EU Finally Sets New Rules for Crypto Tax Data Sharing

If you’re not a whale, you might wanna ditch CEXs. This new rule is just gonna make things more of a hassle for small-time traders. Not sure how this will impact DEXs in DeFi, but I heard Uniswap might start rolling out KYC for v4. If all DEXs follow suit with KYC, maybe it’s time to get familiar with interacting directly with smart contracts, haha. So, the European Union just gave the green light on rules that allow tax authorities to exchange info about people’s crypto assets. The finance ministers made it official on Tuesday, and the document will be published in the EU's Official Journal soon, kicking in after 20 days. These rules were put forward last year to prevent crypto assets from being hidden in offshore accounts and surprisingly got full backing from all EU countries, even though most talks were done behind closed doors.

How so? Now I won't buy a Ferrari with bitcoins?  https://www.reuters.com/business/autos-transportation/ferrari-accept-crypto-payment-its-cars-us-2023-10-14/ "Ferrari (RACE.MI) has started to accept payment in cryptocurrency for its luxury sports cars in the U.S. and will extend the scheme to Europe following requests from its wealthy customers, its marketing and commercial chief told Reuters. The vast majority of blue-chip companies have steered clear of crypto as the volatility of bitcoin and other tokens renders them impractical for commerce. Patchy regulation and high energy usage have also prevented the spread of crypto as a means of payment."

You will be able to. Just like you can buy a house with Bitcoin. But those purchases are already KYC in and of themselves, no matter if you pay with Fiat, Bitcoin or potatoes. Your name and identity/passport/social security number will be registered, along with other data. The European legislation wants to control Bitcoin transactions in the same way as it controls banking transactions, and only P2P with non-custodial wallets will escape.

Whales can do their trades behind the scene with OTC deals. Whales or non-whales, we should not use centralized exchanges to store our bitcoin. Reminder: do not keep your money in online accounts. Excuse! What will happen with Bitcoin on DEX with smart contracts? I know there are DEX, non-KYC exchanges to buy or trade bitcoin but smart contracts are for altcoins. There are altcoins, wrapped Bitcoin tokens with smart contracts on DEX but those tokens are not bitcoin. I disagree to not buy bitcoin but buy wrapped Bitcoin tokens.

This was a rhetorical question , but I think that many will not be able to do this. Expensive purchases are always controlled by the tax authorities, and in Europe this system works perfectly. After such a purchase, tax inspectors will send many questions about income. Well, with a house, I think it’s even more difficult if you use an escrow account in a bank.

From what I understand, these rules apply to companies that are EU-based. So does this mean companies that are not EU-based can just ignore it, or will the government force them to either stop people from using their services or force them to do KYC too? Based on how the SEC handles their lawsuit against Binance etc, I suppose the second one is more likely. It would be quite funny if those DEXes suddenly started implementing KYC because they have a legal entity behind their website, which means they are not decentralized at all.

Agreed. Whales can also do that if they want, however, because they trade with size, they might really want to have KYC and start a relationship with an exchange or a bank because these are they only places that can provide them with the liquidity that the need. On small minnows, we do not trade with size which makes us less in need of large liquidity pools. We can also use DeFi to our advantage to have more anonymity in our transactions and trades. DeFi also reduces the government's capability to impose KYC and other strict regulations on you because decentralized financial networks make them lose control of financial infrastructures if more people use them. On bitcoin, it has a different roadmap. There might never be any DeFi infrastructure created on bitcoin.

I have long said that all major DEXes will soon introduce the KYC procedure, and then it will become a standard. KYC hook for Uniswap v4 stirs community controversy https://cointelegraph.com/news/kyc-hook-uniswap-v4-stirs-community-controversy Read information about Travel Rule and the FATF rules to which many countries are subject. All major crypto projects in Asian countries, like exchanges and services, are already trying to implement these rules, because without them, legal business will be impossible.

@zasad@. This is certainly because the biggest DEXs in the cryptospace does not want to be cracked down by the government or go through a compliance nightmare similar to Binance and other CEXs. Similar to imposing these new rules on data sharing while everyone is distracted in Europe, the American government is also imposing new rules on mixers to make it easier to crackdown. The Biden administration is set Thursday to designate international “mixers,” cryptocurrency exchanges that provide customers anonymity, as money-laundering hubs that threaten national security. The designation, a form of sanction, will require special reporting for any financial transactions. Source https://www.wsj.com/livecoverage/israel-hamas-war-biden/card/u-s-cites-hamas-in-broad-sanctions-against-foreign-crypto-mixers-i44QIsVOEPpkWf3ewqNT Also, there are speculations on social media on what might be the definition of mixing under these new rules. Some have mentioned that it might include also the use of DeFi. If this becomes an adopted rule internationally, this will be a crackdown on all of us. In the course of compliance with special measure one, covered financial institutions may be required to submit reports and retain records containing certain unique identifiers108 and other personal information109 of a party, or parties, to a CVC mixing-exposed transaction. Based on a recent report, this could affect more than 300 million users of unhosted CVC wallets insofar as a user’s personal information may be reported if their wallet is deemed by a covered financial institution to be involved in a covered transaction. Because there is no restriction on the number of wallets an individual may have, this number may overestimate the number of unique individuals whose personal information may be required. To the extent that previously reported estimates regarding the distribution of CVC mixer users by type—privacy-oriented versus abusers of anonymity—are usable for inference, special measure one could require the reporting of personal information in connection with up to approximately 66 (87) percent of CVC mixer deposits in the absence of any other identifiable connection to high risk (illicit) activity. Source https://www.fincen.gov/sites/default/files/federal_register_notices/2023-10-19/FinCEN_311MixingNPRM_FINAL.pdf