The controversy over US government actions raises worries within the crypto community
In the last 48 hours, there has been a noticeable increase in anxiety among the crypto community regarding the actions of the U.S. government towards non-custodial wallets. These wallets enable individuals to securely store their crypto assets. Recent developments have led to a widespread belief that the government is actively targeting non-custodial wallets.
The discussion surrounding the regulation of crypto wallets has intensified after recent government actions.
What happened?
In the crypto community, there has been a sense of unease due to recent events, including the indictment of Samourai Wallet and reports of Consensys being issued a Wells Notice by the U.S. Securities and Exchange Commission (SEC).
The latter has allegedly labeled Metamask as an “unlicensed broker-dealer”, while the FBI has also issued an advisory cautioning against unlicensed money transmitters.
These occurrences have sparked discussions and expressions of concern on online forums and social media platforms, with many crypto advocates worried about the potential impact on privacy, non-custodial wallets, and the integrity of open-source code.
The recent advancements in the crypto industry have caused a significant amount of outcry within the community on various social media platforms like X and forums such as Reddit.
One instance of this was when a Redditor commented on the news about Samourai, saying, “You might as well arrest people who own ATMs because some people might buy weed with the cash. A mixer is a tool to delete your transaction history, that is all. F*** off feds, privacy is a human right.”
Another individual, John Paul Koning, expressed his thoughts on the matter on social media platform X.
The entire crypto economy has been built on the legal assumption that by not taking custody, one needn't register as a money transmitter.
But then Samourai & Tornado, both non-custodial, were charged for failing to register.
Huge implications for crypto if the Feds are right.
— John Paul Koning (@jp_koning) April 25, 2024
The basis of the cryptocurrency industry relies on the belief that one does not have to register as a money transmitter if they do not hold custody of the funds. However, recent charges against non-custodial companies, Samourai and Tornado, for not registering, have significant consequences for the crypto world if proven true by the Federal authorities.
On X, a large number of people thoroughly examined the Samourai indictment, identifying errors made by the U.S. government. One person pointed out that the indictment claims Samourai acted as an unlicensed money transmitter, despite also acknowledging that the team never dealt with user funds.
Chris Blec, a privacy advocate, also highlighted this inconsistency, stating:
How could Samourai Wallet have been "transferring funds on behalf of the public" if they never took custody of user funds?
There is no middleman in a Whirlpool tx.
Funds never leave the user's own wallets. There's no "mixer" repository.
This part of the indictment is a lie. pic.twitter.com/5s10UJMpbD
— Chris Blec (@ChrisBlec) April 25, 2024
Furthermore, there have been recent developments in the regulation of non-custodial wallets, such as the Samourai case and the SEC’s Wells Notice to Consensys.
Legislators have also been taking action to address this issue, including Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) who introduced the Digital Asset Anti Money Laundering Act (DAAMLA) last year.
This legislation claims that “unhosted” cryptocurrency wallets enable individuals to circumvent anti-money laundering (AML) and sanctions checks. Additionally, the Internal Revenue Service (IRS) unveiled a new reporting form last week, which some believe specifically targets non-custodial wallets.
According to Sasha Hodder, the founder of Hodder Law Firm, the 1099 draft proposed by the IRS implies that non-custodial wallets are considered as brokers, which may not be well-received by privacy enthusiasts.
Numerous observers believe there is a current effort to crack down on non-custodial holdings, which may lead to a decrease in services like BTC mixing, especially in the continental United States.
However, there is a strong belief that non-custodial solutions will not become obsolete as they are crucial for achieving financial independence, which is a key aspect of Bitcoin’s appeal, by eliminating the need for a third party. Sjors Provoost stated that North Korea is currently the only safe place to operate a mixer, even if it is non-custodial.
At this point the only safe place to run a mixer from, even a non-custodial one, is North Korea.
With the Tornado Cash and Samurai arrest there's no more doubt: the US and EU hate financial privacy. They won't stop at anything to maintain their financial surveillance apparatus.
— Sjors Provoost (@provoost) April 24, 2024
Lawyer Jake Chervinsky, expressed the concept of privacy is a normal and expected aspect of society. However, he argues that living in a surveillance state where the government has the right to monitor all financial transactions without a warrant is not normal.
Chervinsky also condemns the treatment of software developers who create privacy-focused technology as criminals. In response, former Bitcoin developer Jeff Garzik points out that privacy in transactions has been the standard throughout history until recent attempts to change this within the past decade.
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