Google Play Store encryption wallet policy flippening: Non-hosted wallets exempt from licensing requirements, industry pressure works (August 2025 update)

Google's strict new regulations on encryption wallets, originally scheduled for implementation from August to October 2025, have taken a dramatic turn! After facing strong rebound from the industry, Google has clarified that its Play Store policy does not apply to non-hosted encryption wallet applications. This means that non-hosted wallet developers do not need to obtain a banking or money service license to list their applications, eliminating potential threats to the DeFi ecosystem and user on-chain privacy. This article details the policy reversal, compliance cost impacts, and future challenges.

[Policy Shift: Google Urgently Clarifies Non-Hosted Wallet Exemption] Google recently made significant clarifications regarding its planned Play Store hosted wallet policy. The company clearly stated: "Non-hosted wallets are not within the scope of Google Play's cryptocurrency exchange and software wallet policy." This statement aims to eliminate the widespread confusion and criticism caused by an earlier policy draft. The draft previously required all cryptocurrency wallet applications (including non-hosted self-custody private key wallets) developers to obtain official financial service licenses in advance to list in 15 key jurisdictions, including the United States, European Union, United Kingdom, Canada, and Japan.

【US Compliance Controversy: FinCEN Registration and State License Suspense】 According to the initial policy, cryptocurrency wallet service providers operating in the United States will face stringent requirements: they must register as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN) and hold a state-level money transmission license. These requirements are standard practice for hosted wallets, but according to FinCEN's 2019 guidelines, non-custodial wallet providers do not technically have such legal obligations. Consensys lawyer Bill Hughes sharply criticized Google’s policy for its lack of clarity, noting that Google did not even define what a "software wallet" was in its notification update on July 10. Hughes emphasized that FinCEN does not explicitly require non-custodial wallets to register as MSBs, and this move by Google contradicts the current regulatory policies in the United States, warning that large tech platforms could become the biggest gatekeepers of cryptocurrency application distribution.

[EU MiCA Compliance Pressure Temporarily Eased] In the EU, the original policy means that wallet developers need to obtain a license as a crypto asset service provider (CASP) according to the Markets in Crypto-Assets Regulation (MiCA). This will exclude many independent developers who do not qualify as CASPs and develop non-custodial crypto wallet applications from the Play Store, as their business model does not involve custody. The draft is considered similar to the Financial Action Task Force (FATF)'s recommendation to expand the scope of review for Virtual Asset Service Providers (VASP). This policy clarification spares EU Web3 developers and DeFi projects from additional compliance burdens.

[Industry pressure leads to policy reversal] Google's recent policy reversal is directly attributed to strong opposition and lobbying from the cryptocurrency industry, legal experts, and advocacy organizations. Paradigm's Vice President of Regulatory Affairs, Justin Slaughter, has condemned the policy as excessively harsh, especially as Google faces antitrust lawsuits. He described the move as "surprising" and a "harsh restriction" imposed on non-custodial wallet developers. Slaughter referenced the spirit of a proposal pending in the U.S. Congress, which states that "pure coding should not require a federal license," suggesting that Google's original policy may contradict potential legislative directions.

【Impact and Future Challenges】

• Developer Relief: Policy clarification has greatly alleviated the compliance pressure and listing barriers for developers of non-hosted wallets (such as MetaMask, Phantom, etc.), avoiding the risk of large-scale delisting.
• DeFi and Innovation Benefits: Reduced restrictions on the entry to the Decentralized Finance (DeFi) ecosystem, which is conducive to the development of on-chain innovation and the model of user control over assets.
• Compliance focus remains: Hosted wallets and exchange applications must still strictly adhere to licensing requirements. Google's overall principle that activities related to cryptocurrency must be conducted by regulated entities remains unchanged.
• Regulatory Ambiguity Continues: The regulatory definition of non-hosted wallets remains unclear across different jurisdictions, and future policies are still subject to change. Attorney Hughes' concerns about "tech giants becoming gatekeepers of encryption" reflect the industry's long-standing worries about the power of centralized platforms.
• User Privacy and Choice: Although hosted wallets can be retained, the global requirements for cryptocurrency wallet KYC/AML are becoming increasingly stringent, and on-chain privacy protection technologies will face greater challenges.

Conclusion: The dramatic reversal of Google's Play Store encryption wallet policy is an important victory for the cryptocurrency community and the blockchain advocacy force, temporarily maintaining the survival space of non-hosted wallets and the openness of the DeFi ecosystem. However, the global regulatory environment's compliance requirements for cryptocurrency asset services are still tightening, especially in the areas of anti-money laundering (AML) and user identity verification (KYC). Encryption wallet providers and Web3 developers still need to closely monitor regulatory dynamics around the world, particularly the final implementation details of the MiCA regulation and legislative progress in the United States. This game highlights the ongoing challenge of seeking balance between centralized application distribution platforms and decentralized ideals. On-chain new regulations, stay tuned!