While everyone awaits the new KYC and AML regulations, some are talking about keeping self-hosted wallets free from government controls.
The Blockchain Association published a new report showing policy options for self-hosted wallets to regulators. Coin Center also published an expert view of Jai Ramaswamy speaking in defense of such wallets.
The Blockchain Association is a trade organization for the crypto industry, while the Coin Center is a non-profit organization that focuses on advocating for decentralization before lawmakers. Both work in Washington D.C.
Ramaswamy is currently working in the compliance division of Celo’s parent company, C Labs, and was previously the head of the anti-money laundering (AML) division of the United States Department of Justice.
He played a protagonist role on the Banking Secrecy Act in cryptocurrencies and increasing regulatory efforts in decentralized finance and peer-to-peer (P2P) transactions. These areas lack the intercessors that regulators usually use to obtain financial data.
Ramaswamy and the Blockchain Association agree that AML enforcement efforts fit more to crypto-to-fiat ramps. Using the term from the Financial Action Task Force, VASP, or virtual asset service providers, the Blockchain Association singles them out as the area of real concern:
“Given the non-compliant entities that are already subject to the global anti-money laundering and terrorist financing regime, that is, non-compliant over-the-counter exchanges and brokerages, represent the big ‘hole’ of the anti-money laundering and terrorist financing regime in the ecosystem of digital assets, the additional restrictions on self-hosted wallets would not address the substantially increased risk posed by non-compliant VASPs. “
Ramaswamy predicted that any aim to ban self-hosted wallets in the name of fighting money laundering would fail:
“A sobriety test of technology explains why those efforts are destined to fail and will only serve to undermine, rather than enhance, efforts to detect and dismantle illicit financial activities.”
The Blockchain Association report identified three possible policies that regulators could ratify to combat P2P transactions between wallets:
“Prohibit or deny the license of platforms if they allow transfers of unhosted wallets, introduce transaction or volume limits on peer-to-peer transactions, or require transactions to be made through a VASP or financial institutions.”
Like Ramaswamy, the people at the Association Blockchain show a sincere skepticism about the technical implementation in the real world. Miller Whitehouse-Levine, a policy manager at the Blockchain Association said:
“Limiting P2P transactions (between self-hosted wallets) would require changes to the underlying protocols.” CEO Kristin Smith continued: “The fear is that the only way to enforce them is to cut off transactions to and from self-hosted and hosted wallets.”
By: Jenson Nuñez.
