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EU looks to make crypto assets more traceable

By Aaron Woolner

00:57, 21 July 2021

Cryptocurrency coins

The European Commission (EC) has set out legislation to make crypto assets more traceable, a move which could undermine one of the main use cases for digital currencies that they provide greater privacy than fiat transactions.

The proposals were unveiled yesterday (20 July) as part of a four-point package aimed at “beating financial crime” by strengthening the European Union’s anti-money laundering and countering terrorism financing (AML/CFT) rules.

If the rule-set is enacted it will overhaul a cryptocurrency regulatory framework which was set out in 2015 but which only brings a portion of crypto-asset service providers within the ambit of EU AML/CFT edicts. 

More due diligence

“The proposed reform will extend these rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers,” said the EC in a statement. 

“Today’s amendments will ensure full traceability of crypto-asset transfers, such as Bitcoin, and will allow for prevention and detection of their possible use for money laundering or terrorism financing. In addition, anonymous crypto asset wallets will be prohibited, fully applying EU AML/CFT rules to the crypto sector,” the EC added. 

The package will now be sent to the European Parliament and European Council, with the EC saying a bloc-wide AML authority will be in place by 2024 with supervision action following shortly after.  

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BTC/USD

98,330.75 Price
-1.100% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00

DOGE/USD

0.44 Price
+7.370% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.0012872

ETH/USD

3,431.53 Price
+3.320% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 6.00

XLM/USD

0.61 Price
+81.360% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.00216

Tracing bitcoin

Authorities have already had success in tracking digital assets. While bitcoin transactions are conducted anonymously they are all recorded on a permanent ledger – the blockchain – leaving a digital footprint which can be tracked. The public nature of these ledgers mean that anyone can view the transactions on them, including law enforcement. 

US authorities managed to recover the bulk of the funds paid in the recent Colonial Pipeline ransomware attack – a process which involved bitcoin being transferred via 23 different digital exchanges. 

It is not clear precisely how US authorities achieved this but The New York Times speculated that investigators infiltrated the hacking group behind the heist and gained the “digital key” needed to access the funds. 

Criminals move to monero 

The ease at which investigators have recently accessed criminal networks has seen some ransomware gangs switch to using the digital currency monero which was launched in 2014 and has much greater privacy safeguards. 

However, a lack of liquidity in the monero market, combined with a number of exchanges refusing to trade it due to its criminal links makes it much harder to convert the funds into fiat currency. 

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Read more: Equity market sell-off drags bitcoin below $30,000

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