Is the privacy coin delisting trend coming?

This article comes from coindesk

Original author: Benjamin Powers
Odaily Planet Daily Translator: Moni

On December 8, 2020, the Dutch cryptocurrency exchange LiteBit sent an email to all its users, notifying them that it would soon delist the privacy coin Firo (formerly Zcoin). According to the email notification, the main reason why LiteBit made this decision is that Firo is a privacy coin, and the Dutch regulator believes that cryptocurrencies "for the purpose of protecting privacy" are too risky.

Currently, LiteBit has confirmed that Zcoin will be officially delisted on December 22.

In fact, many cryptocurrency exchanges have been delisting privacy coins recently, and this trend seems unlikely to stop soon. For example: -Crypto exchange Shapeshift delisted Monero, Zcash and Dash a few months ago;

- South Korean cryptocurrency exchange Bithumb also delisted Monero in June 2020.

Firo project leader Reuben Yap explained: “For our project, it is currently limited to smaller or regional cryptocurrency exchanges, but delisting tokens actually sends a signal to the outside world that delisting tokens is now the only way for cryptocurrency exchanges to comply with AML/KYC (Know Your Customer/Anti-Money Laundering), which is not the case. LiteBit’s delisting of Firo actually set a very bad precedent.”

Has the delisting of privacy coins from cryptocurrency exchanges become a global trend?

Reuben Yap believes that the removal of privacy coins from cryptocurrency exchanges has become a global trend, for example:

- In Asian countries such as South Korea and Japan, the regulatory measures for privacy coins are very strict;

- In Europe, since there are already privacy regulations such as the General Data Protection Regulation (GDPR), it seems to be more open to privacy coins, but the French Finance Committee has recommended a ban on the use of privacy coins. Recently, the Netherlands has implemented new anti-money laundering regulations, which stipulate that the identity information of all parties in cryptocurrency transactions must be known. This obviously has a huge impact on privacy coins. At present, almost all domestic cryptocurrency exchanges in the Netherlands have removed Monero from the shelves;

-In Australia, due to pressure from the regulatory framework and the banking industry, cryptocurrency exchanges are also gradually removing privacy coins from their listings. It is reported that the blockchain analysis company Chainalysis has played a major role in the regulatory decisions on privacy coins in Australia and other countries.

-In the United States, the Secret Service has urged Congress to quickly create restrictions and initiatives regarding the use of privacy-centric cryptocurrencies.

Justin Ehrenhofer, a contributor to the privacy coin Monero, said: “For small cryptocurrency exchanges that are subject to compliance requirements, delisting privacy coins is the easiest regulatory response. These cryptocurrency exchanges may not have the resources to properly communicate their risk mitigation strategies to regulators and banks.”

According to Justin Ehrenhofer, in most cases, banks, exchanges, and other entities find it easier to simply deregister products associated with a specific token, rather than spending the resources and effort to actually create a detailed compliance plan.

Why Are Cryptocurrency Exchanges Delisting Privacy Coins?

The core reason behind cryptocurrency exchanges removing privacy coins from their shelves is mainly due to privacy functions. However, for many cryptocurrency users, privacy functions are actually very important. The original intention of Bitcoin was privacy, and the crypto punks who support Bitcoin do not want to establish connections with the traditional financial system, let alone be monitored and reviewed by regulators.

But regulators believe that privacy features conflict with know-your-customer/anti-money laundering regulations.

Reuben Yap, the head of the Firo project, continued: “The official reason given by regulators in many countries is that banning privacy coins and delisting them from cryptocurrency exchanges will help combat money laundering and illegal use of cryptocurrencies. However, this looks more like building a facade.”

Reuben Yap believes that the reason why Japanese regulators want to "crack down" on privacy coins is largely related to the fact that the cryptocurrency exchange Coincheck was hacked and a large amount of NEM was stolen, but NEM does not actually have any privacy functions. The hackers hacked into Coincheck because the exchange had weak security rather than privacy coins, and privacy coins were not used for money laundering.

Reuben Yap added: “In many cases, it seems that privacy coins have been made the scapegoat in the end.”

Australian exchanges like Swyftx clearly disagree with regulators banning privacy coins, but the reasons behind why privacy coins should not be banned have not yet been widely disseminated. In South Korea, cryptocurrency exchanges claim that they are delisting privacy coins in order to comply with the Financial Action Task Force (FATF) regulations, but the problem is that privacy coin regulation has nothing to do with the Financial Action Task Force.

Of course, Reuben Yap is not fighting alone. The US law firm Perkins Coie previously released a report detailing how privacy coins comply with existing anti-money laundering regulations. The author of the report wrote: "Is it possible for regulated entities to support privacy coins while complying with anti-money laundering regulations? We believe the answer is yes."

Justin Ehrenhofer believes that cryptocurrency exchanges are actually “saving trouble” by delisting privacy coins, because when pressured (or directly pressured) by regulators and banks, delisting privacy coins as soon as possible can indeed reduce risks. He said: “Most jurisdictions do not actually impose overly strict bans on these privacy-protecting cryptocurrencies, but regulators may need to provide more detailed anti-money laundering procedures before adapting to privacy coins.”

What impact will the delisting of cryptocurrency exchanges have on privacy coins?

It should be noted that being delisted by cryptocurrency exchanges does bring many problems to privacy coins. This actually sends a signal to other participants in the cryptocurrency ecosystem, that is, even if there are no compliance issues, exchanges can actually delist cryptocurrencies directly - this obviously has far-reaching consequences.

However, cryptocurrency exchanges themselves may also be “delisted”, and again without breaking any laws, perhaps because they continue to come under soft pressure from regulators and their banking partners.

Reuben Yap revealed that the reason why Coinbase UK removed Zcash was because its banking partner ClearBank was very worried about this privacy coin. This is a very typical example, because if other banks follow suit, it will undoubtedly bring many problems.

In addition, Justin Ehrenhofer also said that for smaller crypto assets such as privacy coins, being delisted from cryptocurrency exchanges will seriously affect the viability of these crypto assets, causing the liquidity of these privacy coins to drop significantly, and may even fall below the level of "life and death". On the other hand, for established privacy coins such as Monero, such privacy coins simply prompt users to "trade in jurisdictions with higher risks and lower compliance."

Justin Ehrenhofer said: “Generally speaking, privacy coin information can actually be viewed within the scope of regulators and compliant crypto exchanges, but if these exchanges delist privacy coins, they may be transferred to some poorly regulated cryptocurrency exchanges in other jurisdictions, which will be detrimental to regulatory investigations.”

It is worth mentioning that the privacy coins delisted from cryptocurrency exchanges also include Dash. Dash was originally considered to be "Darkcoin". This cryptocurrency is actually a fork of Bitcoin. A few years ago, it no longer focused on privacy functions, but focused on other use cases of cryptocurrency.

Glenn Austin, chief financial officer of Dash Core Group, speculated in a statement that the recent delisting of Dash coins by some cryptocurrency exchanges may be due to the association with the past "Darkcoin", which has also caused a lot of misunderstandings. However, according to the conclusions drawn by many well-known cryptocurrency industry experts, Dash coins are just Bitcoin forks and are no longer privacy coins.

In fact, as the Bitcoin and Ethereum blockchains also begin to develop more and more privacy features, cryptocurrency exchanges will have to work hard to build the necessary compliance processes, otherwise it will not be as "simple" as it is now to simply delist a privacy coin.

Reuben Yap said that until cryptocurrency exchanges improve the necessary compliance processes, we may still see some privacy coins being delisted from cryptocurrency exchanges. If these privacy coins want to continue to survive, they may be forced to delete their privacy features.

Looking ahead

Reuben Yap explained: “For some privacy coin projects, the best approach may be to come up with high-quality opinions and solutions to prove that the real problems that crypto exchanges need to solve are KYC/AML issues, rather than thinking about how to delist privacy coins.”

Reuben Yap believes that on-chain analysis is the only way to solve the problem of knowing your customer/anti-money laundering, while for Justin Ehrenhofer, the cryptocurrency community that wants to protect privacy coins should work more with compliance professionals to ensure that they are satisfied with the compliance plans submitted to banks and regulators. Of course, privacy coins themselves also need to pay attention to their own development, because if the survival of cryptocurrency exchanges does not depend on privacy coins, then they are unlikely to invest too much resources and energy to support privacy coins that conflict with the requirements of knowing your customer/anti-money laundering compliance, and as a result, they will choose to directly delist.

Justin Ehrenhofer recommended a company that created resources to assist cryptocurrency exchanges in explaining to regulators how to support privacy crypto assets in a compliant manner, which is ComplyFirst. Finally, Reuben Yap concluded: "Privacy coins will continue to face many difficulties and challenges in the process of cryptocurrency exchanges promoting know-your-customer/anti-money laundering compliance, but as cryptocurrency begins to become mainstream, these privacy coins will also attract community attention. Just as VPNs, Tor, HTTPS, and end-to-end encrypted messaging are now considered standard protection tools, privacy technology in cryptocurrency will eventually become commonplace."

This article is translated from https://www.coindesk.com/privacy-coin-advocates-crypto-exchange-delistings. Please indicate the source if reprinted.