The anonymity of cryptocurrency transactions is about to take a hit in Europe as European Commission has proposed a new money laundering law that will require keeping every crypto transaction details.
On Tuesday, the Commission proposed changes to EU law that would force companies that transfer Bitcoin or other crypto-assets to collect details on the recipient and sender.
EU’s existing anti-money laundering and counter-terrorism financing laws did not give consideration to innovative cross-border financial transactions such as cryptocurrency.
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The proposal thus, is designed to take into account new and emerging challenges linked to technological innovation.
“These include virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorists’ organizations. These proposals will help to create a much more consistent framework to ease compliance for operators … especially for those active cross-border,” the Commission said.
The proposals would make crypto-assets more traceable and would also prohibit providing anonymous crypto-asset wallets, the EU Commission said.
The Commission argued that crypto-asset transfers should be subject to the same anti-money-laundering rules as wire transfers.
“Given that virtual assets transfers are subject to similar money-laundering and terrorist-financing risks as wire funds transfers… it therefore appears logical to use the same legislative instrument to address these common issues,” the Commission wrote.
While some crypto-asset service providers are already covered by anti-money-laundering rules, the new proposals would “extend these rules to the entire crypto-sector, obliging all service providers to conduct due diligence on their customers,” the Commission explained.
Under the proposals, a company transferring crypto-assets for a customer would be obliged to include their name, address, date of birth and account number, and the name of the recipient.
David Gerard, author of Attack of the 50 Foot Blockchain, told the BBC: “This is just applying existing rules to crypto. This has been coming since 2019.”
He said that although these were European proposals their impact would reach much further.
“If you want to make real money, you have to follow the rules of real money,” he said.
The proposals could take two years to become law if EU member states and the European Parliament agree.
However, the proposal, if it becomes law, will leave the cryptocurrency market in a conflicting situation. Many have embraced the blockchain technology because it offers them the opportunity to carryout transactions anonymously. Therefore, the EU proposal may spook a horde of crypto investors who fall in this category. On the other hand, the proposal may give credibility to cryptocurrency as having the much demanded government regulation. And that may entice another group of people who have shunned cryptocurrencies due to its cryptic transaction method and lack of government’s regulation.
Meanwhile, bitcoin has bounced back to $30,000 after falling below the strong support on Tuesday. The cryptocurrency traded around $32,000 on Wednesday, about 7% higher. Other coins, ether and XRP also recorded a rebound, trading around 9% and 6% up respectively.
The cryptocurrency market plunged on Tuesday after a massive selloff, forcing bitcoin to drop below $30,000 for the first since June 22. The market has been under intense regulatory pressure as governments intensify efforts to curb its influence and protect traditional financial institutions. Concern over the impact of mining on environment has also added to the market’s pressure.
Vijay Ayyar, head of Asia-pacific at cryptocurrency exchange Luno told CNBC that further downside should be expected, describing Wednesday’s rebound as “dead cat bounce,” which means, the recovery is brief and it’s expected to slide again.
“We saw broad market rallies across the board last night as well, and I think crypto is just playing off of that,” he said. “In general, there are lot of macro factors weighing down on risk-on assets at the moment – inflation worries, Covid, and with crypto we’ve got more specific worries such as much more regulatory oversight.”