Travel rule, VASP UID and bitcoin URI - A new BIP

Summary:

The author proposes standardizing the bitcoin URI parameter name in order to contain the unique ID of Virtual Asset Service Providers (VASP) which host a user's wallet address. The purpose of this is to integrate the travel rule for Bitcoin ATMs, where the operator must perform a "best effort" to find out who the VASP is hosting the user's wallet and send customer identity data. The current user scenario is that the user shows a QR code containing an address to the ATM, inserts cash, and receives BTC in their wallet. There are several ways the ATM operator can find out who the VASP is, such as contacting every possible known VASP, using blockchain analytics tools or allowing the user to choose from a list of VASPs on the ATM screen. However, these options are not ideal. Therefore, the author suggests that users enable VASP UID in the settings of their mobile wallet, so that the Bitcoin ATM operator will not have to search for the VASP and can communicate with them immediately after scanning the QR code. This would make the user experience for ATM users stay the same as before travel rule compliance. In order to achieve this, all wallet providers need to use the same parameter name in URI, which is the purpose of the proposed new BIP. The VASP UID could also be used as a public key to encrypt the customer's identity information before sending it to the wallet provider VASP from the Bitcoin ATM. The directory of VASP UIDs, how VASPs can be contacted, and the method of transfer when one knows the VASP UID should all be outside the scope of this BIP. The author expects this to be covered by third-party tools/platforms/regulators. Bitcoin ATM operators need to stay compliant with US regulation to stay in business, and the same applies to US custodian wallet service providers. Therefore, the majority of custodian wallets offered on Appstore/Google Play in the US would provide their VASP UID in bitcoin URI as a new default with an option for users to turn it off. It is important to note that the Travel Rule does not apply for unhosted (non-custodian) wallets.

Updated on: 2023-05-21T03:19:43.468912+00:00