n March 19, 2024, the majority of the European Parliament's Committee on Economic and Monetary Affairs approved new regulations that will fundamentally change how cryptocurrency can be used within the European Union. Known as the Sixth Anti-Money Laundering Directive, these rules aim to strengthen existing anti-money laundering and counter-terrorist financing controls.
A Ban on Crypto Privacy
One of the most controversial aspects of the new law is a clear prohibition on anonymous cryptocurrency transactions of any size carried out using self-custody wallets. This includes wallets provided through desktop, mobile, or browser-based applications where the user controls their own private keys. All payments made from such "unhosted" or non-custodial wallets without identifying the sender will be illegal.
In effect, this ban targets so-called "privacy coins" that are designed to obscure transaction details and prevent traceability of funds. It also outlaws self-sovereign use of major cryptocurrencies like Bitcoin through unidentified non-custodial wallet addresses. Supporters argue this step is needed to curb criminal abuse of crypto anonymity. However, critics maintain it infringes on personal financial privacy and freedom.
Cash Restrictions Tightened Too
In addition to the new rules around cryptocurrency, the directive further limits the use of cash. It lowers the threshold for prohibiting anonymous banknote payments from €15,000 to €3,000 and bans cash transactions above €10,000. These currency controls aim to mirror restrictions on crypto in detecting undeclared transactions. Yet opponents note citizens have used anonymity-enabled cash for centuries without widespread problems.
Concerns over Erosion of Privacy, Freedom
Leading the opposition in Parliament was Pirate Party representative Patrick Breyer. He believes prohibiting certain types of payments deprives people of basic financial autonomy and rights to personal privacy in economic activity. Breyer also doubts the law will be very effective at curbing serious crime while fearing its "creeping abolition" of cash and bearer assets may enable negative interest rates or banks denying access to funds at any time in the future.
Independent analysts like Friedrich Schneider share skepticism about whether limiting payment options can meaningfully reduce criminal enterprise. And EU citizens surveyed in 2017 overwhelmingly felt restricting cash infringed on freedoms and would be an “ineffective” approach to addressing legal issues. However, proponents argue terrorist financing and money laundering demand preventing anonymity that shields illicit flows.
A Contentious Future
Cryptocurrency entrepreneurs and users within EU countries question if parliamentary leadership can withstand pushback to this prohibition of privacy-enabled transactions. Civil liberties advocates promise legal challenges, citing rights to financial privacy and self-determination. How the European Court of Justice may rule on inevitable cases remains uncertain too. For now, the future of permissionless cryptocurrency and independent money within the EU remains in legal limbo and political dispute.
