Mnuchin’s Crypto Wallet Legislation Meets Opposition

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Mnuchin’s Crypto Wallet Legislation Meets Opposition

A group of Republican congressmen has written to Treasury Secretary Steven Mnuchin to express their displeasure with his department’s proposal to put additional regulations on the cryptocurrency business. The rule, which is said to be in the works but has yet to be verified by the government, compels financial institutions to verify the identities of receivers and senders for transactions using self-hosted crypto wallets or wallets not offered by a financial institution or service. Hardware wallets and wallets that operate on a user’s PC are examples of such wallets.

Last week, Brian Armstrong, CEO of bitcoin exchange Coinbase, tweeted about the rule, warning that it might have “unintended consequences” and “destroy many of the nascent use cases” for cryptocurrencies. Reps. Warren Davidson (R-Ohio), Tom Emmer (R-Minnesota), Ted Budd (R-North Carolina), and Scott Perry (R-Pennsylvania) sent a letter urging the Treasury Department to confer with Congress and industry stakeholders “before taking any definitive action.”

Key Takeaways

  • Four Republican legislators have written to Treasury Secretary Steven Mnuchin, encouraging him to take stakeholders and the industry into account before proposing legislation requiring crypto firms to identify users of self-hosted wallets in their transactions.
  • Legislators and cryptocurrency companies argue that the policy would jeopardize individual privacy and increase administrative burden.
  • The conflict between the government and the cryptocurrency sector has been simmering for some time.

The legislation is analogous to the Financial Action Task Force’s so-called Travel Rule, which compels financial services businesses to identify information for transacting parties on both ends (FATF).While the law does not define what steps should be done in the situation of self-hosted wallets, nations such as Switzerland and the Netherlands have applied it on them as well.

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How Do Self-Hosted Wallets Affect Crypto Legislation?

Concerns about individual liberty and privacy are at the core of opposition to the proposed law. Account users’ identifying information is already collected by cryptocurrency exchanges and other crypto services platforms. This approach allows law enforcement to discover the contents of a transaction based on the blockchain address, violating user sovereignty, which has long been seen as a core element of cryptocurrencies.

Self-hosted wallets are often thought to be more safe and private than other wallets since a person cannot be recognized only by their blockchain address. They are even removed from the internet in certain cases, such as crypto hardware wallets. “The proposed legislation would not effectively enhance law enforcement while raising privacy issues and imposing unworkable regulatory requirements on digital asset users and firms,” the MPs said.

Opponents of the anticipated legislation object to the increased paperwork and administrative burden that the law would impose on enterprises offering crypto-related services. Coinbase’s Armstrong also said that in certain circumstances when crypto technology, like as decentralized finance (DeFi), is utilized to offer services to the unbanked, obtaining identity information may be hard.

According to the online site Coindesk, the crypto community has been organizing against the suspected rule for some time now. Former anti-money laundering official at the Department of Justice (DoJ), Jai Ramaswamy, has warned on the dangers of rules prohibiting unhosted wallets. Last month, the Blockchain Association, an advocacy organization, produced a policymaker’s guide to self-hosted wallets.

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