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Square and Coinbase slam FinCEN on regulation for Bitcoin and crypto wallets

  • Big names from the crypto industry have rejected the proposed regulation for “unhosted” Bitcoin and crypto wallets in the U.S.
  • FinCEN extends the comment period on the new regulation until January 7, 2021.

Rarely does the crypto industry find an issue on which they can unite as one. However, the Financial Crimes Enforcement Network’s (FinCEN) proposed regulation for Bitcoin and crypto wallets is one of the few issues to receive unified opposition.

Unveiled at the end of December last year and led by U.S. Treasury Secretary Steve Mnuchin, the new rule aims to regulate the so-called “self-custody” or “unhosted” wallets. Through the rule, banks and virtual asset service providers (VASPs) will have to collaborate and increase the amount of information they collect about their users for transactions greater than $3,000.

The proposed rule offers a period of time to allow public comment before the rule becomes law. However, FinCEN has enabled less than the usual 60 days for such a process. The deadline for submitting a comment is January 7, as noted by Compound’s general counsel, Jake Chervinsky, after the regulator granted an extension.

Among the companies that have responded to FinCEN by opposing its proposal are Square, Coinbase, the Blockchain Association, Coin Center, a16z, among other companies and individuals. Square’s CEO, Jack Dorsey, wrote via Twitter:

We believe this rule will do the opposite of what it intends, will leave people out of participating fully in the economy, and that it being rushed prevents better solutions.

Rule on Bitcoin wallets could massively affect users

Chervinsky and other experts have described the proposed rule as “rush”, arbitrary, unnecessary, and even capricious. The consensus seems to be that the information that authorities may obtain when applying the new standard will be the same as that already provided by the VASPs as part of their Know Your Customer (KYC) and Anti-Money Laundering (AML) policies – just for “self-custody” wallets.

The most affected could be exchanges, their users, and the trade with cryptocurrencies in the United States. Square further claims that the information sent to regulators could compromise the security of the users, limit their economic freedoms, and create other complications.

Coinbase‘s Chief Legal Officer, Paul Grewal, requested an extension of the comment period. Grewal believes that there is no situation that warrants a rush introduction of the rule and its approval under the current conditions is “illegal”. He added that the regulator has not justified what it will do with the additional information it has requested. Grewal said:

National security concerns should be taken seriously. But we should save that rationale for regulations that actually help us tackle a national security concern, or else we demean it.

Finally, the comments share the concern that the United States may lose its role as a key player in the world economy. If the rule is approved, many companies offering crypto-based services could opt to migrate to countries with more friendly regulations and their users could be left with no access or limited options for entering the crypto market.

Compound’s Attorney General emphasized that every comment submitted to FinCEN is important.

About Author

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Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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