Unhosted Wallet KYC Rule Officially Withdrawn – We Won’t Miss You

• The unhosted wallet KYC rule is now officially withdrawn as the Treasury Department formally announced its demise.
• The KYC rule demanded wallet companies force know-your-customer(KYC) requirements on users. This included unhosted (cold or self-custodial) wallets.
• It's a significant victory for privacy and self-custodial wallet users.

Remember the unhosted wallet KYC rule proposed by the US Financial Crimes Enforcement Network in 2020? You know, the one that made wallet companies ask customers who they were - that one. While it was abandoned after Joe Biden moved into the White House, it was never officially withdrawn.

Until today, that is. The Treasury Department formally pronounced the proposal dead. And the crypto industry is better off for it, according to Michael Mosier, former acting director of FinCEN.

Let's discuss the unhosted wallet KYC rule and why its withdrawal is good for crypto.

What Was the Unhosted KYC Rule, and Why Was It a Threat?

The unhosted KYC rule was the brainchild of Treasury Secretary Steven Mnuchin. It demanded KYC requirements for all unhosted wallets (cold wallets or self-custodial solutions). Technically, its goal was to prevent money laundering and protect users from fraud.

Most experts claimed most wallet providers would find it impossible to comply with the proposal. It also attracted enormous backlash from company leaders and lobbyists for privacy infringement.

Even Donald Trump's own lawmakers were against the idea. Legal experts also noted the proposal was vaguely defined,' with the requirements impractical for companies. It also offered no solutions on how wallet companies could comply.

Fortunately, the Trump/Mnuchin presidency ended before the proposal came to life. Ever since, theproposal has been forgotten' but never officially withdrawn.

See You Never Unhosted Wallet KYC Rule - We'll Not Miss You

Four days ago, on August 19, the Treasury Department formally canceled and withdrew the proposal. This is a significant victory for privacy, crypto freedom, and individual self-custody rights of crypto users.

Michael Mosier, the former acting director of FinCEN, says the current presidency has better priorities and understands the potential of innovation better.

[The withdrawal] shows that public servants see value in first collaboratively engaging risk/opportunity through innovation and empowerment around the financial equivalent of mobile phones, rather than rushing to limit people to landlines, switchboard operators, mailed checks, and everyone's home address in a public phone book to keep them safe.Michael Mosier, former acting director of FinCEN

FinCEN made another proposal in 2020 that hasn't yet been withdrawn. It describes a Travel Rule' that forces financial institutions to report personal information for crypto senders and receivers above a certain limit.

The current limit is $3K, but the proposal wanted to lower it to $250. The Treasury Department's notice doesn't mention the proposal, so we don't know what'll happen with it.

Summary - What Does This Mean for Crypto?

All in all, the withdrawal of the unhosted wallet KYC rule is a significant victory for crypto, and we hope the US continues on this line.

Trying to impose KYC on cold wallet users was never going to be taken kindly. After all, self-custodial crypto holders take their privacy very seriously.

References

• US Treasury Department Report (Federal Register)
• R.I.P. Unhosted Wallet Rule (Coindesk)

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