U.K. regulators have served their people with yet another "blessing" to protect them from themselves. The Travel Rule for Crypto Assets mandates Virtual Asset Service Providers (VASPs) to share sender and receiver information for all crypto transactions.
If they want to continue doing business in the U.K., crypto exchanges will be compelled to collect user information and block transfers to any wallet not controlled by another regulated VASP.
Case in point, Gemini U.K. recently said they will block transfers of bitcoin unless going between "TRUST" verified Virtual Asset Service Providers (VASPs) a.k.a. KYC/AML institutions.
The question I've been asking myself is...
Will this ultimately result in a bifurcation of UTXOs – whereby, some quantity of bitcoin becomes trapped within the legacy financial system, segregated from the rest which can be spent freely?
Or, will this "trapped" bitcoin in time find a way to escape the VASPs and leak back into the private, non-custodial market? If so, how?
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(Another possibility is that people are able to see the evil in this scheme and choose not to use VASPs to transact in Bitcoin at all. However, I am not an optimist.)