It should come as no surprise that regulators are paying close attention to cryptocurrencies starting this year. For example, As the price of Bitcoin (BTC) continues to rise, it is predicted that regulators will take direct action and may even ban Bitcoin entirely.
Although the ban may seem extreme, regulators have recently turned to the use of privacy coins such as Monero (XMR), Zcash (ZEC) and Dash. For example, in September this year, the United States Internal Revenue Service (IRS) offered intelligence agencies a reward of up to $ 625,000 that could break the undetectability of the Monero privacy coin. .
In addition, on October 8, US Attorney General William Barr announced the publication of a document entitled “Cryptocurrency: An Enforcement Framework“The publication was produced by the Attorney General’s Cyber-Digital Task Force and deals with a framework to combat it.”emerging law enforcement threats and challenges related to the increased proliferation and use of cryptocurrency“.
Although the document deals with cryptocurrencies in general, the report deals specifically with the problems of “Anonymity Enhanced Cryptocurrencies”, also known as AECs or Privacy Coins. The document lists examples of these privacy coins, including Monero, Zcash, and Dash, and claims that they undermine anti-money laundering measures:
“The adoption of anonymous advanced cryptocurrencies or ‘AECs’ – like Monero, Dash and Zcash – by MSBs and deep web markets has increased the use of this type of virtual currency. As mentioned above, since AECs cannot use public or private blockchains the use of these cryptocurrencies undermines the AML / CFT controls that are used to detect suspicious activity by MSBs and other financial institutions. “
Regulatory Concerns and Other Challenges
After the publication of the legal framework for the enforcement of cryptocurrencies, ShapeShift, a Swiss platform for the exchange of cryptocurrencies based in Denver, Colorado, has removed the three aforementioned data protection coins from the list.
While ShapeShift refused to comment on the matter, Ryan Taylor, CEO of the Dash Core Group, told Cointelegraph that the Dash network was classified as a privacy coin in 2014. According to Taylor, the assumptions behind this label – or more fundamentally What the privacy label itself means – have never been verified. “”Our goal is to correct this imprecise categorization“he commented.
Taylor went on to state that there has been no further progress since ShapeShift’s delisting of Dash. However, he remains optimistic about partnering with the non-custodian exchange to get Dash back on the list. He explained:
“We have succeeded in getting ourselves listed on a number of exchanges in different countries. These exchanges include eToroX in the EU, Kraken and CoinSpot in Australia, and OKEx in Korea.”
However, due to recent regulations on privacy tokens, it may be more difficult to list them than before. Miko Matsumura, co-founder of Evercoin – a mobile wallet and exchange – told Cointelegraph that the latest cryptocurrency law enforcement framework in the US focuses so much on privacy coins because it allows users to evade them. Sanctions set by the United States Bureau of Foreign Wealth Control. “”ShapeShift has been slow to implement the “Know Your Client” measures in the first place, so the regulatory pressure must be high“said.
Aside from the challenges of relegation, other crypto exchanges can catch up and start delisting privacy coins. Nathan Catania, a partner at XReg Consulting – a cryptocurrency regulator – told Cointelegraph that many cryptocurrency exchanges are likely to start delisting privacy coins. “”This could be due to outright bans or increased regulatory pressure on virtual asset service providers to treat privacy coins as a higher risk for anti-money laundering purposes.“said.
Asia’s Two Largest Cryptocurrency Exchange Markets – Japan and South Korea are already taking steps to remove privacy tokens from their lists. Catania further noted that even if privacy tokens are not banned, exchanging cryptocurrencies would require a lot more work and control to interact with customers who wish to use privacy tokens. But still, Catania believes that with some exchanges, the risks and costs would not outweigh the benefits of supporting privacy tokens. Hence, it is likely that more exchanges will phase out privacy coins in the future.
Widely used privacy coins likely to remain on exchanges
However, some experts disagree. Bill Barhydt, the CEO of Abra – a peer-to-peer payments platform that supports more than 70 cryptocurrencies including Dash – told Cointelegraph that Abra is working closely with third-party custodian partners. He mentioned that as far as he knows These partners have no plans to delist any of the cryptocurrencies that are widely used in the market today. Dash would fall into this category as its current market position on CoinGecko is number 31 with 9.8 million coins in circulation.
Also, many of the US cryptocurrency exchanges continue to support privacy coins. Justin Ehrenhofer, Legal Compliance Analyst at DV Chain – a subsidiary of Chicago-based trading company DV Trading – told Cointelegprah Exchanges like Kraken, which have a banking charter from the Wyoming State’s Special Purpose Depository Institution, support many popular currencies for privacy protection. He also pointed out that Gemini supports Zcash deposits and withdrawals, and that the risk-based approach that Gemini is taking for Zcash should also be applied to deposits and withdrawals of other assets such as Monero.
Is Dash a privacy coin at all and does it matter?
Speculation aside, Taylor of Dash Core ultimately believes that Dash is no more than a privacy coin than Bitcoin: “Most people would say that bitcoin is clearly not a privacy currency. Therefore, it is informative to assess where Dash would fall within this data protection spectrum compared to Bitcoin.He added, “Bitcoin is absolutely riskier than Dash from a regulatory perspective for technical reasons and in terms of its use in the real world from a regulatory perspective.”
This term was also specifically mentioned in an AML regulatory report published by the international law firm Perkins Coie. Taylor also stated that labeling a data protection token makes no sense, as different technologies offer different participants different levels of data protection. According to Taylor, what is relevant for this particular case is how exchanges and other money service providers can deal with the risks of complying with AML regulations in transactions for the cryptocurrencies they support.
It’s also important to note that bitcoin is still the most widely used cryptocurrency in the deep web markets. John Jefferies, the chief financial analyst at CipherTrace – a blockchain intelligence company – told Cointelegraph The boundary between privacy coins and Bitcoin is not binary as privacy enhancements like CoinJoin and Layer 2 networks can also improve the privacy of Bitcoin transactions.