EU Arrives at Provisional Crypto Tracking Terms

The EU has come to terms on aggressive crypto tracking terms which will require KYC for all crypto exchanges in and out of centralized exchanges.

EU Arrives at Provisional Crypto Tracking Terms
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This week the EU finally reached an agreement on long-threatened legislation surrounding cryptocurrency tracing requirements. The EU has been shaking its fist at cryptocurrency anonymity for years now, and the terms they came up with are essentially the worst case scenario for crypto anonymity advocates.

Parliament and Council negotiators reached a provisional deal on a new bill aiming to ensure that crypto transfers can always be traced and suspicious transactions blocked.

Despite many studies suggesting that the amount of money laundering in the crypto markets is less than 1%, and a much lower absolute amount than what occurs in the standard financial markets, the EU has continued to push an anti-money laundering narrative. To prevent money laundering, the EU plans to implement travel rules for cryptocurrencies.

Travel Rules

Pulling from the Swiss model, if you want to pull your money out of a centralized exchange (termed CASPs, or Crypto-assets service providers, in this regulation) operating in the EU, the exchange will be tasked with verifying the identity of the individual in control of the wallet receiving the funds. The wallet will have to sign a transaction to confirm the identity of the individual.

The EU Vice Chair Ernest Urtasun tweeted out a thread describing in more detail what was agreed upon: “...The regulation will also apply to transfers from/to unhosted wallets. CASPs will be required to collect information and apply enhanced due diligence measures with respect to all transfers involving unhosted wallets, on a risk basis.”  This means that exchanges will be required to screen already unhosted wallets in order to accept any funds from them.  It’s unclear what will happen if your wallet doesn’t pass their validations, but it’s not unreasonable to think it will range from rejecting your funds all the way to freezing your funds pursuant to a further investigation.

What Will This Do?

Here’s a hot take: this will have no effect on money laundering, or limit European citizens from investing in cryptocurrency. The biggest impact from this legislation is just that the next billion dollar blockchain company won’t come from the EU. Investors will limit their investments in Europe and focus more towards America. Europeans will still be part of the crypto adoption and growth curve, but they won’t be the core builders and beneficiaries of the boom. Between China and Europe stunting cryptocurrencies, and Biden’s recent positive stance on blockchains, this is now America’s game to lose.