Blockchain
Wasabi Wallet and Phoenix leave the United States; What is the future of non-custodial cryptocurrencies?
Two Bitcoin wallets are withdrawing from the US market, likely in response to recent regulatory actions taken against them the unattended Samourai wallet and indications that the US Securities and Exchange Commission is investigating the most popular Ethereum entry point MetaMask.
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Paris-based Bitcoin firm Acinq announced on Friday that it will pull its popular Lightning network wallet, Phoenix, from app stores in the United States, citing regulatory uncertainty. Users are advised to close their channels and move their funds before access is cut off on May 3, 2023.
A day later, zkSNACKs announced that it will shut down access to its privacy-preserving Wasabi wallet in the United States, stating: “In light of recent announcements from US authorities, zkSNACKs now strictly prohibits US users from using its services” , in a message dated April 27. declaration.
The point was echoed in Acinq’s statement, which said that “recent announcements by US authorities call into question whether self-custodial wallet providers, Lightning service providers, or even Lightning nodes can be considered security companies.” monetary services and be regulated as such.”
It’s unclear exactly which ads Acinq is responding to, but the legal action taken against Samourai Wallet and the Wells Notice recently disclosed questions about MetaMask indicate that non-custodial wallets could fall under US regulatory jurisdiction.
Additionally, on April 26, the US Department of Justice judicial act responding to a motion to dismiss a case against Tornado Cash co-founder Roman Storm, indicates that decentralized, non-custodial services will also likely need to implement KYC/AML and register with FinCEN, based on Section 1960 of the United States Code.
“This would extend MSB laws to encompass virtually everything in the cryptocurrency space outside of a user running their own node,” cryptocurrency advocate Seth For Privacy wrote on X. “If no controls are required to transmit money, then anything that makes it easier to use Bitcoin could fall under this overly broad definition.”
Many observers in the crypto community have noted that the decision to withdraw Phoenix from the United States is regrettable, but largely understandable given the legal uncertainty. Jack Dorsey, founder of fintech firm Block, which built a hardware wallet, lamented Acinq’s move “It seems completely unnecessary.”
“Agreed. This is not the way,” said Elizabeth Stark, CEO of Lightning Labs he said in response to Dorsey.
The news comes on the heels of the latest indictment against a cryptocurrency company, the arrest of Samourai Wallet CEO Keonne Rodriguez and Chief Technology Officer William Hill, for operating an unlicensed money transmitting business. The Justice Department alleges that Samourai processed more than $2 billion in illegal transactions, earning more than $4.5 million in commissions since 2015.
While legal experts have contested the waters for prosecuting non-custodial platforms that hold no assets on behalf of users, authorities around the world have sought for years to subject these software systems to some kind of regulatory oversight.
The EU, for example, has reflected on a 1,000 euros ($1,080) limit on crypto transactions from self-hosted crypto wallets as part of new anti-money laundering laws. US authorities have also considered introducing legislation that would essentially ban “unhosted wallets,” which has been successful beaten in 2022.
But new lawsuits and declarations from authorities have increased uncertainty, raising the prospect that many core crypto activities, beyond wallet creation, could fall under money transmission lawsalso included host a Lightning node. Like much else in the cryptocurrency industry, these concerns will likely make their way to court decisions, which is partly why Consensys, for example, decided to sue the SEC.
It’s unclear whether Phoenix and Wasabi will be the only wallets to leave the United States, although at least one wallet company, Zeus, has vowed to stay. “We’re not going anywhere,” Zeus says She said on X.
“We believe Zeus is following the letter of the law at this time. If the law changes or rulings are issued, we will make changes accordingly,” said Zeus founder Evan Kaloudis.
“If Zeus falls, all other Lightning node operators will be next. If Lightning node operators collapse, the next step will be self-custody. This is the hill to die on: self-custody. If you don’t agree, you were never in Bitcoin for the right reasons. So stay behind us or go home. Future generations look up to us and depend on us.”