- Kraken wants UK users to disclose self-custody information.
- Failure to comply will result in an account freeze.
- Critics consider self-custody disclosure an attack on privacy.
Self-custody wallets are considered the most secure way to store cryptocurrency, with users fully controlling their private keys. By not relying on third parties or centralized authorities, self-custody better preserves crypto wealth and user privacy than custodial services, such as storing funds on a centralized exchange. This liberating concept has long attracted many to blockchain’s vision of financial independence.
Yet self-custody independence faces a new hurdle as leading crypto exchange Kraken confirmed that it is requesting UK users provide personal information on self-custody wallets. The alarming demand for self-custody disclosure sparked a backlash over privacy violations and enforcing regulatory overreach.
Kraken Wants Your Self-Custody Information
Rumors of Kraken’s demand for self-custody disclosure have been doing the rounds on social media recently. Many assumed the screenshotted email was a scam due to the massive encroachment of privacy described. However, on February 13, Kraken Support confirmed that the email was legitimate.
The email stated that UK regulations require Kraken to “maintain up-to-date information about our clients and their account activity regarding self-custody wallets.” It mandated verifying external wallets used to transact with the exchange and to provide residential details if any third party holds ownership. Non-compliance by February 23 would result in the user account being locked.
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The news triggered immediate outrage on the grounds of attacking self-sovereignty. Prominent Bitcoin commentator Max Keiser warned that similar enforcement actions could soon reach the US, tweeting, “The attack of self-custody in the US is coming.”
Freddie New, policy head at Bitcoin Policy UK, claimed that Kraken’s self-custody disclosure likely stems from compliance with the Financial Action Task Force’s (FATF) travel rule. New added that nothing could be done against the travel rule besides removing funds from exchanges that enforce it.
The Travel Rule
The FATF Travel Rule requires crypto businesses to collect and share customer information to combat illicit financial flows. For transactions under €1,000, firms need the name and account details of the sender and recipient.
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However, for transfers more than €1,000, far more intrusive data is demanded. If the sender is a company, their registration address or customer ID number must be provided. For individual crypto users, businesses could require a customer ID number, home address, passport details, or even birth certificate information.
While the Travel Rule intends to fight money laundering and terrorism financing, critics argue it betrays the core tenets of cryptocurrency and represents encroachment on user privacy and self-sovereignty. A 2020 dated tweet from privacy advocate “UTXOxo” predicted that a time will come when “regulators will try to force it onto everyone.”
Jeroen Hesp, co-founder of Singularity, commented that travel rule compliance would interfere with free markets by forcing exchanges to delist privacy coins. FATF considers privacy coins, such as Monero or Zcash, a money laundering risk.
On the Flipside
- Aside from privacy coins, cryptocurrency is pseudo-anonymous in that analysis software can match on-chain transactions to real-life entities using techniques such as attribution and IP address tracing.
- Based on anti-crypto policies, including a hostile banking sector, there is growing concern that the “UK‘s Crypto Hub” ambitions are simply rhetoric.
Why This Matters
By coercing private crypto wallet details from users, Kraken reveals an industry still struggling to balance conflicting ideals. Their alarming demands highlight tensions between crypto’s libertarian values and real-world regulatory compliance. As exchanges strategically toe this line, users may enjoy mainstream access but lose the financial privacy that attracted many to crypto in the first place.
Read about Kraken’s EU expansion after securing Dutch licensing here:
Kraken Snags Netherlands VASP License Amid EU Expansion
Find out more on BNB Chain’s “Martian” ambassador program here:
Why is BNB Chain Seeking “Martians” and What Do They Do?
