The European Union today voted to ban all anonymous crypto transactions, including those from self-hosted wallets, facilitated through exchanges. This rule will apply to transactions of any size, which means that both the payers and the recipients of even the smallest digital asset payment must be identified.

The partisan vote

The law is part of a package of anti-money laundering revisions to the EU’s Transfer of Funds Regulation (TFR). It brings rules that apply to conventional transactions of more than 1000 EUR to the entire crypto sector.

In December, EU ambassadors had shown interest in removing the transaction floor on private crypto transactions, as the limit was already easily fixed through cryptocurrencies anyway.

Today’s vote passed by a narrow margin, with the two relevant compromises bypassed. 58/52 and 62/51 respectively. Overall, the left-leaning Renew and S&D parties voted in favor of the changes, while the right-leaning European People’s Party (EPP) voted against.

“Such proposals are neither justified nor proportionate,” EPP economic spokesman Markus Ferber said in an email to CoinDesk. “With this approach to regulating new technologies, the European Union will lag further behind other more open-minded jurisdictions.”

The party called the latest changes a “de facto ban on self-hosted wallets.”

Effect on Industry

The vote is despite objections from crypto exchanges like Coinbase. The company’s chief legal officer, Paul Grewal, warned that these changes would undermine self-hosted wallets and trigger a “surveillance regime” against his exchange, and others like it, in a blog post on Monday.

Gregwal also noted that the new identity verification requirement for non-hosted wallets would be nearly impossible for exchanges to meet. It would require them to collect and retain a large amount of non-customer data.

Patrick Hansen, Business Dev at Defi wallet Unstoppable Finance, believes the requirements will prove overwhelming and stifle the growth of the space.

“Most crypto companies will no longer be able or willing to transact with non-hosted wallets to be compliant,” he said. said.

The crackdown on illicit finance in crypto has greatly accelerated following the Canadian Freedom Convoy protest and the start of the Russo-Ukrainian war.

Coinbase now requires information on recipients of digital asset transactions in Canada, Japan, and Singapore. Meanwhile, US Senator Elizabeth Warren has proposed legislation that threatens crypto software developers with penalties for helping to facilitate criminal transactions.

However, the heads of major blockchain analytics firms, including Chainalysis and Elliptic, have stated that cryptocurrencies are not ideal for evading sanctions or processing criminal funds. This is due to its highly transparent nature, tracking all transactions in a public ledger.

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