EU Voted In Favor Of A Crypto Wallet Crackdown, What’s Next?

Per a report from Patrick Hansen, developer at Unstoppable Finance, the European Union Parliament could be about to crackdown on crypto wallets and their users. This entity just approved a revision to their Transfer of Funds Regulation with an upcoming draft to be voted on later today.

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Hansen believes this draft will be imminently approved during the Parliament’s trialogue negotiations. However, he pointed out that there are more steps to this legislative process.

The draft will be presented redacted at the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice, and Home Affairs (LIBE) will be presented at the Parliament’s plenary. This meeting could take place in April when new voting could challenge it.

This stage, Hansen explained, could take months and allow crypto users and companies to push for changes. The developer added:

Individual voices from the council & commission make me optimistic that we can still achieve changes. But the situation is undoubtedly more difficult than with the POW-ban.

As Bitcoinist reported, the European Union already tried and failed to implement a de facto ban on Bitcoin mining. Two weeks ago, the ECON rejected a proposal that could have forced Proof-of-Work cryptocurrencies and operations to meet a “minimum environmental sustainability”.

The voting process was part of the EU’s attempt to determine and approved a Markets in Crypto-Assets Regulation (MiCA). This new set of rules should bring more clarity to the industry in the region, and provide digital assets, related companies, users, and developers with support to continue innovating.

The draft on the EU’s Transfer of Funds Regulation could have the opposite effect. It could force crypto exchanges and users to provide more information to EU authorities. This could create a wall between EU users on centralized exchanges and those operating with Peer-to-Peer (P2P) platforms.

The Real Consequences Of A Crypto Wallet Crackdown

For the formers, the consequences could mimic the world of George Orwell’s famous novel, “1984”. As Paul Grewal, Coinbase’s Chief Legal Officer explained, this revision could:

(…) unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.

In a separate report, wallet provider Unstoppable Finance called the voting and subsequent amendments to current regulations “a huge setback for crypto in the EU”.

In addition to exchanges collecting more data from its users, this crypto wallet crackdown could have a negative impact on people’s privacy. The users could only be allowed to transfer assets to “pre-approved” wallets and demand exchanges to report any transfer of $1,000 EUR or more.

Smaller companies and exchanges will face additional costs to try to keep up with regulations. This could have a negative impact on the industry or force these entities to move out of the EU. Unstoppable Finance added:

Overall, the FTR’s reporting regime will create massive personal data honeypots, both within private crypto companies & government agencies. Make no mistake: No matter the security precautions, these data pots will be too valuable to not get hacked at some point.

Criminals could attempt to stole funds via physical and digital means as a user’s on-chain data would be linked to his real-world identity. Thus, bad actors will have an easier time tacking down potential targets.

The new measures could have these and more negative consequences without no guarantees that they will provide an improvement in terms of Anti-Money Laundering (AML) measures. Unstoppable Domain concluded:

(…) these rules would be detrimental to financial freedom & inclusion (harder to self-custody), harmful to the competitiveness of the EU, and negative with regards to law enforcement (…) Transfers from crypto service providers (exchanges etc.) to DeFi wallets would become more costly and burdensome. All without a clear benefit in the context of AML.

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At the time of writing, Bitcoin trades at $45,700 with a 1.5% loss on the 4-hour chart.