US Crime Agency Proposes Rules for Self-Hosted Crypto Wallets

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US Crime Agency Proposes Rules for Self-Hosted Crypto Wallets

The Financial Enforcement Crimes Network (FinCEN) of the United States has issued a regulatory proposal imposing identity requirements and quantity limits on transactions employing self-hosted crypto wallets. The law has already been attacked by the CEOs of crypto exchanges and advocacy organizations, who argue that it would stifle innovation in the new sector and impose onerous obligations on their firms.

Self-hosted or unhosted wallets are not offered by a financial institution or cryptocurrency service, but rather reside on a user’s computer or offline. While crypto exchanges are obligated by the Banking Secrecy Regulation (BSA) to authenticate user identification and maintain records for their wallet services, self-hosted wallets operate entirely outside of the reach of this act. These wallets are regarded as the primary conduits for criminal activity and money laundering using cryptocurrency. According to FinCEN, nearly $119 billion in suspected cryptocurrency activity was reported last year.

Key Takeaways

  • FinCEN’s new regulatory proposal for transactions using self-hosted wallets requires cryptocurrency firms to identify consumers and retain records for transactions over a specific value.
  • The plan also forbids structuring, which is the technique of dividing a major financial transaction into multiple smaller ones.
  • Critics argue that the initiative violates people’ civil freedoms.

What Are the Rule’s Details?

FinCEN’s proposed regulation would impose similar limits on self-hosted cryptocurrency wallets as the BSA. The regulation is titled Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets, and it is comparable to the Financial Action Task Force’s so-called Travel Rule (FATF).It compels banks and financial institutions to gather user identity information and submit data for transactions utilizing self-hosted wallets above specific thresholds.

  Crypto ATM

The regulation mandates crypto companies and banks to notify client coordinates and identity to the government for unhosted wallet transactions exceeding $10,000. It also requires crypto exchanges and services to keep records and client identifying information for transactions between crypto exchanges and unhosted wallets that are more than $3,000 but less than $10,000.

FinCEN has also targeted structuring, a method of concealing big cryptocurrency transactions by dividing them down into smaller ones between unhosted wallets and crypto exchanges. To counteract this activity, FinCEN proposes that crypto firms keep records of such transactions and limit them to $10,000 in a single day.

A Surveillance State?

Critics of the law claim that it violates civil rights by prohibiting anonymous transactions utilizing self-hosted wallets. In an interview with Coindesk, civil rights campaigner Marta Belcher discussed the possibility of a monitoring state. “There are images from the Hong Kong demonstrations showing enormous lineups at subway stations as protesters waited to buy tickets with cash so that their electronic purchases would not land them at the protest site. These images demonstrate that a cashless society is a surveillance society, which is why the option to import the anonymity of currency to the digital world is critical for civil rights “She told the newspaper. Others, like Coinbase CEO Brian Armstrong, have already joined the increasing chorus of those opposed to it.

To be fair, these anxieties may be unjustified for the time being, at least in the context of the United States. The agency claimed in its proposal that if passed, the regulation would apply to wallets that are not subject to the Banking Secrecy Act (BSA) and are situated in a foreign country. According to the organization, the first foreign jurisdiction list includes Burma, Iran, and North Korea.

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