How the New Unhosted Crypto Wallet Rules Could Affect You

The crypto community is worried about the new unhosted crypto wallet rules. Whereas some countries, such as El Salvador, may be open to cryptos, most governments remain deeply suspicious of the digital assets. In China, cryptocurrencies have been banned, and in other countries, authorities are tightening their regulation. A major target in the crypto crackdown is unhosted crypto wallets.

Private (or non-custodial) crypto wallets are owned and operated by an individual instead of a third party (such as a crypto exchange). They’re popular with people who want to keep their transactions anonymous.

Unhosted crypto wallets come in a variety of forms, ranging from software programs to hardware devices. An example is MetaMask, which can be downloaded and installed as an app on your smartphone, or as a browser extension on Firefox, Brave, and Chrome. MetaMask lets you buy, store, swap, and transfer cryptocurrencies and NFT products. WalletConnect is another software-based non-custodial crypto wallet.

If you’re looking for a hardware option, your choices include Ledger and Trezor. Most software-based crypto wallets are free, while hardware variants need to be purchased.

European parliament has passed rules that will require crypto service providers to report on private-wallet transactions, making it easier to trace suspicious transactions and watch for money laundering. Therefore, if authorities are suspicious of a transaction you’re trying to complete, your crypto transfer could be denied or your assets frozen.

The U.S. is considering similar unhosted crypto wallet rules. European authorities propose applying the requirement on transactions above 1,000 euros. In the U.S., proposed unhosted crypto wallet rules would target transactions above $3,000 per day.

The proposed regulations require crypto service providers to report the names, addresses, and other personal information of customers transacting with non-custodial wallets. For crypto exchanges like Coinbase, the rules could increase their compliance burden and make their business less profitable.

The crypto community also worries that the rules would erode people’s privacy, stifle innovation, and hurt the crypto economy. Investors have put about $2 trillion into cryptocurrencies. Many are in it for quick returns, such as the type that can be squeezed from volatile meme tokens Shiba Inu and Dogecoin.

Others are into crypto to diversify from traditional investment products such as stocks and bonds. The pursuit of portfolio diversification a major force driving crypto prices—ARK Invest’s Cathie Wood even thinks it could help boost Bitcoin's value to $1 million by the end of the decade.