The United Kingdom, in contrast to a proposal approved in March by the European Unionwill not require senders of crypto assets to collect information about recipients who use non-hosted wallet addresses.
“Instead of requiring the collection of recipient and sender information for all non-hosted wallet transfers, crypto asset businesses will only be expected to collect this information for transactions identified as having a high risk of illicit financing”, according to a document published by the Treasury. The decision was made after soliciting feedback from various respondents, including academics and industry experts.
The news may mean a sigh of relief for the privacy-focused wing of the crypto community, many of whom have spoken out against the EU measure.
At the time, Coinbase CEO Brian Armstrong called it “anti-innovation, anti-privacy, and anti-law enforcement,” while pointing out the onerous demands placed on individuals.
According to last week’s report from the Treasury, many UK government consultants seemed to agree with Armstrong. Opponents of the potential reporting requirement have primarily argued that the burden of imposing it would “disproportionately” outweigh its effectiveness in curbing illicit transactions.
Proponents of the requirement have argued that transfers between any party should be as transparent as those between crypto asset firms, viewing “unhosted wallet” transactions as a higher risk. The government disagreed, however, citing that there was “no evidence” of unhosted wallets posing a disproportionate risk.
“Many people who hold crypto assets for legitimate purposes use non-hosted wallets due to their customization and potential safety benefits (e.g. cold wallet storage),” the government added.
A non-hosted, or “non-custodial” wallet is a wallet in which an individual user controls their private keys, rather than an exchange or trading platform. This gives users full control of their own funds, rather than requiring third-party permission. (Examples include MetaMask and WalletConnect, or hardware wallets like Ledger and Trezor.)
The Canadian government ran into trouble with unhosted wallets in February, when nearly $1 million in bitcoins were transferred to Freedom Convoy protesters. Despite successfully freezing bank accounts and donation platforms like GoFundMe, authorities could only to input some of the non-hosted donation funds.
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