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EU Authorities Target Hosted Crypto Wallets in a Move to Ban Anonymous Transactions

New AML laws could be devastating for crypto anonymity in the EU

The European Union is tightening its grip on cryptocurrency transactions in a significant push against anonymity within the sector. Recent legislative updates have introduced a comprehensive ban on anonymous transactions through hosted, or custodial, crypto wallets.

 This move forms part of the broader Anti-Money Laundering (AML) and Counter-Terrorist Financing enhancements aimed at the cryptocurrency market. According to Patrick Breyer, a member of the European Parliament representing the Piratenpartei Deutschland (Pirate Party of Germany), this decision was solidified on March 19 by the majority vote of the EU Parliament's lead committees.

The ban zeroes in on transactions conducted via third-party service providers, such as centralized exchanges, leaving no room for anonymous crypto payments of any value. This legislative action aligns with the provisional agreement between the European Council and parliament to extend the scope of the EU’s AML laws to include the crypto market comprehensively.

Furthermore, the legislation imposes strict limits on cash transactions, capping anonymous cash payments at 3,000 euros for commercial dealings and outright banning them above 10,000 euros in business transactions. Expected to be fully operational within three years of its enactment, some legal experts, including those from the Ireland-based law firm Dillon Eustace, anticipate a swifter implementation.

Community reaction and implications for privacy

The European Union's stringent stance on anonymous crypto transactions has sparked a spectrum of reactions within the cryptocurrency community. Patrick Breyer, a vocal opponent of the new Anti-Money Laundering (AML) legislation, argues that the ability to conduct transactions anonymously is a cornerstone of financial privacy and autonomy.

 

Breyer, representing the Piratenpartei Deutschland in the European Parliament, stands as one of the two members who voted against the imposition of these new rules, alongside Gunnar Beck from the Alternative für Deutschland party. Their dissent highlights concerns over the encroachment on economic independence and the fundamental right to privacy.

In the aftermath of the legislation's approval, Breyer articulated his apprehensions, emphasizing that the law compromises the essential freedoms underlying economic transactions. 

He stated, reflecting a sentiment echoed by many within the crypto community:

"I consider the ability to transact anonymously a fundamental right," 

The crypto sphere has been divided in its response to the EU's regulatory measures. While some view the legislation as a necessary step towards curbing illicit financial activities, others fear it may significantly infringe upon personal privacy and restrict legitimate economic activities. 

Daniel “Loddi” Tröster, host of the Sound Money Bitcoin Podcast, pointed out the practical challenges and broader implications of the legislation. He specifically noted the adverse effects on donations and the overall usage of cryptocurrencies within the EU, expressing concerns about the potential stifling impact on digital financial innovation.