What’s Up with Treasury Secretary Targeting Self-Custody Wallets as Forewarned by Coinbase CEO
Late Wednesday night Coinbase CEO, Brian Armstrong took to Twitter to forewarn the crypto community about the plan of the US Treasury Secretary to “rush out some new regulation regarding self-hosted crypto wallets before the end of his term.” Armstrong said,
“I'm concerned that this would have unintended side effects.”
Jake Chervinsky, a General Counsel at Compound Finance, praised Coinbase for taking a stand on the right side of the issue while calling out, “We must oppose them.” He added,
“Restrictions on self-custody are the definition of bad regulation, imposing huge burdens on commerce & individual financial freedom without conveying any benefit to gov't whatsoever.”
Former Coinbase CTO and general partner at Andreessen Horowitz, Balaji Srinivasan also called out the community to resist this move by the regulators vigorously.
One trader said that while this could kill Coinbase, it will “never stop crypto innovations or bitcoin” neither in the US nor in the rest of the world.
As we recently reported, the central bank has forced Dutch crypto exchanges to verify the legitimacy of the owner of a given bitcoin address by asking their users to upload a screenshot of their wallet or by signing a message.
Su Zhu, the CEO of Three Arrows Capital, pointed out how these laws are also already in effect in Switzerland and passed in Singapore.
“I think it's only natural for regulators to take this approach, given existing laws,” said Su Zhu, adding:
“I've long warned folks in DeFi that govts will certainly not grant DeFi projects a regulatory arbitrage moat vs. preexisting financial companies.”
Embrace the Open Nature of Cryptocurrency
In his long Twitter thread, Armstrong shared his concerns about why regulating non-custodial or self-custody wallets that do not rely on third parties is harmful to the industry.
He said the poised regulations are likely to require financial institutions like Coinbase to verify the self-hosted wallet owner by collecting identifying information about them before allowing the withdrawal. Armstrong said,
“This sounds like a reasonable idea on the surface, but it is a bad idea in practice because it is often impractical to collect identifying information on a recipient in the crypto-economy.”
This is so because many reasons, including cryptocurrency, are sent to smart contracts or various merchants online or to people in emerging markets where it is difficult to have meaningful KYC information.
Not only do many recipients value their financial privacy, but crypto is also being used with new types of apps online, like upvoting content on Reddit. Coinbase CEO added,
“This additional friction would kill many of the emerging use cases for crypto. Crypto is not just money – it is digitizing every type of asset.”
“The open nature of cryptocurrency is what makes it a powerful tool for innovation,” and creating a walled garden would mean pushing US citizens to use foreign unregulated crypto companies and cutting the US off from innovation happening in the rest of the world.
Armstrong argued that the US needs to embrace crypto just like it did the internet, from which it “benefited enormously.”
While Coinbase has sent a letter to the Treasury citing all the concerns, Coin Center, the cryptocurrency policy think tank in the US, is also “making a case for protecting the right to hold our own stuff.”