Why the EU proposal to KYC self custodial wallets transferring to/from exchanges isnt a big deal

The EU recently backed a proposal to crack down on transactions to and from exchanges using self custodial wallets. Essentially, the law requires exchanges to KYC such wallets and verify the information. If passed as is, it would create a big headache for exchanges who have to implement these mechanisms. Bigger exchanges will be fine but smaller ones might run into trouble.

For the individual crypto hodler I dont really think its a big deal, even if it ends up being passed and here is why:

1. To use exchanges at all you generally need to be KYC'ed anyway.
   
2. Most of us simply transfer to/from our own self custodial wallets, making the additional KYC process trivial.
   
3. If you're transferring somewhere you don't or can't be bothered with KYC'ing, simply transfer to your own self custodial wallet first (or some other wallet you can identify the holder of), and then from there transfer the funds anywhere you want.
   
4. The law does not apply to DEX'es.
   

The law does not affect transfers between self custodial wallets and also does not cover decentralized exchanges.

To be honest though, I doubt the law will get passed entirely as is. EU used to be at the forefront of privacy regulation and this stomps all over that. We will see where it goes but I'm not worried at all.

In the end, regulating on/off ramps makes sense imo. We will never see any serious adoption without regulations. However, trying to regulate the use of self custodial wallets is a pointless effort.

Also, the markets don’t seem to care either.