UN, European Parliament, Eu Commission discussed on The Breakdown with NLW


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He's the head of strategy and biz dev it unstoppable DeFi and has become the interlocutor of European Union politics for the crypto industry during these proceedings. He wrote last week, I hate to ring the alarm bell again, but the EU parliament leaves us no choice. First red flag, different from the initial proposal that only required to collect not verify personal data from transfers made from slash two and un hosted wallet, the draft now requires to quote verify the accuracy of information with respect to the originator or beneficiary behind the un hosted wallet. But it doesn't say exactly how a crypto service provider should be able to verify the un hosted counterparty. The consequence of this, in my opinion, is that most crypto companies won't be able or willing to transact with un hosted wallets anymore in order to stay compliant. Second for every crypto transfer from an un hosted wallet over one K Euro, companies are obliged to inform the quote competent AML authorities. For all these transactions, even if there is no sign or suspicion of money laundering, this is an absolute violation of privacy rights. Third red flag, one year after entry into application, the EU commission will assess the need of quote additional specific measures to mitigate the risks posed by transfers from or to un hosted wallets, including the introduction of possible restrictions. This means that the EU commission might be prohibiting transfers from and to un hosted wallets entirely, as was already suggested by some members of the parliament in an earlier draft. Fourth, while the financial action task force travel rule only requires these measures for transactions over a certain amount, one K USD, and the TFR for Fiat only requires the information sharing for transfers over one K Euro, the draft sets no minimum thresholds for crypto transfers. That means that soon every single satoshi transaction that is not purely P2P will have to be accompanied by the sharing of personal information. This is a totally unjustifiable double standard. If anything the AML requirements for cryptocurrency should be lower, since blockchain based transfers offer new and additional ways to track and monitor. There are more problematic passages in the text, but these are the main ones to focus on. This proposal cracks down on a hosted wallets and creates huge data honeypots for hackers. What's concerning is that this time different from the proof of work ban in the Mika regulation, the council or member states seem to be on the same page with the EU parliament on these issues. No threshold for crypto transfers and crackdown on un hosted wallets. Now to this thread Paul Tang, who's a member of the progressive alliance of socialists and Democrats for the Netherlands, responded, and Tang has made himself the chief provocateur on Twitter as it comes to this legislation. He writes, another week, another social media storm by crypto Bros. Now about the transfer of funds regulation. Just like bank transfers transferring crypto like Bitcoin should be accompanied with information about the person sending and receiving the funds. Now the European Parliament wants to cover also transfers to and from un hosted wallets. These are wallets where crypto assets are stored on your PC without the involvement or knowledge of anyone else. Similar to holding cash in your pocket. But cryptos are extremely mobile and operate in a borderless world. This means that funds from un hosted wallets often come from unknown sources. And money going to un hosted wallets may end up in the wrong place, for example, with terrorist groups. So the identity of unhosted wallet holders needs identification, just like you need to identify yourself when you deposit money at the bank. And we want authorities to be notified in case anyone person receives a total of €1000 plus from un hosted wallets. This is a red flag. The parliament also covers all crypto transfers regardless of their monetary value. The unstable value of crypto assets makes a threshold in Euros difficult to enforce. And smurfing allows for many small transfers to be coordinated so as to escape any threshold. These are important tools to fight money laundering and terrorist financing. Some crypto lobbyists won't like the extra work, but being part of our society comes with obligations. Banks already fight criminal money. Crypto Bros should step up to the plate and do so too. And so here in a single tweet and a quote tweet response, you have the gist of this argument. The great debate is about financial freedom and sovereignty on the one hand versus the boogeyman of crime and societal obligations on the other. On the side of the state or MPs like Tang and aurora le Luc, who said we are talking here about a serious subject. The fight against money laundering, the financing of terrorism crime, keto crime, a subject that deserves no controversy, no buzz. Avoiding new victims, defending the general interest, these are our values. On the other side are those who view these rules as overly strict, more strict in fact than the banks. More its corner from the liberal free Democratic Party representing Germany says, if we impose stricter rules on the crypto economy than on the traditional financial sector, we risk once again over regulating and innovative economic sector that will, as a result, thrive in markets outside the EU. Michael Hugh Gavin, a member of the European conservatives and reformists for the Netherlands says, the greatest asset of blockchains are traceability and transparency. The amendments to the transfer of funds regulation make transfers to a wallet unnecessarily complicated. Come with privacy risk and will hinder innovation. I will vote against it. Pure person again, though not in the EU parliament also articulated the position of many. Regulating the uses of crypto requires a good understanding of how it works. We can not transpose banking and financial regulation applied to a centralized ecosystem to a brand new ecosystem. We have to invent a whole new KYC AML model adapt to this new technology. This leads us to the determination of political objectives by the regulator. To date, the Fatah has not been able to adapt its recommendations to the new technological dimension. It needs to use tools enabled by this technology to work on a new framework based on the risk approach. To date, the presumption of guilt weighs on the centralized actors and users. The prohibitive approach seems to dominate in Europe. These choices will condemn these nations and financial competition. The nations that have the courage to work to learn without dogma will be the winning nation in this international competition. Not because they will be the lowest bidder, but because they will have known how to regulate intelligently. So there are obviously a lot of specifics to this debate. While at company ledger wrote a blog post, for example, pointing out using figures from chain analysis compared to figures from the UN that Fiat currency money laundering is 232 times as large as crypto money laundering. Another starker way to put it is that the amount of money the UN estimates was laundered last year through traditional means, it's around the same size as the total crypto market cap. These are the types of details that should be debated with more time. But I don't think those specifics are really why this issue gets so hot. I think why these debates are so triggering is that there are a microcosm of the great and central conceit of really all modern politics. The rights of individuals versus the obligations of participation in a society. I point that out as a way of saying that it is not only fair but good to have those debates. Especially when they are had in good faith. This is a precarious balance that is constantly shifting. New threats and new circumstances do require new evaluations, but so too do threats to individual sovereignty. If we really decide as a society that we have zero tolerance for any financial crime, then yes, we can also put human financial surveillance to 100 and financial sovereignty to zero. But that would also necessarily mean the end to cash, among other things. What it seems strange as it admittedly outside observer is the way in which two major issues now of dramatic importance to the cryptocurrency industry have been pushed into legislation at the last minute without a lot of time for the industry to comment and engage. Now I will admit I could have the wrong of that. It could be partially on the industry that we haven't been paying enough attention or engaging enough. But it's still feels strange and hurried. This sentiment was sort of validated by silk Noah, a lawyer at gnosis, who pointed to Russia's invasion of the Ukraine as an accelerating force for, well, everything. She writes, since 2021, negotiations have been ongoing to extend the scope of the TFR to crypto. IE virtual asset service providers must collect and make accessible info about the sender and beneficiary of crypto transfers. Due to the Russian invasion of Ukraine, the drafting of amendments has been speeded such that it now represents a masterclass in how to kill the EU's most promising industry. Whatever the case, unlike the Mika proof of work ban, this one did not go our way. At ten 21 a.m. this morning, east coast time, Patti Hansen writes, breaking the econ and lead committees of the EU parliament voted in favor of the FTR compromises D and E that cracked down on quote unquote un hosted wallets. The entire regulation draft to be voted on later today, but will certainly go through. So what happens from here? Well, one, I will not pretend to understand the EU legislative process at all. But again, here's what Patrick Hansen had to say about it. After the vote today, the econ proposal will be announced in the plenary session probably sometime in April. If no one challenges that by requesting a plenary vote, the between the EU parliament commission and council will start shortly after. The trial usually takes a couple of months and offers the last chance to introduce changes. Individual voices from the council and commission make me optimistic that we can still achieve changes. But the situation is undoubtedly more difficult than with the proof of work ban. Now, what about partisanship? Obviously I talk about that a lot in the U.S., monitoring, if and how crypto is becoming more or less partisan. And I've described how I believe that it is to crypto's benefit, how it seems to be bucking the tide of rampant partisanship. In the EU, it would be tempting to look at these results and see it as a left alliance for this identity verification and a right alliance against it. But even here, that's not fully true. If a Cali is the vice president of the Euro parliament and is from the progressive alliance of socialists and Democrats and a member for Greece, she wrote on March 29th, head of the vote for AML, it seems necessary to not put EU in the backseat of DeFi and innovation, but to support the initial approach of TFR. Proportionality and smart regulation for innovation friendly principle should be the spirit. Hopefully EU will make the right decision. Ever kept up for tweeting this morning, she retweeted Cameron winklevoss from Gemini who said when it comes to AML efforts, the inherent attributes of the blockchain, traceability, auditability, and transparency, allow it to be an effective tool to combat illegitimate activity. Subject to protecting privacy and other individual rights. She also added transfer of funds from un hosted wallets to EU crypto asset service providers should be possible in a proportionate way, otherwise EU risks circumvention of EU infrastructure via non EU providers to fight crime and corruption while remaining tech neutral and innovation friendly. And finally, no matter what happens today, there is a need to discuss further in the European Parliament. We will host workshops with experts and work with colleagues that have the best intentions for a proportionate responsibility of European Union, crypto asset service providers. So there will be a lot more ink spilled on this. There will be debates in the EU around the specifics of wallets around the practicality and legality of requiring parties to provide KYC of third parties of crypto's relevance to the EU economy and more. There will be a temptation by many in the crypto industry to say screw them all to believe firmly that this means that the regulators in the European Union do not have the best interest of this industry anywhere near their priorities. But I think that it would be a mistake. It may be late in the game, but the process isn't over, and what's more, even if it's a slim chance, changing laws before they're made is a hell of a lot easier than changing laws after they become laws. I will, of course, be keeping track of this and sharing resources where I can. For now I want to say thanks again to my sponsors, nexo IO, arculus, and FTX, and thanks to you guys for listening. Until tomorrow be safe and take care of each other. Peace. Hey breakdown listeners come join coin desks consensus 2022. The festival for the decentralized world this June 9th through the 12th in Austin, Texas. 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