An automated way of sharing proof that a user owns a private cryptocurrency wallet when transacting with a regulated exchange in Switzerland is being integrated by hardware wallet Trezor.
Developed by crypto startup 21 Analytics, the Address Ownership Proof Protocol (AOPP), which also works with wallets like BitBox and Edge, was designed to accommodate the Swiss Financial Market Supervisory Authority's (FINMA) implementation of anti-money laundering (AML) requirements for cryptocurrency firms.
Going beyond the recommendations made by global AML watchdog, the Financial Action Task Force (FATF), crypto requirements in Switzerland include the identification of private wallets transacting with the country’s virtual asset service providers (VASPs).
The march of AML requirements into the realm of private or non-custodial wallets is something most countries are only at the initial stage of mulling over – often to the horror of crypto advocates. But Switzerland and Singapore are already requiring identification for transactions over $1,000 with what the FATF calls “unhosted wallets.”
“Switzerland has some extra harsh regulations when it comes to the 'travel rule,' and FINMA was always at the forefront implementing everything the FATF publishes very quickly,” 21 Analytics CEO Lucas Betschart said in an interview. “So we have the Travel Rule actually being enforced here.”
When it comes to determining ownership of private wallets, VASPs in Switzerland have been asking users to submit a screenshot of their wallet, or conduct a “Satoshi Test,” whereby a specific amount of coins is sent to a verified wallet to confirm their receipt. Another way is manual signing in using a private key, Betschart said. AOPP streamlines and automates that manual signing process, he added.
“We’re glad to see more individuals taking custody of their crypto assets,” Marek Palatinus, CEO of SatoshiLabs, the maker of the Trezor hardware wallet, said in a statement. “AOPP makes it simpler and faster for users to withdraw to the safest place for their coins: their Trezor.”
Betschart also pointed out that 95% of transactions from Swiss VASPs don’t go to another Swiss VASP, but rather to a top 20 crypto exchange such as Binance, BitMEX or Bitfinex, most of which have no travel rule solution in place yet. The result is that customers of Swiss VASPs send and receive a lot of crypto via their own non-custodial wallets, often using AOPP, Betschart said.
“It’s an interesting effect of activating the travel rule in Switzerland that more people are forced to use their own wallet,” Betschart said. “So it’s not like everyone is sharing data, but just that everyone is sending to their own wallet before they can send assets to Binance, for example.”
UPDATE (Jan. 27, 13:18 UTC): Removes sub phrase "which is obviously a security risk" in the second line of the sixth paragraph.
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