wallets.”
The lawmakers warned that if the planned regulation “requires a company to determine the owner of a self-hosted wallet, with which the company’s users wish to transact, then Americans’ utilization of digital asset transactions would be placed at a significant disadvantage to our global competitors.” They further noted that “Such a regulation could actually undermine the Treasury Department from stopping illicit actors from exploiting the financial system,” elaborating:
The contemplated regulation would not meaningfully support law enforcement, while it would raise privacy concerns and place impractical regulatory burdens on digital asset users and companies.
The letter proceeds to explain the benefits of using self-hosted wallets. “Eliminating the middleman through the use of self-hosted wallets means that consumers can maintain privacy and transact freely, which is critically important as individuals increasingly conduct their financial lives digitally,” the Congressmen wrote. In comparison, they pointed out that “Such freedom stands in stark contrast to China’s digital yuan, where citizens’ transactions are surveilled and transactions involving disfavored individuals or activities can be censored.”
Cointelegraph reports that the rules would “apply existing requirements to keep reports on transactions — the $3,000 threshold of the Travel Rule — to registered entities interacting with self-hosted wallets. Among registered entities, that threshold would instead be $10,000.”
Earlier this month, FinCEN posted two job listings for high-profile crypto positions to better understand the cryptocurrency industry. The agency states that applicants should be able to “assist in the development of policy responses to these challenges.”
Bitcoin is currently trading at [FIAT: $23,179.04] UP +0.8% in the last 24 hours according to Coingecko at the time of this report.