Proposed FinCEN Self-Hosted Crypto Wallet Rule Could Throttle Innovation and Worse – CryptoCurrency Facts
The US Financial Enforcement Crimes Network (FinCEN) proposed a new rule for identification requirements for self-hosted crypto wallets. On the surface, this might seem logical. If an entity wants to move a large amount of money onto an exchange, they have to be willing to have their identity recorded. This could even further limit the amount of illicit activity that happens with cryptocurrency.
However, the problem is that this rule doesn’t fully address how crypto actually works in practice and as such it stands to stifle innovation and also potentially creates cases in which the rules will be impossible to follow.
One problem is that not all wallets are actually owned by someone who can be identified. For example, smart contracts aren’t necessarily owned by a single indefinable person (especially not the person sending the funds). Further, the rule would stop people from being able to buy things over a certain price without running an identity check (something that doesn’t happen with other forms of money). Also, if the threshold was ever lowered, it would also have all sorts of nasty impacts by making any sort of money sending or transaction require identification (which is something that may be hard to produce in emerging markets).
The list goes on. While some form of this rule makes sense, the rule as written is argued to be short-sighted. If you agree, make sure to comment at Regulations.Gov’s “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets“. You have until January 4th 2021.
For more on the issue, see the following threads:
1/ After a long wait, FinCEN has finally issued its new proposed rule extending AML regulation to non-custodial wallets.
It could’ve been worse (really), but it’s still a terrible rule in both process & substance.
Here’s what it says, what’s wrong with it, & what we do next 👇
— Jake Chervinsky (@jchervinsky) December 19, 2020
Last week we heard rumors that the U.S. Treasury and Secretary Mnuchin were planning to rush out some new regulation regarding self-hosted crypto wallets before the end of his term. I’m concerned that this would have unintended side effects, and wanted to share those concerns.
— Brian Armstrong (@brian_armstrong) November 25, 2020