Coinbase CEO: Trump Administration Can "Throw Out" Annoying Crypto Pockets Guidelines
Brian Armstrong is concerned that the Trump administration will send the cryptocurrency industry a parting gift.
Coinbase CEO took to Twitter Wednesday evening to blow up alleged plans by the U.S. Treasury Department to track owners of self-hosted cryptocurrency wallets with a range of data collection requirements.
If the whisper is to be believed, outgoing Treasury Secretary Steven Mnuchin is preparing to fight one of the cornerstones of the cryptocurrency ethic: the ability of individuals to hold their own crypto (unmolested).
"This proposed regulation would, in our opinion, require financial institutions like Coinbase to verify the recipient / owner of the self-hosted wallet and collect identifying information about that party before a withdrawal can be sent to that self-hosted wallet," Armstrong tweeted.
If so, the ordinance would provide a broadside to the U.S. cryptocurrency industry like few have ever raised from the federal government. This would force companies to know every counterparty to their users' crypto transactions, keep logs, track movements, and verify identities even before a transfer could take place.
It would also meet the worst-case scenario envisaged by industry players when the Financial Action Task Force (FATF), an intergovernmental body, told its member countries last year to apply the so-called travel rule to crypto companies . This long-standing rule requires financial institutions to collect information about the sender and recipient of a money transfer. However, it wasn't clear what this would mean if someone, for example, sent bitcoin from their Coinbase account to an address controlled by a private key on a piece of paper in a sock drawer.
The finance department did not immediately respond to a request for comment.
Read more: Crypto-gray markets could be an unintended consequence of the FATF travel rule
And it wouldn't just affect those who store their coins on a hardware device like Trezor or Ledger. Many crypto services use unprotected wallets. Smart contracts for decentralized financing (DeFi). Software purses, paper storage. All would have to prove their origin in order to be able to do business with regulated companies according to the rumored rule.
Such a comprehensive interpretation of the FATF guidelines has already been used in Switzerland and the Netherlands. There, Virtual Asset Service Providers (VASPs) must prove that they are in possession of crypto wallets that have not been kept in custody.
Armstrong said Wednesday that such a ruling would be "a terrible legacy and long-term negative impact on the US".
“This added friction would kill many of the emerging use cases for crypto. Crypto is not just money, it digitizes any type of asset, ”he said.
According to Jacob Farber, partner at the blockchain legal and consulting firm Ouroboros LLP, the regulation of decentralized cryptocurrency networks has so far been mainly limited to the on / off ramps between the networks and the traditional financial system.
That state of affairs left the industry "largely unregulated" and private, allowing it to offer a real alternative to traditional funding, Farber said.
"Imposing a know-your-customer (KYC) requirement on transactions between in / out ramps and any wallet that does business with them exponentially expands the scope of regulation of crypto," Farber added. "More importantly, it changes what crypto can be, at least on a scale."
Describing Armstrong's concerns as legitimate, he said these potential regulations should be taken seriously by the cryptocurrency community.
Armstrong's tweets seemed to publicize long-simmering industry fears about this type of regulation.
In the past few days, several cryptocurrency lobbyists and interest groups have staged what appears to be an afterthought soft influence campaign to shape public opinion about unprotected purses.
The Coin Center published an article on Nov. 18 about the "unintended consequences" of unhosted wallet restrictions.
The Blockchain Association, which Coinbase ditched earlier this year, released a 50-page guide for policy makers to self-hosted wallets around the same time.
"The Blockchain Association has long known that some regulators in the US and overseas have concerns about self-hosted wallets," CEO Kristin Smith told CoinDesk. "We're actively training officials in both the executive and legislative branches to clear up misunderstandings about self-hosted wallets."
Read more: Binance blockade of Wasabi Wallet could indicate a crypto crack-up