They just won't give up!
After failing in 2022, Massachusetts Senator Elizabeth Warren re-introduced her bill requiring cryptocurrency wallet providers comply with anti-money-laundering (AML) laws. This includes self-custodial wallets because the proposed bill requires anyone who creates a cryptocurrency wallet to register with the US Treasury Department, just as if such a software developer was a money services business, like Western Union or Visa.
Compliance would be hard to enforce on programmers outside the United States. But it would have a severe chilling effect on the adoption of cryptocurrency in the United States. Most law-abiding citizens would get rid of their self-custodial wallet, lest they be arrested for money-laundering.
The bill also prohibits any cryptocurrency privacy tools, such as mixers. In my opinion, this means any privacy-centric coin, like Monero or Zcash, would be banned, too.
This proposed bill is still in committee in the US Senate. If it gets voted out of committee, which it probably will since Democrats have a majority in the committee and at least one Republican, co-sponsor Senator Roger Marshall, supports it. Passage in the full Senate is less likely, in my opinion, unless nine more Republican Senators join Senator Marshall in voting to pass this bill.
It is too easy to demagogue on this issue because most Senators and US Representatives are ignorant about cryptocurrencies. Proponents of this bill could accuse opponents of supporting money laundering, terrorism, child porn, Putin, clubbing baby seals, as well as being unpatriotic in refusing to support national security and the US Dollar's position in the world economy. The best opponents could do is to suggest proponents want to spy on Americans.
The European Union has already started down this path, requiring all centralized exchanges to verify ID on all transactions. They allow transactions between self-custodial wallets (p2p) to escape this requirement (for now). But the reasons they use for implementing the ID verification requirements also apply to private p2p transactions, so look to them to include p2p transactions in the ID verification requirements in the future.
One upside of this is that decentralized exchanges (DEXs) would become much more popular, especially those that do not have a KYC requirement. It would be very difficult to enforce KYC requirements on a piece of software that no-one controls.
As a US citizen, I am deeply conflicted on what I would do in the event this bill became law. I am already researching second passports and permanent residency in other countries. But that still would not protect me, if I visited family in the United States.
I plan on keeping older versions of my current wallets, just in case. I believe that self-custodial wallets will still be available, but it will be harder to find trust-worthy ones. It might be worthwhile to download the source code for those that are open-source.
It shouldn't need to be said, but here it is: This is neither financial nor legal advice. Do your own research (DYOR). Stay safe out there, fight the good fight, and keep on stacking satoshis!
