New crypto regulation on the horizon in the EU – End of the anonymity era?

As of today, crypto transactions are anonymous in theory. This means that any crypto transactions between crypto wallets cannot be linked to any natural or legal person, as acquiring such a crypto wallet does not require any identification. This may be a bit different in practice, as with the emerging of crypto trade platforms (such as Binance or Crypto.com), where a great number of crypto transactions occurs nowadays, identification is required by the platform. This identification is accessible only to the platform itself, so if one wallet is linked to the any of the abovementioned platforms, the service provider could in theory identify the sender or the receiver of the transfer.

The European Union has been trying long to come up with a regulation that would require these service providers to make their user data (especially identification data) available for European authorities. They argue that anonymity, even if it is the core of the crypto world, facilitates black market and terrorism financing. This urge for the regulation came to a new step, as the EU Council already agreed on a plan on 30 June 2022 to widen the information contained in crypto transactions. If this regulation is also passed by the European Parliament, then a large number of crypto transactions will have to be linked to a natural and legal person.

Supporters of the regulation argue that for too long have been the crypto market unregulated, thus allowing for such schemes to happen (i.e. ponzi schemes) that are normally banned on the traditional financial market. Lawmakers hope that the new obligations for the service providers will help them combat human trafficking, money laundering and terrorism finance.

However, opposers of the legislation say that this regulation harms the core of the crypto world, as its main goal was to stay out of the radar of the regulators. As the whole crypto world is decentralized, questions regarding a crypto asset can only be decided democratically (based on the amount of the crypto held). They also argue that the regulation to be imposed by the EU cannot be enforced, as there is no technical way to identify the many millions of crypto wallets that are opened not on such platforms, thus they will probably still remain anonymous in the future.