That's not what the link says. It says:

- traders would be forbidden from making or accepting anonymous crypto transfers over 1,000 euros unless the identity of the other party can be verified

- Businesses would be forbidden from accepting over 7000 Euros in cash

- transfers between private individuals would be allowed even if they are large

- They are seeking to ban anonymous accounts

- Mixers, tumblers and privacy coins should be taken into account as risk factors when assessing money-laundering risk

It's essentially the same outcome, Brussels politicians have no idea what they're doing in terms of smart contracts. Clearly it's an AML measure but they don't understand that what they call "unhosted wallets" (i.e. just random regular wallets) is as essential to decentralized applications as MAC addresses in legacy networks. Requiring KYC from every single wallet is insanity and will of course never work. So if that becomes law, it kills any dApps in the EU, only allowing centralized services to interact with known customers. Which defeats the entire point of blockchain tech. What would still be allowed would be some exchange like Coinbase offering services to KYC'd customers I guess. So at least they might be able to participate but they could do nothing on Web3 on their own. It would be a walled garden similar to the GFW of China vs the wider internet.

Again, I suspect this comes down to incompetency and isn't even intentional. They want to regulate the space but they don't understand what smart contracts are and how dApps work.

>If the customer's identity can be verified or if a regulated crypto provider is involved, the transaction would be allowed.

I'm not sure that's that bad. I've got some crypto wallets but the stuff has got there by me transfering fiat to Kraken, with KYC, passport scan etc and then the USDT or whatever to the wallet so it's easy enough to trace it to me.

If you allow fully anonymous stuff to interact with the regular financial system it does kind of leave it open to all sorts of tax evasion / illegal activities.

This. Anonymous interaction with the regulated system won't fly, regulation cannot be applied to unidentified entities. Anyone can have their blockchain, just don't expect police or courts to protect you, they may hunt you instead.

You mean anonymous like cash?

Do you want to make cash illegal and the government to trace every single financial transaction you do? Even worse, web3 is mostly not about money in the first place. Do you want them to track everything you do online, every app you interact with, every file you uploaded?