Over the last week, there has been a lot of bluster in the macro community about what governments will do as cryptos get bigger. Whether the government will let cryptos continue to exist in the same state, or whether there will be strict guide rails put up around it. The discussions implied that the US treasury and secretary Mnuchin might issue some new crypto regulations. All in regards to self-hosted crypto wallets before his term ends.
Self-hosted crypto-wallets are software that lets individuals store and use their cryptocurrency. It is excellent because it doesn’t require third-party financial institutions. These wallets are a necessity. They allow anyone to use this new technology to access essential financial services. The open nature of cryptocurrency is what makes it a strong tool for innovation. It has the potential of bringing down the cost of financial services and improving accessibility.
The proposed crypto regulations might require financial institutions. Ones like Coinbase verify the self-hosted wallet owner’s recipient. They collect identifying information on that party before a withdrawal could be sent to that self-hosted wallet.
It seems reasonable on the surface, but on the other hand, it is often impractical to collect identifying information on a recipient in the crypto economy.
Many crypto users are sending crypto to smart contracts to use Defy. A smart contract is not necessarily owned by any individual or business that can be identified. This kind of recipient doesn’t have any direct equivalent in traditional financial services. Many users are sending crypto to various merchants online, paying for goods and services. Furthermore, crypto users send crypto to people in emerging markets. It is difficult or impossible to collect meaningful customer information. Some of these individuals live in poverty and may not have any permanents address or form of government ID.
Drawbacks of regulations
Moreover, many crypto users are using crypto with new types of applications online. Imagine if you will get a form to verify a recipient every time you upload some content on Reddit or transfer an item on the game.
Finally, many recipients who value their financial privacy may not want to upload more identifying documents to various companies, which could be hacked or stolen. Hence, this additional friction will discourage many of the emerging crypto cases. Thus, these barriers will result in fewer transactions from crypto financial institutions to self-hosted wallets.