Unhosted Wallet: Crypto in Europe hangs in a thread

The second meeting of the trilogue in Europe is set to take place this week. The future of crypto- and non-hosted wallets is being debated: the European Parliament is choosing a radical line.

Meanwhile, even the German Federal Government has realized that one Over-regulation of unhosted wallets is disadvantageous for crypto-Europe as a place of business ville. Frank Schäffler, a member of the Bundestag, obtained this information in response to a written request from the Federal Ministry of Finance (BMF).

According to a BMF Secretary of State Federal government against confirmation of sender and recipient of a non-hosted wallet. The government takes the same position against unlimited control reportswhich was planned by the European Parliament.

An image from beincrypto.com

For several weeks now, the EU has been negotiating the planned regulation of unhosted wallets in a trilogy. Referred to as a self-sufficiency wallet in crypto jargon. The EU Council, the Commission and Parliament negotiate in the trilogy to pass laws. Before that, the elaboration went through the ECON committee responsible for blockchain in the European Parliament.

Trilogues are now standard in the EU legislative process, where either the European Parliament or the European Council assumes the negotiating mandate. In the crypto case, the ECON Committee had presented a draft in Parliament – this was approved by Parliament in plenary.

Why money laundering regulation at all?

The legislative process due to TFR (Transfer of Funds Regulation) is necessary in the first instance. The regulation aims to curb money laundering and terrorist financinghence the confirmation of the crypto-receiver.

In the future, TFR will be used in almost every country in the world. There is no other option as non-TFR compliant countries will end up on the OECD blacklist and may therefore fear economic sanctions.

ECON first attracted attention in March with the near-ban on bitcoin, and eventually created unfavorable regulation for the DeFi sector.

Stefan Berger, Member of the European Parliament, has already referred to the danger of DeFi over-regulation on Twitter several times. After the parliamentary committee decided that all Wallet Providers and Exchanges (Virtual Asset Service Provider) There was an outcry about having to confirm transfers to / from Unhosted Wallet. Companies miss the clear wording of the wording.

Crypto-transaction providers are therefore also not allowed to send any transfers from / to non-verifiable wallets. A ban on non-hosted wallets. This would in principle make DeFi in Europe impossible.

What other demands does the European Parliament make?

There is also resistance as experts fear that Europe would be weakened as a place of business. The memories of the development of the internet in the 90s that we oversleep are too good. Also controversial is the regulation that all transactions over € 1,000 must be transferred by the companies concerned to an authority that has not yet been determined.

As a final step, the European Parliament wants to set up the “European Banking Authority”, which will keep a blacklist. High-risk companies are kept that can not be transferred from / to which.

On 7 June, the second formal meeting of the trilogue between the above-mentioned EU institutions is scheduled to take place.

Over-regulation of the wallet would be a disaster for crypto

The current situation is that the Commission is currently mediating between the Council and Parliament. As the Council of the European Union consists of the ministers of the respective Member States, the opinion of the German BMF is very important. As the economically strongest and largest country in the EU, Germany in particular can destroy the verification that some politicians require.

With these words, Florian Toncar, Secretary of State, begins his reasoning:

“The Federal Government is critical of the demands of the European Parliament, as you mentioned, and has positioned itself accordingly in the negotiations.”

Although the trialogue negotiations are to be voted on in the Council and Parliament in early July, there is still no predictable decision. The fronts seem hardened, the commission needed as a mediator. This is partly due to the fact that Parliament’s chief negotiators, Ernest Urtasun and Assita Kanko, are not resigning from their positions.

The German BMF specifically proposes to provide crypto service providers with a blockchain analysis tool. Using this tool, companies could assess the risk of a transfer and would not have to verify all transfers. This would identify the owner of a wallet but not confirm it.

BMF also considers the reporting of all transactions over 1,000 euros to be inappropriate. This is difficult to reconcile with the risk-based approach used in the report on the financing of terrorism. The situation is tense so far. What the regulation of unhosted wallets looks like will become clear in the coming weeks.

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