US and EU governments have already set the rules: only KYC compliant, state-regulated, custodial cryptocurrency wallets will become accepted.
I often wonder what are the thoughts of the early adopters about the most recent attack of custodial wallets.
The absolute power of cryptocurrency is the private key or the seed phrase. This is the key that gives access to the cryptocurrencies on the blockchain. When the key is not in our hands, but someone else holds it, then this does not differ from a bank.
With custodial wallets, crypto is not ours. It is like holding our crypto in an exchange. Put trust in these services that the money will be available upon request. In this way, it is more like PayPal, which has already a terrible record of abusing its terms and conditions.
Your crypto will be in the custody of a third party, which completely invalidates the point of cryptocurrencies.
The current Bitcoin strategy is about expanding any way possible, massively and aggressively, even with self-proclaimed “world’s coolest dictators” as long as it helps the price go up.
We often watch Michael Saylor explaining the wonders regulations will bring and always trying hard to convince us about the importance of KYC and custodial wallets. He basically tells us that having control is not important for our coins. We should relinquish control of our keys to a government-regulated financial institution and accept that we will never have complete control of our funds again.
Custodial Wallets Invalidate the Purpose of Crypto:
This is the catch. Destroy crypto by inserting third parties back into the equation. Add trust as a requirement. Create the feeling that holding your private keys is not important and not a secure approach, either.
From permissionless cryptocurrency features, we backtrack to require authorization for our transactions.
With a third party, you trust someone else with your private keys. Completely opposed to the core concept of decentralized cryptocurrencies.
It doesn’t have to be the banks, any custodial wallet will require to be registered as a financial institution, and follow certain criteria and regulations.
These are KYC/AML regulations and taxation. To the government, it doesn’t matter if you bought Dogecoin with just $10 and now hold $10,000 in this coin. You will have to declare the value of your coins as assets and get taxed for it.
I always thought that early Bitcoin entrepreneurs and advocates like Kraken's CEO Jesse Powell or Andreas Antonopoulos would have adopted a hard-line towards custodial services in the crypto world. It seems there is nobody that cares anymore. If compromising morals helps to increase the price, then it is an accepted tactic.
It is all about the number going higher for the BTC community.
It used to be inconceivable to allow access to our private keys to anyone else, and while custodial wallets were already out there since years ago, this modern narrative started gaining support right about when Saylor, Musk, and Dorsey got very active with promoting and buying BTC.
It is also important how all of them got involved with BTC but cared little about any other serious blockchain network. Musk, also ridiculed the rest of the crypto industry by intentionally boosting the price of Dogecoin for months with an excessive number of Tweets.
A dangerous path for all cryptocurrencies that contradicts all the amazing features that provide a competitive advantage to the traditional fiat currencies. Submitting control to any third party removes the advantages and with these regulations on cryptocurrency, CBDCs will find it easier to thrive.
Lead Image from: Pixabay
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