Is the US Government Banning Crypto Wallets? Short Answer: It's Complicated
Just as Bitcoin was guiding cryptocurrency markets skyward with a renewed push for an all-time high valuation, prices came crashing down without warning.
Wait — was there a warning?
In a tweet with what some deemed suspicious timing, Coinbase CEO Brian Armstrong let loose an alarming rumor. The United States Treasury, with Secretary Mnuchin at the helm, is poised to ban the use of anonymous non-custodial crypto wallets before the year's end.
What is a non-custodial crypto wallet, you ask? Simple — any crypto wallet that is self-hosted (i.e., you own and hold the private keys) fits the description.
So, if you currently use a cold storage wallet like a Ledger Nano S or a software wallet such as MetaMask, you may soon find yourself running afoul of new regulations.
While this all seems pretty bad for Bitcoin when you consider the sheer amount of people using non-custodial crypto wallet storage, there are a couple silver linings worth considering.
In this article, we will discuss how experts choose their cryptocurrency wallets and what types of wallets exist.
Collecting data on cryptocurrency wallets won't work
At the core of the rumored regulations is what appears to be a bank-centric push to force all current and future cryptocurrency users toward intermediary platforms.
What this means for you is, if the rumors are true, you will need to share KYC information (identification data) with exchanges you use before withdrawing or depositing from your self-hosted wallet. This push will make it so your currently anonymous crypto wallet will be inextricably linked to your real-world identity.
OK — so there go crypto wallets, right? You might as well delete your Exodus wallet, shut down the MetaMask, and turn everything over to the bankers lying in wait.
Wrong. Try as they might, there is simply no way to enforce data collection on the use of non-custodial wallets. Such regulations appear more symbolic than anything else — they might scare newbies looking to enter the market discreetly, but anyone who understands how cryptocurrency storage works, especially when using hardware wallets, knows there are options outside of centralized exchanges.
Consider the scenario where the US Treasury makes good on their threat to enforce data collection on crypto wallets. Now, Coinbase requires you to KYC your wallet before allowing you to withdraw freshly purchased BTC. What are your options?
For one thing, you can use a decentralized exchange to trade crypto. Uniswap has already surpassed Coinbase in terms of trading volume — if crypto wallets regulations come into play, expect Uniswap to get much more action.
Moreover, with the push toward DeFi in the cryptocurrency industry, along with endless options for swapping liquidity, the likelihood that centralized exchanges stay relevant gets slimmer every day.
User privacy is paramount in crypto
Satoshi Nakamoto never envisioned cryptocurrency as a way for governments to collect private data. That's why blockchains are built to enable censorship-free financial access.
As CoinDesk noted in a recent analysis of the situation, there exists a revealing difference in the language used to refer to crypto wallets by regulators and crypto investors.
Regulators call crypto wallets unhosted wallets, whereas investors refer to them as self-hosted wallets. The difference here is all about privacy — crypto users believe in financial independence, freedom from oversight, and digital asset autonomy.
On the other hand, an unhosted wallet points to the view that such wallets lack hosting — a situation that should be remedied by regulation and the cooperation of centralized institutions.
This seemingly small difference in language does indeed point to a large divide in exactly how each side views the purpose of storing crypto assets.
Is the government banning crypto wallets? Not really
As Armstrong noted in his original Twitter thread, the crypto industry has been preparing for this eventuality for at least a few months. In fact, they've known long enough to form a lobby, and have responded to the rumors by sending the US Treasury a plea to leave crypto alone.
The regulation is expected to come into effect before the year's end, mostly owing to the US election results and the impending changing of the guard. As such, the rush is on for Mnuchin to push through regulations before time is up.
Does data-collection on self-hosted crypto wallets amount to the US government declaring a ban on cryptocurrency wallets we know them?
Not really.
Moreover, can the government enforce these regulations and push people onto the centralized platforms decentralized blockchains were built to avoid?
The answer there is clearer: certainly not.
Each of these strategies is simple to implement, even for novice investors, but that doesn’t mean these strategies aren’t used by professions.
Additional Good Reads
How to Make a Crypto Trading Bot Using Python
What Is DeFi? Guide to Decentralized Finance
The Easy Cryptocurrency Arbitrage Trading Strategies
Threshold Rebalancing for Crypto Portfolio Management
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