The need to improve the current privacy systems has been a topic of debate for years now. Privacy coins have been regarded as suspicious assets. This is despite its purpose of providing a solution. Privacy coins are privacy enabling cryptocurrency. These cryptocurrencies were created to protect businesses’ financial privacy. They also protect the identities of individuals in the cryptocurrency market. These coins harness different applications. Generally, these provide privacy, encryption, and security for its users.
These are “unique cryptocurrencies that allow a user to gain total anonymity. This is true when making blockchain transactions.” These coins hide their users’ identities, traded, and held in the wallet. Some of these Privacy coins include Monero (XMR), Dash (DASH), Zcash (ZEC), Verge, Bitcoin privacy, among many others.
Privacy guarantees are designed to benefit legitimate users who do not want their financial details made public. There is a concern, as always, about decentralized anonymous payments. This is in the form of facilitating money laundering of ill-gotten funds by criminal users. But privacy coins barely affect the status quo for criminal users since they already have means to hide their activity. Privacy coins provide notable benefits to legitimate users. This was stated by Zerocash in their whitepaper in defense of privacy coins.
Since their creation, the government and many media figures have cast a wary eye on privacy coins. This is due to fears that these protocols may support illicit and illegal activities within communities. But according to recent reports by U.S. international law firm Perkins Coie, privacy coins are doing more good than harm. The report was a collaboration by Riccardo Spagni, former Monero lead maintainer, the law firm, and developers from Tari Labs. The three published a white paper received as a new legal framework in defense of privacy coins. The research concluded that virtual asset services providers (VASP) could comply with authorities’ demands while supporting privacy coins.
As further stated in the whitepaper, privacy coins pose a lower inherent AML risk than other cryptocurrencies. This is in concern with evidence of illicit use in practice. These also provide public benefits that substantially outweigh their risks. These risks were properly and sufficiently covered by AML regulations. These regulations also provide a proven framework for combating money laundering and related crime.
Bitcoin (BTC) has accounted for more than 90% of the addresses used in the darknet market. Others like DASH, ZEC, and XMR contributed to only 0.3%. Despite the low numbers, privacy coins have time and again found themselves on the wrong end of the equation. Monero, another privacy coin was demanded as ransom for the abducted wife of Norwegian multi-millionaire Tom Hagen. The kidnappers demanded $10 million worth of Monero. But despite these global headlines, Monero’s use of illegal activities remains relatively subdued.
The Financial Action Task Force added measures implemented new Anti-Money Laundering measures. The added measures aimed to combat money. This is known as the ‘Travel rule.‘ The rule requires all firms engaging in crypto transfers above $1000 to disclose customer information. Following the announcement, many privacy coins suffered tremendous losses. Many were delisted from various exchanges after. Dash lost 76% in value after delisted from OKEx, while Monero also saw a 59% drop after both OKEx and ByBit delisted.
Benefits of Privacy Coins
Privacy coins are better than traditional fiat currencies as concluded in the report. They provide transaction trails in the form of transfer of records. Fiat and traditional currencies can cross a border without any trace. This is generally true for most money laundering activities.
Privacy coins are the perfect technology to provide fungibility in today’s monetary system. Since the coins have no transaction history, they can never be tainted.
