Bitcoin Price Today: Bitcoin falls to $45.5k after Europe votes to prohibit cold wallets in a bid to undermine decentralization

Any wallet that interacts with an exchange will be compelled to declare their entire identity under new European Parliament regulations.

Bitcoin fell $2,000 in four hours, from $47,500 to $45,500, following news that the EU is planning to stifle innovation in the blockchain area. The European Parliament decided today to prohibit the use of 'unhosted wallets' within the European Union.

Wallets that are not hosted

Unhosted wallets, in their parlance, are non-custodial wallets that are solely maintained by an individual. This category covers cold wallets such as Ledgers, Trezor, and SafePal, as well as hot wallets such as MetaMask, Trust Wallet, and MEW. The only cryptocurrency wallets that will be permitted are those hosted by exchanges that require all users to undergo KYC checks. KYC stands for Know Your Customer and is primarily used to combat money laundering in the centralized finance industry.

To utilize an unhosted wallet, you must first register it with an exchange, which will require you to divulge your whole identity. Patrick Hasen of Unstoppable DeFi, our Twitter guru, broke the news in a 15-part Twitter thread.

While 'unhosted wallets' will remain legal in the EU, they will be unable to interface with an exchange to convert their cryptocurrency to fiat or vice versa.

Can DeFi make a comeback in Europe?

Additionally, DEXs will need clients to register and verify their identities prior to interacting on the blockchain. This entirely destroys the purpose of DeFi. If I am required to register with a corporation and provide my identification in order to transact, that information must become centralized and vulnerable to attack. One of the best features of DeFi is the simplicity with which you may engage without fear of your privacy being taken.

It is unknown how or where DeFi companies that operate fully on the blockchain would store their customers' records. This would result in increased regulatory and financial costs for all DeFi projects in the EU, as they will now be required to store each customer's private and sensitive information.

Along with this revelation came the announcement that all wallet users engaging with exchanges would be subject to KYC checks. At the moment, the limit is 1,000 EUR, beyond which you must register with an exchange and provide personal information. Any customer who uses an exchange will be required to complete the KYC process under the new legislation.

Technically, you should still be able to transfer transactions of any value between unhosted personal wallets. The most difficult component, though, is transferring crypto from an exchange wallet to a buddy who lives outside of the EU. To obtain their cryptocurrency, your buddy would need to register with your exchange. Our goal is always to remain objective, yet this strikes me as absurd.

How much time do we have?

Businesses will have nine months to adjust to the new rule, followed by a further 18 months to assure compliance with the new laws. It is debatable whether any European DeFi enterprises will remain in the EU following the implementation of this law. Given the industry's nature, they should be permitted to migrate outside of Europe in order to avoid these rules. Due to the decentralized nature of non-custodial wallets, they cannot be immediately blocked.

Because a European individual cannot be prevented from dealing with a DeFi initiative located outside the EU that does not require KYC, Europe may be shooting itself in the foot by alienating innovative enterprises. Portugal, for example, a hotbed of DeFi and blockchain research, will undoubtedly be disappointed with the outcome of this referendum. There is still opportunity to change the act, as it has now been referred to trilogies for further negotiation. Following that, the accepted version of the act will be voted on by MEPs, and it will become law.

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