Syed Rahman of financial crime specialists Rahman Ravelli considers the arguments.
In an effort to tackle financial crime and the laundering of its proceeds, the European Union's lawmakers have backed tougher data sharing rules for cryptocurrency transfers.
The draft legislation would compel crypto firms to collect and share data on cryptocurrency transactions.
If introduced, the legislation would bring significant change to a business sector where anonymity has been widespread. This has led some in the industry to accuse those behind the proposed changes of looking to remove privacy, hamper progress and even raise the risk of theft for crypto users.
Under the proposals, crypto exchanges and other crypto-related firms would have to acquire, retain and then submit information about those involved in transfers. This information would be made available to the relevant authorities.
The legislation would also require those using "unhosted" wallets – which are held by individuals rather than exchanges - to keep records of crypto transactions and tell the appropriate authorities of any €1,000-plus transactions.
The legislation's supporters argue that it will make it easier to identify and report suspicious transactions, freeze digital assets and make high-risk transactions less attractive. They also want the European Banking Authority (EBA) to create a public register of crypto asset service providers that are at high risk of money laundering and other criminal activities.
But crypto exchange Coinbase has said passing the legislation would create a surveillance regime that would stifle innovation. Others have said the proposals would make crypto transfers more difficult, less secure and may even create data centres within crypto companies and government agencies that would be an attractive target for hackers.
While the global crypto sector is worth an estimated US $2.1 trillion, the regulation of it is inconsistent and, in many places, non-existent. There can be little surprise, therefore, that the EU is looking to see what it can do to ensure the sector is a safe place.
There are pros and cons when it comes to toughening traceability rules. But it is a step that has to be taken if the crypto industry is to continue to thrive. The concerns that have been voiced about the EU's proposals are valid. But the EU legislation will be an important measure for ensuring the crypto space is more trustworthy. This, in turn, may lead to more investors and users being attracted to it.
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