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It should come as no surprise that regulators are starting to pay close attention to cryptocurrencies this year. For example, as the price of Bitcoin (BTC) continues to rise, regulators are expected to start acting directly, perhaps even banning Bitcoin entirely.
While the ban may seem extreme, regulators have recently perfected the use of privacy coins like Monero (XMR), Zcash (ZEC), and Dash. For example, in September this year, the US Internal Revenue Service offered a bounty of up to $ 625,000 for intelligence companies that could break the Monero untraceable privacy coin.
Also, on October 8, William Barr, the US Attorney General, announced the release of a document titled “Cryptocurrency: An Enforcement Framework”. Produced by the Attorney General’s Cyber-Digital Task Force, the publication discusses a framework for combating “emerging threats and enforcement challenges associated with the growing prevalence and use of cryptocurrency.”
Although the paper discusses cryptocurrencies in general, the report specifically addresses issues involving “anonymity-enhanced cryptocurrencies,” also known as AEC or privacy coins. The document gives examples of these privacy coins to include Monero, Zcash and Dash, claiming that they undermine anti-money laundering measures:
“The acceptance of anonymity-enhanced cryptocurrencies or ‘AECs’ – such as Monero, Dash and Zcash – by MSB and darknet markets has increased the use of this type of virtual currency. As discussed earlier, as AECs use non-public or private blockchains, the use of these cryptocurrencies could undermine the AML / CFT controls used to detect suspicious activity by MSB and other financial institutions. “
Regulatory concerns and further challenges
Following the release of the cryptocurrency application framework, ShapeShift, a Swiss cryptocurrency exchange platform that runs operations from Denver, Colorado, removed the same three mentioned privacy coins.
While ShapeShift declined to comment on the matter, Ryan Taylor, CEO of Dash Core Group, told Cointelegraph that the Dash network was labeled as a privacy coin in 2014. According to Taylor, the assumptions behind this label – or even more fundamentally what the privacy label itself also means – has never been revisited. “Our goal is to correct this inaccurate categorization,” he noted.
Taylor further explained that no further developments have been made since Dash’s removal on ShapeShift. However, he remains optimistic about partnering with the non-custodial exchange to have Dash relocated. Has elaborated:
“We have been successful in being relisted on a number of exchanges in various jurisdictions. These exchanges include eToroX in the EU, Kraken and CoinSpot in Australia and OKEx in Korea. “
However, due to recent privacy coin regulations, being relisted may be more difficult than before. Miko Matsumura, a co-founder of Evercoin – a mobile wallet and exchange – told Cointelegraph that the recent US cryptocurrency application framework focuses so much on coins for privacy due to the idea that they allow users to circumvent sanctions established by the US Bureau of Foreign Assets Control. “ShapeShift has been a bit slow to take Know Your Customer measures in the first place, so the regulatory pressure has to be high,” he said.
Aside from the difficulties of being relisted, other cryptocurrency exchanges may follow suit and start removing coins for privacy. Nathan Catania, a partner at XReg Consulting – a crypto-asset regulator – told Cointelegraph that it is likely that many cryptocurrency exchanges will begin removing privacy coins. “This could be due to outright bans or increased regulatory pressure on virtual asset service providers to treat private currencies as a higher risk for anti-money laundering purposes,” he said.
The two largest Asian cryptocurrency exchange markets – Japan and South Korea – are already taking steps to remove privacy coins. Catania also noted that even if privacy coins weren’t banned, much more work and control would be needed to get cryptocurrency exchanges to interact with customers wishing to use privacy coins. However, Catania believes that for some exchanges, the risks and costs would not outweigh the benefits of supporting privacy coins, so more exchanges are likely to eliminate privacy coins in the future.
Widely used privacy coins are expected to remain in exchanges
However, some experts ask to differ. Bill Barhydt, CEO of Abra – a peer-to-peer payments platform that supports over 70 cryptocurrencies including Dash – told Cointelegraph that Abra works closely with third-party custodian partners. He mentioned that to the best of his knowledge these partners have no plans to remove cryptocurrencies that are widely used in the market today. Dash would fall into this category, as its current market cap is at number 31 on CoinGecko, with 9.8 million coins in circulation.
Additionally, many compliant cryptocurrency exchanges in the United States continue to support privacy coins. Justin Ehrenhofer, a compliance analyst at DV Chain – an affiliate of Chicago-based proprietary trading firm DV Trading – told Cointelegprah that he trades, like Kraken, who has a bank card for the Institute of Depositing special in the state of Wyoming, many common privacy coins support. He further noted that Gemini supports protected Zcash deposits and withdrawals, noting that the risk-based approach taken by Gemini for Zcash should also apply to protected deposits and withdrawals of other assets such as Monero.
Dash is also a privacy coin and is that important?
Speculation aside, Dash Core’s Taylor ultimately believes Dash is no longer a Bitcoin privacy coin: “Most people would say that Bitcoin is clearly not a privacy coin, so it’s informative to assess where Dash would fall into. this spectrum of privacy compared to Bitcoin. “He continued adding,” Bitcoin is an absolutely higher regulatory risk than Dash for many reasons, both technical and in terms of real-world usage. “
This notion was also expressed in a report on anti-money laundering regulation published by the international law firm Perkins Coie. Taylor further said that a coin’s privacy label is meaningless, as different technologies provide varying degrees of privacy to different participants. According to Taylor, what’s relevant for this specific case is how exchanges and other money services firms can address AML compliance risks for transactions for the cryptocurrencies they support.
It is also important to point out that Bitcoin continues to be the most used cryptocurrency on darknet markets. John Jefferies, chief financial analyst at CipherTrace – a blockchain intelligence firm – further told Cointelegraph that the boundary between privacy coin and Bitcoin is not binary as privacy enhancements such as CoinJoin and layer two networks can also improve the privacy of Bitcoin transactions.
