Russia wants to ban non-custodial wallets and criminalize keeping your own cryptocurrency keys. Sounds quite idiotic. But what is more scary is that many countries are considering similar actions. Putin is not alone in his willingness to gain control over private cryptocurrency assets.
Non-custodial crypto wallets allow their owners to keep their private keys safe, hence all the extra privacy. Nobody can access your assets without those private keys. It also means you have no chance to recover your tokens in case the private keys are lost. Anyways that is a fair price you pay for being sure you actually own those assets, right? Well, Russian authorities think otherwise.
Bloody dictator Vladimir Putin is one of the greatest inventors of the 21st century so far. An evil genius if you will.
Not only did he invent ‘denazification’ which turned out to be devastation of peaceful Ukrainian cities causing millions of people to flee from the country, but he also invented a weird and quite scary way of corrupting the crypto world.
The thing is that decentralized blockchain could make all of us free from any third party entities. Russian authorities obviously don’t think they are the third party of the kind their citizens should avoid.
Yes, Russia is set to legalize cryptocurrency and their own digital ruble is on tests now. But it is obvious now that Russia wants to use the best of both worlds. While using all the technical merits of digital cryptocurrency (mining, speed of transactions etc.) Russia wants to deprive its citizens of those elements of freedom that are essential to crypto. At least the potential Russia ban for non-custodial wallets points to that.
And what is even more terrifying is that other countries are seriously considering the same politics.
Russia declares a war to non-custodial crypto wallets
The Association of Banks of Russia is quite a behemoth of Putin’s financial system. This organization includes more than 300 Russian banks. If it says something, it means the Kremlin is rather serious about it.
So yesterday the Association of Banks of Russia called on lawmakers to criminalize storing crypto outside of centralized exchanges on noncustodial wallets.
It means Russian authorities want to eliminate custodial wallets thus making Russians to store their crypto assets only where their identities could be verified easily. As well as frozen or blocked, of course.
When you own cryptocurrency in your custodial wallet it is you and only you who has access to it. Also it is drastically difficult – though still possible at least in theory – to follow your transactions and link the wallet with your persona.
In contrast to custodial wallets, accounts at centralized crypto exchanges require verification via official ID and you don’t get to obtain the private key needed to access the tokens in that wallet.
Be your own bank
So with a custodial wallet you are in a sort of “be their own bank” situation.
And with the crypto exchange it all looks very similar to a typical situation when you become a client of a fiat bank. The bank – and thus the authorities – knows how much money you’ve got, where from and how you spend it.
The logic behind the initiative of the Association of Banks of Russia is not new at all. It is still that good old story about ‘getting finance from or to debtors and criminals’.
But apparently Russia is not a big fan of letting people control any aspects of their lives – be it money (as well as crypto) or freedom of speech.
Criminal liability for those who own non-custodial wallets
The aforementioned association has developed a framework for foreclosure on crypto stored on noncustodial wallets due to ‘serious difficulties’ of seizing crypto on such wallets from debtors and criminals.
The framework is in development jointly with the Ministry of Internal Affairs. Surprising, huh?
It aims to introduce criminal liability for not storing cryptocurrencies like Bitcoin on noncustodial wallets. One more proposition has been announced though. The association also wants to introduce criminal liability for refusing to provide keys to authorized agencies.
Basically Russians will be obliged to store their crypto assets at custodial wallets only. If you get caught using a custodial wallet, you will have to provide the authorities with your private keys. So that they could take your savings from you before you go to prison, obviously.
Can Russia prevent people from using non-custodial wallets?
Being a part of Putin’s regime Russian bankers are undoubtedly vicious. But they are not stupid.
The bankers admitted that their proposal is complicated by technical difficulties associated with forced access to noncustodial wallets.
You need the consent of the owner to access his non-custodial wallet. But prior to that you need to be able to track him or her down.
The association report contains sincere regrets about this, noting that ‘this makes it practically impossible to enforce seizure of such assets’.
Fighting crypto anonymity becomes a global thing
Rather than being a purely Russian local incentive, fighting non-custodial wallets have gone global.
In March 2022 the European Parliament’s Committee on Economic and Monetary Affairs voted in favor of a certain regulatory update that is also frightening to all those seeking crypto freedom.
The EU lawmakers also see potential danger in crypto exchanges’ ability to deal with noncustodial crypto wallets. And similarly to Russian banks they want to find a way to deal with it.
According to Cointelegraph, Canadian regulators reportedly flagged tweets by Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powel for urging users to move their crypto off of exchanges to non-custodial wallets after enforcement froze crypto assets of COVID-19 protesters.
So global regulators pay increasing attention to non-custodial wallets. And in general it becomes obvious the crypto is under heavy legislation fire.
And some of the driving forces of the world crypto market are taking part in it.
Let’s just take a look at Binance’s ties with Russia.
Binance, the world’s largest crypto exchange, became officially involved with The Association of Banks of Russia in February 2022. One of Binance’s top managers in Russia has become the lead of the association’s expert crypto center since then.