The United Kingdom Treasury has rolled back plans to require all senders of cryptocurrencies to collect personally identifiable information for recipients. In doing so, the UK has placed itself a step ahead of the European Union, which is set to introduce the measures as well as a China-style indiscriminate mass surveillance program.
In brief
- The United Kingdom’s Treasury has loosened the travel rule, which impacts unhosted and private wallets.
- Data collection will only be necessary on a ‘risk sensitivity’ basis.
- Several governments are clamping down on financial privacy, and privacy in general, going against their democratic mandate.
- A recent EU proposal threatens to remove privacy all-together, creating a mass surveillance state in Europe.
- Governing bodies may have an axe to grind against Bitcoin.
Following a formal consultation, the Treasury said that it made no sense to create know-your-customer rules for so-called unhosted, or private wallets.
In the report, the Treasury said:
“The government does not agree that unhosted wallet transactions should automatically be viewed as higher risk; many persons who hold crypto assets for legitimate purposes use unhosted wallets due to their customisability and potential security advantages (e.g. cold wallet storage), and there is no good evidence that unhosted wallets present a disproportionate risk of being used in illicit finance.”
Treasury Decision follows Consultation with Industry Leaders
The decision comes after a consultation period with regulators, industry players and other government agencies focused on money laundering.
The rule would have mandated financial institutions and exchanges to collect information on international payments, which many deemed restrictive, counter-productive and negatively impacting financial innovation.
Respondents said that there would be both short-term and long-term costs, though some noted that the costs may be partially offset by the benefits of having more regulatory clarify in the asset class. But considering the state of traditional financial markets, it’s not obvious which benefits those respondents were referring to.
Still, the UK Treasury has realised that implementing the travel rule would be more costly overall.
The EU Proposes to Spy on Everyone
While the UK turns down the useless policy, regulators in the EU voted in favour of an amendment that would impact private wallets. The industry swiftly criticised the approach, which undermines all the work the EU has done on privacy so far (GDPR).
Coinbase CEO Brian Armstrong said that it would “unleash an entire surveillance regime on exchanges, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.”
The European Union’s gripe against privacy – a basic human right guaranteed in the European Charter – could also extend to Internet Service Providers. In a blatantly abusive proposal, the EU plans to abolish online privacy completely. It proposes a China-style mass surveillance program that would read private text messages of every European citizen.
The proposal purports to be a preventative measure against ‘Child Sexual Abuse’, yet it is in conflict with readily available police data from Germany, leaving a bad aftertaste for anyone with a pair of eyes and ears.
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Policy Makers have some Gunpowder
Decentralised finance would be impacted by a clamp-down on so-called unhosted wallets. With the deluge of insolvency crises hitting crypto in the last few days, financial risks associated with DeFi are already playing out in real-time.
The onset of the Terra-Luna bankruptcy produced a ripple effect which might have set the industry back years. Many DeFi users are burned and may have an axe to grind against certain crytpo projects involved in the DeFi space.
Further regulatory zealotry would threaten to throw the baby out with the bath water.
Governing Bodies Take Aim at Crypto
In March this year, the International Monetary Fund underlined financial stability risks due to Bitcoin and crypto, and attempted to dissuade Argentina from adopting Bitcoin as legal tender during negotiations over a $57 billion 2018 loan. The approved loan includes rhetoric that would discourage Bitcoin adoption in the country.
In February 2022, Canada widened the scope of Terrorist Funding rules to include innocuous activities including cryptocurrencies and crowdfunding. Prime Minister Trudeau invoked the so-called Emergencies Act, which gave his administration the supreme power to arbitrarily freeze bank accounts and monitor “large suspicious transactions“, including crypto.
The question as to which side regulators are on remains an open one.
However, Litecoin developers anticipated the growing rift between regulators and their mandate to uphold mission-critical pillars of free and democratic countries.
Knowing this, the Litecoin community launched MWEB – a privacy and fungibility-enhancing tool on its blockchain. Native on-chain privacy is fast becoming a profound sticking point in crypto discussions.
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