In Brief

The European Union Parliament has banned unidentified self-custody crypto wallets for transactions within the region as part of its broader anti-money laundering efforts.

The ban targets anonymous cash transactions exceeding €3,000 and self-custody wallets on various platforms.

Dissenting voices have argued that the ban may disproportionately affect law-abiding citizens and hinder financial privacy.

By prohibiting the use of anonymous cryptocurrency wallets for cross-regional payments, the European Union Parliament has made a huge advancement.

The majority of the parliament's leadership committee approved the restriction on March 19, according to a recent social media post by EU Parliament member Patrick Breyer. This action falls within the larger umbrella of EU anti-money laundering (AML) regulations.

The Effects of Europe's New AML Regulations on Crypto

The new rules prohibit all cash transactions beyond a specific amount and all anonymous cryptocurrency payments. In particular, they forbid anonymous cash transactions over €3,000 or cash payments surpassing €10,000. Self-custody wallets for desktop, mobile, and web apps are likewise prohibited.

The law is supposed to go into force in three years, but there are hints that it might happen sooner.

However, the new law is expected to change how Europeans use virtual currencies. Its strong stance against anonymity has also given rise to concerns about user privacy and financial inclusion. Furthermore, the restriction can seriously obstruct innovation and prevent the region's widespread use of cryptocurrencies.

A dissident voice in the parliament named Breyer contended that rather than reducing criminal activity, the restriction might have an effect on law-abiding citizens. He underlined that payments made in secret have had useful uses.

He gave instances, such as contributions made to groups like WikiLeaks and individuals like Alexei Navalny. He also emphasised how crucial financial privacy is for private transactions.

Crypto Community Question EU's Prohibition of Anonymous Payments

Breyer also voiced fears that increased financial transaction monitoring would unintentionally encourage harmful activity by hackers and infringe upon personal liberties.

“We need to find ways to bring the best features of cash into our digital future. We also have the right to be able to pay and donate in cryptocurrencies online without our payment behavior being recorded for no reason and personally. If the EU believes it can regulate virtual currencies on its own, it has not understood the global internet,” Breyer said.

Members of the cryptocurrency community have also expressed doubts and worries about the extent of the prohibition on anonymous payments. Specifically, one user wanted to know if all cryptocurrencies will be prohibited or just those classified as privacy coins.

Notably, a number of cryptocurrency exchanges, such as Binance and OKX, have removed a number of tokens with a privacy focus from their European user bases.

Meanwhile, Circle’s Director of Research and Policy, Patrick Hansen, explained that self-custody wallets and payments from such wallets were not banned. Additionally, peer-to-peer transfers are explicitly excluded from the regulation.

“Paying with crypto (for example to merchants) with a non KYC’d self custody wallet will be more difficult/banned depending on the merchants set up. This change, as well as the lower thresholds for anonymous cash payments, has unfortunately been agreed months ago,” he added.