No, Denmark did not propose to ban self-custody wallets

The Danish Financial Supervisory Authority said the exemption of self-custodial wallets from MiCA doesn’t mean such wallets should be banned.

• Contrary to recent social media reports suggesting that Denmark was “about to ban” Bitcoin wallets, Danish regulators have not proposed banning self-custodial cryptocurrency wallets.
• The Danish Financial Supervisory Authority (DFSA) has denied the reports falsely suggesting that the regulator plans to ban self-custodial wallets, also known as non-custodial wallets.
• “We are aware of some misinformation circulating on social media suggesting that the DFSA intends to ban hardware wallets and other non-custodial wallets,” Tobias Thygesen, DFSA’s director for fintech, payments services and governance, told Cointelegraph. He stated:

Self-custodial wallets are not subject to MiCA by nature

DFSA’s regulatory clarification followed up on the regulatory assessment of decentralization in the context of the Markets in Crypto-Assets (MiCA) Regulation, which came into full force on June 30.

Published on June 25, DFSA’s assessment provided a set of principles to address challenges in regulating decentralized crypto asset services.

According to Thygesen, MiCA explicitly exempted crypto asset services “provided in a fully decentralized manner without any intermediary.” As such, for a service to be regulated under MiCA, it must not be fully decentralized. It also should involve one of the activities listed in Article 3(16) of MiCA, such as crypto custody, trading and other crypto services.

“The only regulated activity directly concerning wallets is providing custody and administration of crypto-assets on behalf of clients, which involves custody of crypto-assets on behalf of clients,” Thygesen told Cointelegraph, adding:

What are self-custodial wallets?

Self-custody is a method of storing cryptocurrencies like Bitcoin (BTC) without any intermediary. This means that a user directly holds crypto assets and has full control over the cryptocurrency stored.

Holding a cryptocurrency in a self-custodial wallet allows users to be their own bank, but there is a trade-off that the responsibility of maintaining the wallet security and safety of the private key falls exclusively on the owner.

Unlike custodial crypto wallets, such as Wallet on Telegram messenger, self-custodial wallets typically do not require Know Your Customer (KYC) procedures. This means that the private key is the sole method of verifying ownership.

Self-custodial wallets have a few subtypes, including software-based wallets like MetaMask and hardware wallets like Ledger or Trezor.

DFSA’s assessment aimed to increase awareness of potential regulatory requirements

Despite not being subject to MiCA, some software wallets provide integrated interfaces to fully decentralized services in addition to their wallet services. According to Thygesen, such integrations could potentially be independently regulated by MiCA if they are not provided fully decentralized.

For example, a software wallet that directly executes orders on a decentralized exchange on behalf of clients could require authorization if a legal entity has control over the offer and provides this specific activity as a service for clients, the DFSA official said. He added: