Coinspeaker
EU’s Crackdown on Crypto Anonymity: Delicate Balance between Security and Privacy
The crypto industry has long prided itself on the privacy and anonymity afforded to its users, but a recent vote by the European Union parliament has set the stage for a shift in this space. In a move aimed at curbing illicit activities such as money laundering, the EU has decided to ban anonymity for digital assets and increase monitoring of users.
This decision is based on the growing concern over the potential misuse of cryptocurrencies for nefarious purposes. While the crypto community has celebrated the privacy within its decentralized systems, regulators argue that this anonymity has also facilitated illegal dealings, including money laundering and terrorist financing.
This bill comes at a time when money laundering is becoming rampant in the crypto industry. Recently, KuCoin, a crypto exchange platform, and two of its founders were charged with violating anti-money laundering laws by US federal prosecutors. Similarly, Changpeng Zhao, the founder and former CEO of Binance, faces sentencing next week after pleading guilty to breaking rules aimed at preventing money laundering in the United States.
Privacy vs Security: A Delicate Balance
The newly passed bill will compel crypto firms to request more personal data from users, monitor their transactions, and enforce stronger oversight of non-custodial wallets. Additionally, it will prohibit tools that bolster anonymity, such as crypto mixers and privacy tokens.
This move comes after nearly three years of negotiations, closely watched by members of the crypto industry. The vote coincides with a broader push to restrict privacy features that many decentralized finance (DeFi) enthusiasts find appealing.
Marina Markezic, the executive director of the European Crypto Initiative, expressed concern over the potential loss of privacy and transaction ease that the industry has become accustomed to. She stated:
“The biggest loss will be the loss of privacy and relative transaction ease we’ve gotten accustomed to in the industry.”
Crypto Firms Face Tighter Regulations
The new rules require crypto firms to focus more on non-custodial wallets, which let people have complete control and ownership of their funds without intermediaries. They must check users, track transactions, and collect details about senders and receivers. This rule goes against the industry’s practice of keeping crypto assets in secure non-custodial wallets to safeguard users from vulnerabilities in centralized exchanges and custodians.
More so, the bill also prohibits tools that enable anonymity, including certain tokens like Monero or Zcash, and crypto mixing services that obscure transaction history. Crypto firms now have to identify and verify user identities, monitor transactions, and request more information about senders and receivers.
A new EU agency will be responsible for overseeing laws against money laundering and terrorism financing starting in 2026. However, before that, EU finance ministers need to approve the text as law.
While the regulations aim to curb illegal activities, they also pose challenges for the crypto industry. This new rule will offer certainty and predictability, which could make the industry more appealing to investors and users without prior crypto experience. However, striking the right balance between security and privacy remains a delicate task.
EU’s Crackdown on Crypto Anonymity: Delicate Balance between Security and Privacy