The EU implements strict reporting rules for digital assets, posing significant challenges to cryptocurrency privacy.

The European Union has introduced a series of stringent digital asset reporting regulations that will reshape the operating models of Crypto Assets companies in the EU. Regulators aim to prevent tax evasion and financial crime, but the new rules significantly undermine the privacy protection of Crypto Assets.

According to the revised Directive on Administrative Cooperation (DAC8), starting from January 1, 2026, digital asset operators must comply with mandatory reporting obligations. Exchanges and wallet providers are required to provide standardized transaction data to regulatory authorities, and even if the operator is deregistered, user information will still be retained. The new implementing regulation (EU) 2025/2263 requires that disclosed information use a fixed computer format, with each registered operator receiving a unique 10-digit identification code to allow regulatory authorities to track the flow of funds more effectively. Member states are also required to submit annual assessment reports to ensure regulatory consistency and automatic data sharing, putting greater pressure on encryption privacy.

In addition, the “Funds Transfer Regulation” will take effect on December 30, 2024, expanding the “Travel Rule” to Crypto Assets transfers. Service providers are required to identify both parties in transactions exceeding 1000 euros, including self-custody wallets, and in some cases, even verify private wallet ownership. This regulation enhances user behavior tracking but further undermines personal privacy. Large operators will also need to conduct due diligence and report suspicious activities to comply with EU anti-money laundering measures.

The European Commission plans to strengthen the role of the European Securities and Markets Authority (ESMA) in the regulation of cross-border platforms. The centralized regulation aims to improve enforcement efficiency but may increase operational costs and impact encryption privacy. In addition, companies will also be required to report energy consumption levels, linking digital asset regulation to climate goals, which poses challenges for privacy protection. The Financial Stability Board pointed out that limited data exchange hinders global cooperation, and the EU believes that the new regulations can address this issue.

Overall, while the new EU regulations enhance supervision and cross-border law enforcement, the privacy protection of Crypto Assets is facing unprecedented pressure, and the industry needs to adapt to an increasingly stringent compliance environment.