So, there's some new regulations coming from the EU that are gonna affect crypto exchanges. Starting on December 30, they need to follow the Travel Rule guidelines, which are part of the push to improve Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) measures.
The European Banking Authority (EBA) just announced that crypto service providers and their intermediaries have to comply with these rules. This means if you're running a crypto exchange in the EU, you'll have to report info on funds and crypto transfers. Get ready for some changes!
After a number of legislative wobbles there are some things that are not yet clear but from next year onwards we will know for sure because they will start to apply. It seems that they only leave room for P2P without KYC and little else, although depending on how you read it, I think businesses like Bitrefill might not be obliged. That said, I think the best thing to do is wait and see how it is implemented.
Is this a fight against money laundering and terrorism financing, or just another anti-privacy move. Both the U.S and the EU want to know how and where people move their coins, they always want more information on people's transfer of their funds all in the name of tackling money laundering.
Self custodial wallets will obviously be exempted from this rule, because people control their funds locally and there is no central authority that can confiscate their funds in any situation.
Both, I'd say But what politicians are interested in is the anti-privacy movement, i.e. they want to know more and more about us, especially our finances, automatically. The talk about avoiding money laundering, etc., while true, is the least of their concern, it is an excuse to justify the other.
These wallets need to be very carefully controlled by the user. If the user forgets and transfers coins from this wallet to a centralized exchange with KYC, his anonymity will be revealed.Therefore, I recommend all lovers of anonymity to stay away from centralized exchanges.
Even though DEXes are improving, CEXes are still better than DEXes in some respects, so it makes sense to use CEXes at least sometimes. I am pretty sure that many people will keep using non-KYC exchanges located outside of the EU jurisdiction and access them through a VPN, proxy, Tor, or other anonymization services. Also they will have separate wallet(s) that will communicate with CEXes, then use anonymization schemes when transferring crypto between these wallets and other addresses.
I agree, it is more about restricting bitcoiners from using BTC privately, than a fight against money laundering. The sad part is that it can only get worst, we've seen how many privacy tools have been attacked and forced to shut down, many more will also face the same fate, it is going to be very hard or almost impossible to use BTC privately in a few years.
Centralized exchanges should obviously be avoided by anyone who cares about their privacy, once you complete kyc, you have lost your privacy and it is very hard to regain it. There are recommended p2p exchanges for lovers of privacy and anonymity.
This means that the new regulations will include not only exchanges but also all payment service providers (PSPs), and intermediary payment service providers, who must comply with the new regulations, meaning in short all centralized third-party services.
But what about decentralized third-party services, such as DEXs? Will they be subject to these regulations as well?
Many algorithms that were anonymous 5 years ago have now been successfully hacked, and hoping for anonymity via VPN is very naive. Therefore, I prefer not to use centralized exchanges for anonymous wallets. In the Ethereum, Solana and other similar ecosystems, there are enough decentralized exchanges for exchange. Of course, a centralized exchange is much better in terms of interface and functionality, but "money on the CEX is the exchange's money."
There are not many algorithms involved when a VPN server connects to a CEX server on behalf of the VPN user. The CEX server sees a regular TCP/HTTPS connection and there are not many algorithms that the the CEX could break. Moreover the CEX server sees all the data that the client sends to it anyway, and it sees it always regardless of whether the connection is direct or through a VPN.
The main source of information about user's location are:
1. User's IP address.
2. Any HTTP request headers containing IP addresses. These headers could be added by various proxies along the way.
3. The timezone reported by the browser.
4. Any geolocation information provided by the browser if the user allows the browser to provide that information.
A knowledgeable user can easily hide that information.
Additionally the CEX does not really have any benefit from prying too much into the user's information. They make money from the user's transaction so unless the user does something really stupid, the CEX will believe the user when he says that he is not in the EU, especially if the user's IP address confirms that.
Of course all that is true for the CEXes that allow non-KYC accounts. CEXes that have mandatory KYC are other beasts and it is better to avoid them altogether.
No one will allow you to trade large amounts of assets on the exchange without the KYC procedure. If you have several thousand dollars there, then there are no problems.
A friend of mine also traded and even earned a little. Then he transferred several tens of thousands of dollars to the exchange and they asked him to go through the KYC procedure. After that, he avoids these exchanges.
If the exchange allows you to trade without KYC, this does not mean that you will not be asked to go through this procedure.