Is this the end of anonymity for self-hosted crypto wallets?

The travel rule, originating from the banking sector, imposes an obligation on VASP/CASP to identify and collect detailed information about the originator and beneficiary of cryptocurrency transactions. The collected data must be stored, shared with transaction counterparties, and made available to competent authorities upon their request.

Exemptions from TFR Application

Member states may exclude low-value crypto asset transfers from the regulation if they are used for purchasing goods or services. Transfers between two self-hosted wallets are not subject to the regulation. However, if an obliged entity (VASP/CASP) is involved, identifying the owner of the self-hosted wallet becomes mandatory.

The 1000 EUR threshold

The market’s attention has been drawn to a provision regulating transfers exceeding 1000 EUR. If a transfer surpasses this threshold and involves a self-hosted address, the provider must assess whether the self-hosted address is indeed owned or controlled by the initiator or beneficiary.

The European Banking Authority (EBA) has outlined methods for verifying self-hosted wallets; however, the list of available tools remains open, providing flexibility for providers. Among the verification methods, we can distinguish:

• sending a pre-determined amount (preferably the smallest denomination of the specific crypto asset), defined by the crypto asset service provider, from and to the self-hosted address into the provider’s account.
• requesting the client to digitally sign a specific message in the wallet’s software using the key corresponding to the self-hosted address.

Wondering how the new regulations will affect your business?

If you need help implementing the new regulations or bringing your business into compliance with the Travel Rule, contact our law firm. We offer comprehensive legal advice and support in meeting regulatory obligations.