About the upcoming virtual currency regulation in the EU and what it maybe means for steemit
This is my first post, so I like to introduce myself first. I'm Christoph Bergmann, Bitcoin-Blogger from germany. I live in a tiny rural village near Ulm, which is a city in southern germany most famous for hosting the highest church in the world, being the birth-city of Albert Einstein and having "the world's most skewest hotel". Since I'm no native speaker, my english is far from perfect. I'm mostly here to test Steemit to write about it; I didn't notice it before, but the concept seems nice.
I want to share some insights about the upcoming EU-regulation of virtual currencies. Maybe you noticed that the EU-commission recently made a proposal about including virtual currencies in their "action plan against terror financing". In short the proposal wants to make virtual currencies subject to the "fourth directive against money laundering", which is a set of EU-regulations against money laundering currently in the process of enforcement by the states of the EU.
If the proposal of the commission is accepted, it will result in a regulation of virtual currency exchanges and - and this is the real news: wallet providers. The regulation will demand that those companies verify the identity of their customers, observe the transactions they made and report if there is a suspicion of money laundering, tax evasion or terror financing.
Since the proposal was made public there was a discussion, what kind of companies fall under the definition of "custodian wallet providers". Some argued every wallet, some said, only wallets who are in the full possession of their customer's private keys. Since the answer on this question seems fundamental for virtual currency business in the EU, I reached out to a source near to the commission. Fortunately, it told me, how the proposal is currently understood by the commission.
Today I published a post about it. It's in german and the title is [Update zur kommenden EU Regulierung: Welche Wallet Provider betroffen sein werden] (https://bitcoinblog.de/2016/07/14/update-zur-kommenden-eu-regulierung-welche-wallet-provider-betroffen-sein-werden/)
These are the insights of my request:
- All wallets which hold private keys on behalf of their customers fall under the regulation. Even if they hold parts of the keys with multisig-wallets. (examples are copay or greenaddress)
- there is no threshold amount. Even if it are just cents, pennys or 1-digit-euro - the regulation should be enforced. Services like changetip, that did hold tiny amounts of bitcoins for their customers to enable micropayment and tips would be regulated.
- the regulation will not be restricted to bitcoin but cover any virtual currency, no matter how small it is.
- if a wallet doesn't hold private keys, like blockchain.info, it doesn't need to be regulated. So if a wallet constructs the private keys of anything the customer enters - be it a passphrase or a key - it will not be regulated.
- Faucets and other services like this, maybe even mining-pools, don't need to be regulated, because the funds they hold are not owned by their customers before they are withdrawn.
When I first heard the EU wants to regulate virtual currency wallet providers I was shocked, because it is simply not possible to enforce those regulations on wallets. The wallets will either loose every customer or leave the EU. But with the details in mind I think it's not too bad. To stay unregulated wallet providers need to enact wallet designs that leave them unable to use customer's funds and serve only as a technical infrastructur for the customer to transact virtual currencies. From the perspective of consumer protection this should be welcomed, as neither the wallet providers nor a hacker can steal customer's funds with this modell.
So, what does this mean for Steemit?
- as Steemit is possibly not based in the EU maybe nothing.
- but maybe the EU demands that Steemit blocks EU-customers if it doesn't enforce regulation - if Steemit falls under the category of "custodian wallet providers"
- neither being an altcoin nor holding only small amounts would save Steemit from regulation
- but as Steemit creates the private keys from a long password of the customers I guess it doesn't hold private keys. So it is maybe anyway not subject to the regulation by the commission.
That's just a guess. I'm looking forward to learn more about how Steemit manages customer's funds. Please excuse my bad english and have a nice day.