Crypto Wallet Regulations: A damn good time to be paranoid

[mk4]

"Not your keys, not your coins"

- You're probably already pissed off for hearing this a thousand times already, and this has probably been said a bajillion times already to the point that it's probably one of the most quoted statements in the bitcoin and cryptocurrency space.

Now, if the concept of not actually owning the coins on your exchange account doesn't make you uneasy enough..

Well, hopefully this does.

There has been rumours about the U.S. Treasury and the controversial Steven Mnuchin rushing out a regulation concerning non-custodial wallets. Now, what would the regulation most probably be about? Most likely, heavy KYC, and heavy invasion of privacy in general.

As per Brian's Tweets: "This proposed regulation would, we think, require financial institutions like Coinbase to verify the recipient/owner of the self-hosted wallet, collecting identifying information on that party, before a withdrawal could be sent to that self-hosted wallet." Imagine needing to reveal who you're sending your funds to everytime you send out your coins.

Take note though, the rumours aren't just from some random nobody on the interwebz. It's from Brian Armstrong, Coinbase's CEO. Definitely a huge name in the space regardless if he's quite controversial himself, and definitely not a rumour that we should just be ignoring.

https://twitter.com/brian_armstrong/status/1331744884856741888

If you're interested in the whole Twitter thread, I linked the full thread in article form(for better viewing) along with other articles at the end of this post.

Some people on other communities like on crypto Twitter are really concerned that some of them are telling people to get ready to "go dark" if ever such a strict regulation gets into effect.

And, it seems like some people are probably not taking this rumour lightly. As per data from Arcane Research(and glassnode), well, there has been a dip on the number of user's coins left on exchanges. Did the rumour cause this? Or is it just simply long-term holders withdrawing their coins to non-custodial wallets for long-term holding? No way to know for sure. But take note that the Tweet was posted on November 26th.

https://twitter.com/ArcaneResearch/status/1336314785290399746

The question is: will this just be purely a rumour that will not amount to anything soon? Maybe, maybe not. But one thing's for sure, is it worth risking? In my opinion, definitely not.

And this is just the start. As Bitcoin grows in terms of adoption, expect things to get tighter and tighter. Better be safe than sorry.

Obviously this is for people who actually don't actively trade and just hold bitcoin as a speculative investment, and probably the traders that doesn't want to provide KYC/AML documents. Not sure why I have to make this clear lol.

Some articles if you want to dig deeper:

• Brian Armstrong's full series of Tweets in article form
• Coinbase CEO: Trump Administration May ‘Rush Out’ Burdensome Crypto Wallet Rules
• US Lawmakers Tell Mnuchin to Back Off From Potential Crypto Wallet Regs
• Industry Pros Weigh In on Rumors of New Crypto Wallet Regulations
• US Lawmakers Tell Mnuchin to Back Off From Potential Crypto Wallet Regs
• Bitcoin, crypto stocks plunge amid Steven Mnuchin's rumored regulatory bombshell

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[ranochigo]

I don't understand why people are still putting Bitcoins into their exchange wallets. Custodial wallets are not safer than those which gives you complete control of the private keys and is definitely not the main point of Bitcoin; giving control of your funds to someone else.

Bitcoin did crash in the period of Nov 26 so that could potentially explain for certain decrease in the Bitcoins held by the exchanges as more people sell off their holdings and those long term prospective buyers moving it offsite.

Custodial wallets are already intrusive enough, they have unreasonable expectations to have taint-less coins as well as the present KYC/AML restrictions. The only way around it is to try to use P2P OTC exchanges or other wallets. I'll expect harsher regulations but they'll most likely affect US exchanges only.

[mk4]

I don't understand why people are still putting Bitcoins into their exchange wallets. Custodial wallets are not safer than those which gives you complete control of the private keys and is definitely not the main point of Bitcoin; giving control of your funds to someone else.

Bitcoin did crash in the period of Nov 26 so that could potentially explain for certain decrease in the Bitcoins held by the exchanges as more people sell off their holdings and those long term prospective buyers moving it offsite.

Custodial wallets are already intrusive enough, they have unreasonable expectations to have taint-less coins as well as the present KYC/AML restrictions. The only way around it is to try to use P2P OTC exchanges or other wallets. I'll expect harsher regulations but they'll most likely affect US exchanges only.

I get that some people are simply too technologically illiterate to be able to self custody(especially the older folks), but it's mostly laziness and carelessness. The "Learn the hard way" way of learning is definitely at play here, the same way how a lot of people only become security paranoid only when they already got hacked.

[Anonylz]

I don't think it applies to the older folks only, many traders have their funds on exchanges for easy access, and before anyone pointing out dex trading remember the volume is not comparable, although not enough excuse to leave funds on exchange, better to have control of your funds to avoid future uncertainties.

[Lorence.xD]

I get that some people are simply too technologically illiterate to be able to self custody(especially the older folks), but it's mostly laziness and carelessness. The "Learn the hard way" way of learning is definitely at play here, the same way how a lot of people only become security paranoid only when they already got hacked.

We can't blame them, they chose not to listen to the people who knew better, they will have to face the consequence of that action. I do not get why they still go this way though, remembering what happened at Mt. Gox, they still do this kind of thing. Good thing that there are people like you advocating this because if shit hits the fan, they will not blame themselves, they will blame others for not warning them and educating them about the dangers, now they will never have an excuse.

[Josefjix]

The regulation comes here again, what's the main purpose of Decentralization when they role out new policies to restrict how your coins should be stored? Like @Anonylz has said above it is not about older folks alone, traders will prefer their coins on the exchange than custodian wallets for easier trading, conversion and access. Untill then let's be security cautious as we have always been.

[mk4]

I don't think it applies to the older folks only, many traders have their funds on exchanges for easy access, and before anyone pointing out dex trading remember the volume is not comparable, although not enough excuse to leave funds on exchange, better to have control of your funds to avoid future uncertainties.

Obviously this is for people who actually don't actively trade and just hold bitcoin as a speculative investment, and probably the traders that doesn't want to provide KYC/AML documents. Not sure why I have to make this clear lol.

[davis196]

Banning non-custodial wallets is the same as the government putting a ban on holding your paper money in your own wallet/pocket.
I guess that the Federal Reserve wants the cryptocurrencies to be treated as financial assets only,not as real currencies.That's why they want all the coins to be held on licensed crypto exchange platforms,that have KYC verification policies.
The whole purpose is to have more control and more tax revenue.

[Wexnident]

Kinda ironic how it was another party that influenced those that store their coins in exchanges to actually use non-custodial wallets. Though it is them that is also attempting to influence those that still use custodial wallets, possibly in a negative (or more like a pain in the ass) way. People never really learn until they're hit now don't they, just hope that this message is enough of a warning for those still storing wallets in their exchanges. I'm pretty sure most people are investing in crypto aren't that idiotic, and probably most of those that would stay in exchanges are active daily traders.

[MusaMohamed]

Any meeting with big nations are difficult to get consensus and be applied in societies with real laws, regulations and policies. They tend to make very general statements that won't tie them too much and won't put them at risks if they can not get their promises done.

The news on crypto wallet regulations is another time to raise awareness on non-custodial wallets for crypto enthusiasts. They have to be aware of those wallets and be cautious with risks from sudden regulations from governments. Save cryptocurrency in non custodial wallets and try to use Tor when broadcast transactions, use changed addresses and try to never or less reuse address as possible.

[erikoy]

<snip>

Known exchange wallets are secured and are good to keep bitcoins but when we compare the risk between the exchange wallet and to the non-custodial wallet we can say that the non-custodial wallet are more safe. However, this is not an issue to the good exchange as what I had mention earlier like the coinbase, binance and other strong or having a huge market flow for cryptocurrencies as listed in the top exchanges. Yes, they require KYC which is somehow not really good and that can invade our privacy. Cryptocurrency will be just like the banks as they get into the same process of KYC. Regulation is bad actually in my own opinion. Bitcoin has already been functioning without regulations and are independent system. The only thing that it needs is to educate the users itself on how to protect themselves against the scam, fraud, hacking and phishing attacks.

[pooya87]

That is why I avoid calling them "wallets", they are simply accounts that people have with some centralized company and the moment they clicked "Accept" on their terms of service they gave up all their rights to freedom and their control.

I wonder how reliable the chart in OP is, because technically even if people were moving their funds out of exchanges we also have another reason why more people move to exchanges and that is the price rise. In that chart which shows most of 2019 the number was declining coincides with the biggest price swings that we had and ends with the biggest price rise  that took the price to the previous ATH ($20k). This situation has increased the volume on exchanges by a lot which translates into a lot more bitcoins being on exchanges.

[Bitstar_coin]

As long as people can trade on exchange many people will always have their funds on exchanges to trade, even those who do occasional flip still have their funds on exchange because it is not so easy to be moving funds back and forth whenever the price increases, I think this is something that will always continue to happen despite regulations.

[o_e_l_e_o]

I still can't understand why anyone stores their coins on centralized exchanges. The number of reasons which already exist to not leave your coins on exchanges are many - poor security, poor privacy, not trustless, you don't actually own anything, the exchange can decide who, where, and when you can spend your money, account freezes, coin seizures, hacks, scams, the list goes on and on. However, if none of things have yet convinced you to withdraw your coins and hold them yourself, then I don't think a little bit more KYC is going to tip you over the edge.

However, I would be hopeful this would convince the people who begrudgingly use centralized exchanges simply for trading to finally make the move over to good DEXs like Bisq.

Brian Armstrong can STFU though, as far as I am concerned. He has spent the best part of a decade invading privacy, selling out their users to the government, creating privacy invading and surveillance software and selling it to the CIA, FBI, IRS, DEA, etc. He isn't against this because it will affect privacy - he is against this because it will affect his profits. He doesn't give a damn about your privacy.

[Jating]

In other news, 4 Congressman, Warren Davidson, Tom Emmer, Ted Budd, and Scott Perry has urge Steven Mnuchin to stop this rumours for good.

So I guess we have some ally in the Congress and ask Mnuchin to re-evaluate before going into public.



https://twitter.com/WarrenDavidson/status/1336804544320327683

[hatshepsut93]

Banning non-custodial wallets is the same as the government putting a ban on holding your paper money in your own wallet/pocket.
I guess that the Federal Reserve wants the cryptocurrencies to be treated as financial assets only,not as real currencies.That's why they want all the coins to be held on licensed crypto exchange platforms,that have KYC verification policies.
The whole purpose is to have more control and more tax revenue.

Every government implements restrictions on operations with cash, and each year they make them tighter and tighter. Sooner or later they will do the same with Bitcoin, and they aren't interested in trying to stop you from installing Bitcoin clients or anything like that, they want to make it hard to spend Bitcoin without doing KYC or explaining the source of funds in some cases. They might tell exchanges and other services to threat mixed coins as suspicious, and demand customers to show their transactions before mixing and freeze their funds if they refuse.

[mk4]

Now i wonder what'll happen to open-source wallet (such as Bitcoin Core and Electrum) which hosted on GitHub/GitLab.

Not sure if you've heard of it but remember the youtube-dl fiasco like more than a month ago? Probably might not happen, but it's really not outside the realm of possibility.

https://thenextweb.com/dd/2020/10/27/github-took-down-youtube-dl-so-devs-made-more-copies/
https://github.blog/2020-11-16-standing-up-for-developers-youtube-dl-is-back/

[Lucius]

I'm not an expert on US law, but since a new president has been elected, and he should take office in about a month, he will set up a new administration - by which time these Trump clowns can make laws - isn't there a transition period in which such actions should be disabled?

I’m not sure what Biden thinks about crypto (some sources say he has similar opinions as Trump), but if they do implement something like this, be sure they won’t be the only country with such rules.

[bL4nkcode]

I don't understand why people are still putting Bitcoins into their exchange wallets. Custodial wallets are not safer than those which gives you complete control of the private keys and is definitely not the main point of Bitcoin; giving control of your funds to someone else.

They'll defend for easy access when bitcoin crash or pumps so that they will not bother sending/transfer their bitcoin to some exchange. Or as someone said on some thread here that exchanges are secured and their funds are insured even there's a hack like what binance do (well, not to cryptopia and quadrigaCX users).

They don't usually care about the point of having bitcoin, they just want profit, gains and whatsoever.

[o_e_l_e_o]

There is already precedent set of the US government restricting access and activities on GitHub (https://techcrunch.com/2019/07/29/github-ban-sanctioned-countries/), and other countries, notably China, Russia, and India, completely blocking access to GitHub.

What are the alternatives? A peer-to-peer repository?

Or as someone said on some thread here that exchanges are secured and their funds are insured even there's a hack like what binance do (well, not to cryptopia and quadrigaCX users).

They are only "insured" in the sense that Binance had enough profit to just eat the loss of previous hacks. All it needs is a hack which is big enough and the "insurance" no longer applies.