It explicitly states that hardware or software providers of non-custodial wallets are not targeted by this new regulatory framework. This distinction underscores a significant shift towards more regulated custody services, subtly encouraging a move away from less regulated, non-custodial solutions.

The discourse around the use of covenants in blockchain technologies and their potential misuse raises important considerations. While there's an acknowledgment of the innovative thinking behind the various applications of covenants, skepticism remains regarding their utility for nefarious purposes, particularly in the context of enforcing Know Your Customer (KYC) regulations. The counterargument presented suggests that governments do not require the use of covenants to implement KYC procedures effectively. Instead, they could leverage existing mechanisms such as multisignature (multisig) setups.

Furthermore, it's argued that the absence of covenants or improvements in blockchain scalability could inadvertently lead to an increased reliance on custodian services. This shift might simplify the process for regulatory bodies to enforce KYC regulations across the board. By concentrating digital asset holdings under custodian management, the pathway to universal compliance becomes less obstructed, presenting both opportunities and challenges in the evolving landscape of digital finance.