Most of the European Parliament's main committees have approved a new legislative move banning anonymous cryptocurrency payments, sparking a firestorm of debate, marking a key moment in the regulation of digital currencies in the EU. This comprehensive package of anti-money laundering measures, which goes beyond cryptocurrencies and includes significant restrictions on cash transactions, represents one of the most assertive regulatory efforts seen in the global financial landscape.
Legislative framework
Under the new legislation, anonymous cash payments in commercial transactions are limited to amounts below €3,000, with a total ban on cash transactions exceeding €10,000 in a business context. The legislation also covers a broad network of digital financial transactions, with a particular focus on anonymity in cryptocurrency payments.
Every cryptocurrency transaction made on wallets managed by service providers, called “hosted wallets”, must now be fully traceable, eliminating anonymity even for the smallest transactions.
EU lawmakers say these measures are crucial in the fight against money laundering, terrorist financing and tax evasion. However, the broad nature of these rules has raised serious concerns about the privacy rights and fundamental freedoms of EU citizens.
MEP Dr Patrick Breyer of the Pirate Party, a vocal critic of the legislation, called the EU's approach “financial paternalism”. In a detailed blog post, Breyer strongly opposes a blanket ban on anonymous payments, arguing that it does little to reduce crime while significantly impinging on personal freedoms.
The EU Commission approves:
🚫 Ban on cash payments above EUR 10,000
🆔 Prohibition of anonymous cash payments above EUR 3,000
₿ Prohibition of anonymous cryptocurrency payments to hosted wallets without any thresholdThis means a war on cash and a gradual erosion of our financial freedom!… pic.twitter.com/gwznD4QZop
— Patrick Breyer #JoinMastodon (@echo_pbreyer) March 21, 2024
He argues: “A blanket ban on anonymous payments would have, at best, a minimal impact on crime, but it would deprive innocent citizens of financial freedom.” Breyer's comments underscore broader concerns among critics that the legislation could disproportionately affect ordinary citizens under the guise of combating illegal activity.
Stressing the importance of anonymity for political and social activism, Breyer notes: “The drugs and sex toys I buy are none of anyone's business. To collect donations, dissidents like the late Alexei Navalny and his wife are increasingly relying on anonymous donations in virtual currencies around the world.”
This perspective sheds light on the potential implications for privacy and free speech, highlighting the need for a balanced approach to regulation.
Crypto Community Reaction
The cryptocurrency sector, known for its emphasis on privacy and decentralization, has reacted critically to EU regulatory measures. Daniel “Loddi” Tröster, host of the Sound Money Bitcoin podcast, highlighted practical challenges and implications of new regulations, with particular emphasis on KYC requirements for transactions on hosted wallets.
“Since KYC is required when opening accounts on a cryptocurrency exchange anyway, there are no major changes for now (for most providers). However, there are limitations in other areas. Hosted wallets will likely include the following: Alby, Blink, Wallet of Satoshi…” he noted.
These wallets do not have KYC so far. For example, Wallet of Satoshi users have not yet completed the KYC process. In the future, transferring Sathois to this wallet would therefore require a KYC process.
Tröster discusses in detail the impact on donations and the wider implications for the use of cryptocurrencies in the EU. “What gives me a lot more stomachache initially is the donations. Under the new rules, anyone who wants to donate anonymously can no longer do so,” it says, expressing concerns about the choking nature of the rules.
In particular, the new law does not affect stand-alone transactions. “You could understand that no prevention or regulation was possible here,” Tröster said.
Implementation challenges
Skeptics of the law question its effectiveness and enforceability given the inherently decentralized and borderless nature of cryptocurrencies. They argue that global internet infrastructure and the technical capacity of digital currencies to facilitate direct peer-to-peer transactions without intermediaries could significantly hamper EU regulatory efforts.
“Technically, virtual assets can be transferred directly from one person to another without the use of intermediaries, which makes them impossible to regulate,” Dr. Breyer emphasizes, questioning the practicality of the EU approach.
Moreover, criticism concerns the EU's potential overreach in trying to regulate a global phenomenon through regional legislation. The inherent flexibility and global reach of cryptocurrencies suggest that users may find ways to circumvent these regulations, raising questions about the ultimate effectiveness of EU measures.
At the time of publication, Bitcoin was trading at $65,957.
Featured image created with DALL·E, chart from TradingView.com
