The EU's impact on crypto user anonymity

New EU Law and Its Impact on Crypto User Anonymity

Introduction

The European Union has introduced a new package of regulations strengthening requirements for user identification and control over cryptocurrency transactions. These measures, aimed at Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF), drastically reduce the level of anonymity for crypto users and increase state control over the Bitcoin ecosystem.

For the cryptocurrency industry, this signals heightened risks of account blocks, asset confiscation, and pressure on infrastructure, including exchanges, wallets, and nodes.

Situation Analysis: What Has Changed?

Which Norms Are Being Strengthened?

1. KYC/AML Expansion:

   • All crypto platforms are required to identify users, including the collection of identity and address data.
   • Implementation of the travel rule, which requires the transfer of information about originators and beneficiaries between providers.

2. Sanction Tags and Transaction Monitoring:

   • Tightened control over addresses associated with illegal activities.
   • Obligation for exchanges and wallets to block funds originating from suspicious addresses.

3. Data Exchange Between Jurisdictions:

   • International integration to simplify transaction tracking.

How Can States Utilize These Norms?

• Blocking and Confiscation:
  Platforms are obliged to freeze funds unless their legal origin can be proven.

• Infrastructure Control:
  Pressure on exchanges and wallet operators may lead to delistings and restricted access for users to their assets.

• Transaction Censorship:
  Transactions with sanction tags will be rejected or frozen.

Risks for Users

Who Is in the Risk Zone?

1. Users of Centralized Exchanges (CEX):
   Storing assets on exchanges increases the likelihood of them being frozen.

2. Large Holders:
   Owners of significant reserves in jurisdictions with strict regulation are subject to additional scrutiny.

3. P2P Exchangers:
   Using uncontrolled platforms can lead to unintentional interaction with “dirty crypto.”

Possible Threats

• Account Blocking:
  Transactions with unverified origins of funds will lead to account freezes.

• Loss of Anonymity:
  Linking addresses to personal data through KYC.

• Asset Freezing:
  Funds on centralized platforms will be at risk of confiscation.

How to Protect Yourself?

Practical Steps to Minimize Risks

1. Verify Addresses Before Transfers:
   Use AML screening tools (e.g., Chainalysis, Crystal Blockchain, TRM Labs) to ensure there are no sanction tags on the recipient’s address. This will help avoid blocks and asset freezes.

2. Diversify Asset Storage:

   • Use cold wallets for long-term storage.
   • Set up multisignature (multisig) to enhance security.

3. Maintain Proof of Legal Origin of Funds:
   Keep transaction history, screenshots of deals, and receipts.

4. Study Provider Jurisdictions:
   Choose platforms that strictly follow laws but avoid excessive interference in user activities.

5. Use Privacy Tools:
   Where legal, apply technologies like CoinJoin or CoinSwap to increase anonymity.

Conclusion

The new EU rules significantly increase state influence over the crypto ecosystem, reducing user anonymity and tightening requirements for transaction legality. To minimize risks, users should transition to self-custody, utilize privacy tools, and thoroughly verify addresses before making transfers.

Recommendation: Evaluate your current cryptocurrency storage methods, implement protection measures, and consult with experts on security and AML compliance standards.