Coinbase CEO: We are concerned about a frightening regulation from the U.S. Treasury Department

Bitcoin has been gaining popularity recently, but the pressure from regulatory agencies on the cryptocurrency industry shows no signs of abating. On October 23, the Federal Reserve and the Financial Crimes Enforcement Network (FinCEN) proposed that cryptocurrencies should be subject to the Travel Rule, requiring Virtual Asset Service Providers (VASPs) to collect and share information about senders and recipients, and lowering the threshold for international transfers under custody from $3,000 to $250.

Concerns from Coinbase CEO

If there are any doubts about the following translation of Coinbase CEO Brian Armstrong's statement, please refer to the original text:

Last week we heard rumors that Treasury Secretary Mnuchin plans to push through new regulations on self-hosted cryptocurrency wallets before the end of his term. I am concerned that this could have some unintended side effects, so I wanted to share my thoughts.

For those unfamiliar, let me explain: A self-hosted cryptocurrency wallet, also known as a non-custodial or self-custody wallet, is a type of software that allows individuals to store and use their cryptocurrency without relying on a third-party financial institution.

Self-hosted cryptocurrency wallets are important because they enable people to access basic financial services through this new technology, much like anyone can access the public internet with a computer or a phone. The reason why cryptocurrency has become a powerful innovation tool is because of its open nature and global accessibility. It is also driving innovation, as seen in DeFi. It has the potential to reduce the cost of financial services and improve accessibility.

We speculate that this regulatory proposal will require institutions like Coinbase to verify the recipients and owners of self-hosted wallets, to collect and identify the counterparties' information before users can withdraw and send funds to those wallets.

While this may sound like a reasonable idea on the surface, in practice, it is not feasible because identifying the recipient's information in the cryptocurrency economy is unrealistic. Let me explain why:

Many cryptocurrency users transfer their cryptocurrency into smart contracts to use DeFi applications. Smart contracts do not need to be owned by identifiable individuals or businesses. They are a new type of counterparty that cannot be directly compared to any traditional financial service. There are also many users who pay cryptocurrency to online merchants for goods and services. Is it reasonable to require verification and identification of the merchants before customers purchase goods?

Moreover, many users transfer cryptocurrency to people in emerging markets where it is difficult or impossible to obtain meaningful KYC data. Some impoverished individuals may not have a fixed address or government-issued identification. For example: https://twitter.com/eatbch?lang=en

Many users also use their cryptocurrency in various new online applications. Imagine if every time you wanted to comment on Reddit or transfer items in a game, a form requiring you to verify the recipient appeared. It would be absurd.

Finally, many recipients in the US or abroad value their financial privacy and may not want to provide a lot of identification information to various companies, which could also be hacked.

These additional steps will stifle many emerging cryptocurrency use cases. Cryptocurrency is not just a trend this year; it is the digital form of various assets. With these obstacles, financial institutions dealing with cryptocurrency will be less likely to transact with self-hosted wallets. This will exclude US cryptocurrency financial institutions from innovation happening elsewhere in the world.

This is not beneficial for the US because it will lead US users to use non-compliant cryptocurrency companies abroad. In the long run, I believe this will put the US financial center at risk. Just as the US benefited from an open internet, it should also embrace an open cryptocurrency network, allowing US citizens to freely transfer their money in the cryptocurrency economy.

If this regulation becomes reality, it will be a terrible thing and bring long-term negative consequences for the US. In the early days of the internet, some wanted it to be regulated like telecom companies. But thankfully, they did not. Last week, we and many cryptocurrency companies and investors sent letters to the Treasury Department expressing our concerns about these matters.