Because of the lack of clarity in the law, Phoenix Wallet, a Bitcoin wallet that focuses on Lightning payments, is going to cease being able to help users in the US after May 3. DCINQ, the business that makes Phoenix Wallet, is going to remove the app from U.S. app stores, so people in the U.S. will not be able to use it.
Phoenix Wallet users in the US should get the funds out of their Phoenix wallets as soon as possible, but they should be careful not to force-close them to avoid having to pay more in on-chain fees. iOS users should instead go to the wallet’s settings page and use the “drain wallet” button. For Android users, to safely empty their wallets, they should go to the wallet’s settings page and use the “close channels” command.
Phoenix Wallet hints at regulations.
ACINQ hasn’t said why they took the wallet off of U.S. app stores, but the company hinted on Twitter that recent statements from the U.S. government have made people question whether self-custodial wallets, Lightning service providers, and Lightning nodes are regulated as Money Services Businesses and need to follow certain rules.
It was the creators of Samourai, a Bitcoin mixing wallet, who were sued before this decision by ACINQ. There were charges against Keonne Rodriguez and William Lonergan Hill, the founders of Samourai Wallet, on April 24 in the Southern District of New York for letting people do illegal things through Samourai. If they are found guilty, Rodriguez could spend up to twenty years in jail and Hill could receive up to five years.
The U.S. Department of Justice says that Samourai was used for over $2 billion in illegal activities. Since 2015, the platform has made more than $4.5 million in fees. It also says that Samourai was sold as a way to avoid censorship and make illegal actions easier.
Along with Rodriguez’s arrest, the FBI sent out a warning to users about unregistered crypto companies that they think are acting as money services businesses. This move is part of a larger trend by U.S. authorities to go after wallets and mixers that are involved in activities they think are fishy.
People in the cryptocurrency community are upset about the charges. CryptoQuant CEO Ki Young Ju defended Rodriguez and Hill, saying that privacy protection is an important part of Bitcoin. Ju said it was like punishing the person who invented the knife instead of the people who were misusing it. He was making the point that the legality of using a tool rests on what you’re trying to do.
