Privacy Coins Face Existential Threat Amid Regulatory Pinch
23 Sep 2019

The subset of digital assets dubbed privacy coins, which have long delighted libertarians and frustrated law enforcement, are feeling the pinch of a step up in regulation.

Cryptocurrencies such as Monero, Zcash and Dash, which can to varying degrees obfuscate transactions, are making it harder for exchanges and custodians to comply with fresh international guidelines to prevent illicit financing.

Some exchanges are finding it easier to delist the coins rather than figure out how to adhere to the additional risk management requirements. In August, Coinbase UK dropped support for Zcash. On Sept. 10, OKEx Korea said it’s delisting five coins — Monero, Dash, Zcash, ZCache, Horizon and Super Bitcoin — citing the Financial Action Task Force rules outlined in June.

“It’s certainly seen as creating a huge hurdle to the existence of privacy coins,” said Jesse Spiro, head of policy at Palo Alto, California-based crypto investigative firm Chainalysis Inc. He anticipates more exchanges will drop coins.

That’s already proving to be painful for a large slice of the crypto market, with Monero, Dash and Zcash having a cumulative market capitalization of about $2.5 billion. Monero’s price is down about 30% since mid-June, while Dash has slumped by more than 40% and Zcash has dropped by about 50%.

“There is a good chance many will be delisted and liquidity will dry up,” Jeff Dorman, chief investment officer at Arca, a Los Angeles-based asset manager that invests in cryptocurrencies, said in an email.

The privacy coins have long raised eyebrows. Europol has flagged Monero and Zcash, along with Bitcoin, for use in internet-based crime. Because they can be hard to trace, these coins could potentially be also used in terrorism financing or by sanctioned governments.

“It is possible to track some privacy coins, but there are certainly major road blocks that have been created by design,” Spiro said.

With Monero, for example, there’s no history of transactions that can be attached to a particular coin — so it’s not possible to tell with certainty it’s never been used in crime. However, Monero also has a “view keys” feature, which lets owners monitor coin transactions, making it less of a “black box than often depicted,” Monero said in an email.

Developer teams behind Monero, as well as other privacy coins, say that they can be in full compliance with FATF’s rules.

By Olga Kharif, Bloomberg, 19 September 2019

Read more at Bloomberg

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