The latest European Union suggestion mandating centralized virtual currency transactions & custodial wallet suppliers to gather and confirm personal details regarding self-custodial bank account owners demonstrates the dangers of reusing classical finance (TradFi) regulations and trying to apply them to cryptocurrency without understanding the abstract differences. We can anticipate seeing many more as countries are looking to apply the Federal Task Force Travel Control, which was originally designed for money transfers, to cryptocurrency asset transfers.
The (misplaced) connection between self-custody, regulation, and identification
The suggested EU rules aspire to “make sure that virtual currency can be tracked down in the very same way that classical transfer funds can.” This supposes that every self-custodial account can be connected to a proveable individuality and this person control the mechanisms of the wallet. This assertion is wrong.The authorities are trying to separateunhosted wallets.
An account in TradFi is connected to the authenticated individuality of its bearer, granting people authority over that acct. Having to share your internet bank details with your companion, for instance, does not end up making them the acct owner. Although if your companion keeps changing the login information, you can retake control by attempting to prove your individuality to the financial institution and having the password reset.
Self-custody of cryptocurrencies is not the same. Whoever holds the secret keys to the self-custodial bank account has regulated in other words, the capacity to conduct business) it over. Regulation is unconnected to anybody’s identity because there is nobody to whom you can verify your individuality. All you have to do is install some apps and keep your keys secure. You keep your personal in return for this responsibility.
Putting the proposed rules into action
Consider how well a custodial bank account provider would comply with EU suggestions. Imagine Alice wishes to submit 0.3 Ether from her supervisory wallet bank statement to Bob’s supervisory wallet in an attempt to correct Bob for his advisory services. The supervisory wallet supplier had to approve the transfer so that it could take place.