The core principles of cryptocurrencies are based on financial independence, decentralization and anonymity. However, with regulation being the key to mass adoption, the privacy aspect of the crypto market appears to be in jeopardy.
In 2022, although no specific country has proposed a general regulatory framework governing the entire crypto market, most countries have introduced some form of legislation to govern some aspects of the crypto market, such as trading and financial services.
While different countries have different rules and regulations based on their current financial laws, a common theme is the strict enforcement of know-your-customer (KYC) and anti-money laundering (AML) regulations.
Most cryptocurrency exchanges licensed by government agencies or government affiliates discourage any form of anonymous trading. Even in countries without specific laws on privacy coins, private transactions above a certain threshold are prohibited.
The US and UK governments also Request for regulatory action Objects to the use of coin mixing tools, a service used to obscure the origin of a transaction by mixing it with multiple other transactions.
Coinjoin, a popular crypto mixing tool, recently announced that they will prevent illegal transactions Medium heat.
The recent delisting of Litecoin (LTC) was recommended by several cryptocurrency exchanges in South Korea due to the recent privacy-focused MimbleWimble upgrade, another example of how the privacy aspects of cryptocurrencies first fell on the road to regulatory acceptance. In addition to the South Korean exchange delisting LTC, many global exchanges, including Binance and Gate.IO, also refused to support transactions using the MimbleWimble upgrade.
Most regulations focus on making cryptocurrencies more transparent so consumers and businesses feel comfortable with them. This could be good news for institutional and corporate investors, but could be a blow for privacy-focused coins.
At a time when regulatory oversight is at its highest level, privacy coins like Monero face particular threats (XMR) and ZCash (ZEC), which has been banned on several major exchanges. However, experts believe that while the cases against privacy coins continue, people will continue to use them.
Privacy tokens are a red flag for many regulators, who generally prefer blockchain transactions to be auditable, verifiable, and take place on public chains.
Subject to regulatory scrutiny around the world
Privacy coins mask key identifiers of transactions, such as sender or recipient addresses, a feature that regulators believe could be abused by bad actors. Even some countries, such as Japan, once seen as a leader in progressive crypto regulation, have decided to scrap privacy coins.
Japan Ban privacy-focused cryptocurrencies In 2018, several registered cryptocurrency exchanges in the country have since delisted privacy coins from their platforms. Likewise, South Korea not only bans privacy coins, but also any kind of private transactions on South Korean cryptocurrency exchanges.
Privacy coins are still legal in the US. However, the Secret Service recommended that Congress regulate privacy-enhancing cryptocurrencies.
In August 2020, Australian regulators forced many exchanges to delist privacy coins. The Financial Action Task Force (FATF) similarly lists the use of privacy coins as a potential red flag for money laundering through virtual assets.
Some cryptocurrency exchanges have also stopped offering privacy coins due to AML guidelines. In January 2021, Bittrex, the eighth largest cryptocurrency exchange by trading volume, announced that it would Ditch Monero and Zcash from its platform. Kraken, the fourth largest exchange, Delisting Monero in the UK November 2021, according to guidance from the UK Financial Markets Regulator.
Ankit Verma, chief investment officer at crypto investment platform Mudrex, told Cointelegraph:
“While some exchanges regularly ban the trading of privacy coins, most of the largest privacy coins are currently tradable on major exchanges in different jurisdictions. However, institutional skepticism of privacy coin adoption persists. Due to KYC and AML guidelines It is difficult to predict wider usage of privacy coins due to strict enforcement. Our belief is that privacy coins’ lack of institutional affinity, combined with their unregulated nature, further inhibits the potential for widespread adoption of privacy coins.”
Regulatory pressure has reached such a level that even the privacy features of specific cryptocurrencies are subject to scrutiny, even though cryptocurrencies themselves are not solely concerned with privacy. Therefore, experts believe that the real winners will be those who combine the best privacy and regulatory compliance.
Fennie Wang, CEO of community-based currency development platform Humanity Cash, told Cointelegraph:
“The winner will be a protocol that balances user privacy and regulatory compliance using a combination of cryptography and sound policy translation. Decentralized identity primitives along with zero-knowledge proofs, homomorphic encryption and multi-party computation will be the equation Core.”
Can privacy coins survive the regulatory shock?
Privacy coins remain a grey area in several countries where their use is not banned but their use is discouraged by governments.
Chris Kline, COO of crypto retirement plan provider Bitcoin IRA, believes privacy coins can coexist despite the current regulatory slump. She explained:
“Privacy coins can coexist in a regulatory environment. With the CFTC leading the way in standards, this coexistence will coincide with new rules and challenges.”
Many other experts believe that while privacy coins will be difficult to obtain regulatory approval, regulators will make privacy coins more complex and bring them under the purview of regulation.
Nikos Kostopoulos, blockchain advisor at EU-based IT infrastructure firm NetCompany, told Cointelegraph:
“While it is foreseeable that privacy coins may not find a place on regulated cryptocurrency exchanges, privacy coins will not evaporate from market capitalization, but will find audiences and venues where privacy is critical and regulators will Approaches become more complex for privacy coins — for example, KYC/AML enforcement is enforced once a transaction is made with fiat or cryptocurrencies.”
Privacy remains a key concern for many in the crypto community, and that concern is magnified when it comes to sensitive information like financial transactions. This is why privacy coins are so important to protect and protect the interests of users. They ensure that sensitive user data cannot be accessed by anyone and that transactions are conducted privately. Some privacy coins such as Zcash and Dash (sprint) lets users choose whether to encrypt their transactions, giving them full control over their data.
Multiple reports show that less than 1% of crypto transactions Accounts and cash for criminal activity remain a convenient currency for criminals. Given all these positive aspects of privacy coins, announcing a blanket ban on them could pose a threat to user privacy and, ultimately, the underlying technology.