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The United Kingdom, in stark contrast to a proposal approved in March by the European Union, will not require senders of crypto assets to collect information about recipients who use unhosted wallet addresses.
“Instead of requiring the collection of beneficiary and originator information for all unhosted wallet transfers, crypto asset businesses will only be expected to collect this information for transactions identified as posing an elevated risk of illicit finance,” according to a document published by Treasury. The decision came after soliciting feedback from a variety of respondents, including academics and industry experts.
The news perhaps means a sigh of relief for the privacy-focused wing of the crypto community, many of whom spoke out against the EU’s measure.
Coinbase CEO Brian Armstrong, at the time, called it “anti-innovation, anti-privacy, and anti-law enforcement,” while also pointing out the cumbersome requirements placed on individuals.
According to last week's report from Treasury, many of the U.K. government’s consultants appeared to agree with Armstrong. Opponents of the potential reporting requirement primarily argued that the burden of imposing it would “disproportionately” outweigh its effectiveness in tackling illicit transactions.
Those in favor of the requirement claimed that transfers between any party ought to be as transparent as those between crypto asset businesses, deeming “unhosted wallet” transactions a higher risk. The government disagreed, however, citing that there’s “no evidence” of unhosted wallets presenting disproportionate risk.
“Many persons who hold crypto assets for legitimate purposes use unhosted wallets due to their customizability and potential security advantages (e.g. cold wallet storage),” the government added.
An unhosted, or “non-custodial,” wallet, is one where an individual user controls its private keys, rather than an exchange or trading platform. This gives users full control of their own funds, rather than requiring permission from a third party. (Examples include MetaMask and WalletConnect, or hardware wallets like Ledger and Trezor.)
The Canadian government encountered trouble with unhosted wallets in February, when nearly $1 million in Bitcoin was transferred to Freedom Convoy protesters. Despite successful freezes on bank accounts and donation platforms like GoFundMe, authorities were only able to seize some of the unhosted donation funds.