The crypto community has a saying, “Not your keys, not your coins,” which means that if you keep your crypto in a third-party custodial wallet, you don’t actually own the coins. The entity that manages the wallet’s private key ultimately controls it. Self-hosted wallets, or non-custodial wallets, allow individuals to receive, send, and store their own cryptocurrency without the need for a custodian.
Life is increasingly digitalized, using cash for transactions and as a store of value has decreased significantly. For those in our economy who have access to digital resources, online transactions and money services have taken over. However, many people trapped in the money economy don’t have the luxury of shopping online or taking advantage of the efficiency of digital transactions.
According to the 2017 Federal Deposit Insurance Corporation survey of households without and with too few banks, about 6.5% of households in the United States do not have an account with an insured financial institution. Almost 19% of households have an under-bank, which means that although they have at least one account with an insured institution, they still use financial products such as payday loans or cash checks. Reasons why these individuals are short on money can range from past financial mistakes, lack of confidence in financial institutions, not having enough money for the minimum balance, or wanting to avoid fees. These reasons remained relevant two years later, according to the 2019 FIDCs survey, where a lack of confidence is one of the main reasons.
Self-hosted wallets create the value thesis of cryptocurrencies. They provide everyone with secure, equal access to a large and growing number of financial tools, such as DeFi or Strike, powered by blockchain technology. Individuals with these wallets can access these tools and send money securely without a third party intermediary – an impossible feat before the invention of Bitcoin (BTC). No intermediary is required for these peer-to-peer transactions, as “disabling the intermediary” enables the unparalleled efficiency and financial equity that cryptocurrency offers.
By possible regulating the use of self-hosted walletsthe U.S. government would create a barrier for these under- and bankless individuals to access cryptocurrency and hinder the greatest catalyst of financial inclusivity the world has ever seen. At the same time, they would also give more power to intermediaries in the cryptocurrency space. An internet connection is all it takes to communicate with the global financial system. This is a huge step forward in providing financial freedom for everyone, by making financial services available to the billions who currently do not have access. By removing this feature, the government would render cryptocurrency useless to Americans without the specified identification.
In addition, wallets are not just digital bank accounts, they are also digital safes. With a self-hosted wallet, people can store all types of digital assets, from important documents to tokenized real estate to approved cryptocurrencies. It would be ludicrous to take away an individual’s right to their own physical vault. Removing the right to a digital safe amounts to an infringement of the rights of Americans.
Cryptocurrency has seen more growth and created more wealth than any other invention in recent history. The US is at the forefront of this boom and has seen an immense growth of many companies, created thousands of new jobs and, as a result, greater financial independence from its citizens. Imposing a regulation requiring wallets to be custodial would put the US behind the eight ball by stifling innovation and hindering widespread adoption. While other countries continue to use cryptocurrency in its fairest and most streamlined form, the US would limit the growth that the free market of cryptocurrency allows.
The blockchain ecosystem is still in its infancy and its true potential has not even nearly been realized. Regulating such an important aspect of this new and useful technology would have disastrous consequences for innovation within the crypto space, likely preventing the future invention of revolutionary products and services that will live on the blockchain.
A clear and concise regulatory framework is something the cryptocurrency industry needs, but this is not the approach. In drafting new regulations, the U.S. government must work with industry professionals and scientists to find a solution that creates strong consumer protection, drives innovation, and ensures that all cryptocurrency users have secure access to essential financial services.
The views, thoughts and opinions expressed here are the sole ones of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Ben Weiss is CoinFlip’s chief operating officer. Ben leads a team of 40 employees and has overcome the logistical challenges of building CoinFlip’s ATM network infrastructure from the ground up. He has a degree in economics from Vanderbilt University and is a trustee of the New Jersey Blockchain Coalition and a board member of the Blockchain Advocacy Coalition. He is looking forward to seeing the crypto space evolve from a niche industry to a global force.