Weekly Insights #8: Ban on self-custodial wallets?

Last weekend, there was a wave of unrest in the bitcoin world. Rumors circulated that a European ban on self-hosted wallets and anonymous bitcoin payments was imminent. This weekly insights, we focus on this issue and show that this is not the case. We also take a look at the 'M-block' by Marathon Digital Holdings, efforts by US authorities to address exchanges, the sentence for Sam Bankman-Fried and Tornado Cash developer Aleksej Pertsev.

European ban on self-custodial wallets?

Recently, a rumor about an alleged European ban on private wallets and anonymous bitcoin payments caused some commotion in the bitcoin world. However, it turns out there is no truth to it. What exactly is the situation?

To begin, it's important to know that a lot of new legislation is coming for companies active in the bitcoin sector. Two important regulations are MiCA (Markets in Crypto-Assets Regulation) and TFR (Transfer of Funds Regulation), which are directly applicable in the European Union.

MiCA primarily focuses on the provision of services around crypto-assets and regulating the issuance of crypto-assets. TFR introduces new rules to combat money laundering and the financing of terrorism through crypto-assets, including the so-called 'travel rule' and aligns existing definitions from AMLD5 with definitions from MiCA.

It's important to note that both MiCA and TFR contain no explicit bans regarding the use of self-hosted wallets or conducting anonymous bitcoin payments. So where did the panic (FUD) come from?

The answer lies in another European legislative package, with a broader focus on preventing money laundering and financing of terrorism. A new AML/CFT framework, expected to come into effect in 2027.

This framework includes AMLA (a regulation establishing a European AML/CFT watchdog), AMLR (a regulation with AML/CFT rules), and a revision of an existing anti-money laundering directive (AMLD6).

AMLR caused the commotion. This regulation applies not only to crypto companies but to financial institutions in general. For example, AMLR prohibits crypto companies from offering anonymous wallets to their customers (Article 58(1)), and generally does not allow them to offer privacy coins.

But what does this mean for the ban on self-hosted wallets? Article 31b(1) of AMLR states that crypto companies must take 'risk mitigating measures' with customers who use their own wallet, including using blockchain analysis and collecting information on the origin and destination of crypto-assets.

AMLR aligns with TFR, and as such, this is nothing new. Therefore, there is also no ban on [self-hosted wallets]((https://bitonic.nl/nl/faq/88/hoe-neem-ik-bitcoin-op-van-mijn-bitonic-account-naar-mijn-eigen-wallet).

Although less relevant for bitcoin, it's important to note that AMLR limits cash payments to a maximum of €10,000. Member states even have the freedom to set lower limits. Currently, there is a legislative proposal in the Netherlands to limit cash payments to a maximum of €3,000. However, this proposal has been declared controversial and will only be dealt with by a subsequent cabinet.

So, the moral of the story? There is no ban on self-hosted wallets and anonymous bitcoin payments. Don't believe everything you read on social media (X) or what (f)influencers claim, but do your own research (DYOR).

For more information, you can visit our educational news website bitcoin.nl.

Marathon mines an 'M-block'

On Tuesday morning, the publicly traded Bitcoin miner Marathon Digital Holdings announced that they had successfully mined an 'M-block'.

Blockchain explorers, such asmempool, visualize bitcoin transactions through square blocks and colors based on transaction size and cost. Marathon, which owns its own mining pool (MARA pool) with a hash rate of 2.1% of the total hash rate, has the ability to determine the order of transactions in a block. This allows them to create a sort of 'block art', where graphic images emerge.

According to Marathon, this innovative approach to bitcoin transactions has the potential to unleash a wave of creativity. However, Marathon is not yet offering this service.

US Authorities vs. crypto exchanges

Last Tuesday, federal prosecutors in the United States charged the exchange KuCoin and two of its founders for violating anti-money laundering laws. Simultaneously, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against KuCoin.

These actions follow only a few months after US authorities settled similar charges against Binance.

Meanwhile, the exchange Coinbase is still under fire. The U.S. Securities and Exchange Commission (SEC) has achieved a significant victory against the exchange. A judge ruled that the SEC's claim about the sale of unregistered securities by the exchange can be dealt with by a jury.

It's clear that US authorities continue to aim at tackling exchanges. These developments are likely to have further repercussions.

Sam Bankman-Fried sentenced to 25 years in prison

Yesterday in New York, the former CEO of the crypto exchange FTX, Sam Bankman-Fried, was sentenced to a quarter-century behind bars. This severe sentence came after a jury found him guilty of a series of charges, including fraud, conspiracy, and money laundering through his cryptocurrency exchange FTX and investment firm Alameda Research. Prosecutors had sought an even harsher sentence of 40 to 50 years, given the magnitude of his crimes.

FTX allowed customers to trade in cryptocurrencies, but Bankman-Fried abused this trust by using customer funds for risky investments through his own fund, Alameda Research. His rapid rise to billionaire status was followed by an equally swift downfall when FTX collapsed, resulting in the loss of billions for customers and investors. The judge highlighted that Bankman-Fried lied about the use of customer funds. Meanwhile, he attempted to live a luxurious life, financed by the lost funds of his customers.

Legal case Aleksej Pertsev

This week also saw a significant crypto legal case in the Netherlands. It involves Aleksej Pertsev, a Russian programmer associated with Tornado Cash, a decentralized mixing service for cryptocurrencies. Tornado Cash enables users to obscure the origin of cryptocurrencies by mixing them with coins from other sources.

At the end of 2022, Tornado Cash was placed on the American sanctions list, after which Pertsev was arrested in Amstelveen. Accused of laundering at least $1.2 billion from hacks, Pertsev pleads innocent, claiming he had no direct involvement. With a sentencing request of 64 months, the verdict is scheduled for May 14.

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