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US Government Administration May Issue Extremely Burdensome Crypto Wallet Rules

US government may hinder growth with burdesome laws

US Treasury and the Trump administration could destroy financial sovereignty and the true nature of blockchain by going after self-hosted cryptocurrency wallets.

  • Self-custodial cryptocurrency wallets allow individuals globally to access essential financial services.
  • The US Secretary of Treasury, Steven Mnuchin, is rumored to be working on a law to regulate self-hosted crypto wallets.
  • Regulation of self-hosted wallets is likely to be counter-productive according to Coinbase CEO Brian Armstrong.

Since the inception of blockchain technology, the industry has given its to users financial independence, while ensuring a consistent flow of data. The emergence of self-hosted wallets, also known as self-custody wallets or “cold wallets” or “hardware wallets,” allows individuals to have complete control over their cryptocurrencies/digital assets.

In summary, users can store and use digital assets on their own without the need for a third party like coinbase, binance,, bybit, etc.. It also means that self-custody wallets are free of regulation, ensuring that the individuals enjoy the true sovereign nature of blockchain.


Regulators plan to crack down on self-hosted crypto wallets: Is Coinbase “controlled opposition” ?

In a recent tweet, Coinbase CEO Brian Armstrong, brought to light rumors that the United States Treasuring and Secretary Steven Mnuchin are making a rushing to effect a law that will directly affect self-hosted digital assets wallets before the end of his term.

Many questions the tweets and consider to be controlled opposition, given coinbase itself makes weird decisions on closing accounts, tacks users vigorously, charges outrageous and at times, confusing fees, and has deep rooted ties to many celebrities and societies elite.

“This proposed regulation would, we think, require financial institutions like Coinbase to verify the recipient/owner of the self-hosted wallet, collecting identifying information on that party, before a withdrawal could be sent to that self-hosted wallet,” Armstrong tweeted.

If true, the regulation would represent a broadside against the U.S. cryptocurrency industry like few ever levied by the federal government. It would force corporations to know every counterparty to their users’ crypto transactions, keeping logs, tracking movements, and verifying identities even before a transfer could take place.

Some websites like ByBit have already implemented processes like this, by requiring all withdrawals be sent to “whitelisted” addresses.


Widespread impact

And it would not just affect those who store their coins on a hardware device like Trezor or Ledger. Many crypto services use non-custodial wallets. Decentralized finance (DeFi) smart contracts. Software wallets, paper storage. All would need to prove their provenance to transact with regulated entities under the rumored rule.

Such a sweeping interpretation of FATF guidance has already been applied in Switzerland and the Netherlands. There, virtual asset service providers (VASPs) must prove the ownership of non-custodial crypto wallets ahead of transfer.

Armstrong said Wednesday that such a regulation “would be a terrible legacy and have long-standing negative impacts for the U.S.”

“This additional friction would kill many of the emerging use cases for crypto. Crypto is not just money – it is digitizing every type of asset,” he said.

To date, regulation of decentralized cryptocurrency networks had been mostly limited to the on/off ramps between the networks and the traditional finance system, according to Jacob Farber, partner at blockchain law and consulting firm Ouroboros LLP.

This state of affairs left the industry “mostly unregulated” and private, such that it has been able to offer a real alternative to traditional finance, Farber said.

“Imposing a KYC [know-your-customer] requirement on transactions between on/off ramps and every wallet that transacts with them expands the reach of regulation over crypto exponentially,” Farber added. “More importantly, it changes what crypto can be, at least at scale.”

He called Armstrong’s concerns justified and said these potential regulations should be taken seriously by the cryptocurrency community.

The importance of self-hosted cryptocurrency wallets

Self-custodial cryptocurrency wallets remain the backbone of blockchain and protect the original purpose of cryptocurrencies/digital assets like Cardano, Bitcoin, Ethereum, and others. They allow everybody to utilize decentralized technology to access financial services. According to Armstrong, these wallets can be used “just like anyone can use a computer or smartphone to access the open internet.”

Additionally, individuals can make transactions on a peer-to-peer (P2P) basis without interference from third-party institutions. Before blockchain, True P2P transactions were seemingly non-existent however, the notion that individuals can conduct financial transactions without financial watchdogs does not sit well with oppressive policy makers.


Why the need to regulate self-custodial crypto wallets

Regulators allege that they are concerned that individuals might engage in unlawful activities such as money laundering and financial support to terrorist groups. While their arguments partially make sense, not everyone in society has a primary goal to participate in criminal activity, and cash is a much easier method for criminal activities.

The percentage of illegal tractions in traditional cash and swift financial system(s) is far more tainted and alarming than that in the cryptocurrency industry. The most pressing matter would be to crack down on the fiat ecosystems’ illegal activity before going for self-hosted crypto wallets with guns blazing.


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