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In the beginning of 2024, the privacy track has encountered a heavy blow from exchanges. First, OKX delisted tokens including XMR, DASH, ZEC, and ZEN, followed by Binance delisting XMR on February 20.
According to the official reasons given by the exchanges, Binance stated that it was due to the "requirement that Monero deposits come from a publicly transparent address," while OKX cited "touching offline rules and the possible existence of high-risk projects."
However, the real reason for delisting these privacy tokens is that exchanges need to "avoid regulation." This is not the first time that exchanges have dealt with the delisting of privacy tokens. Binance has previously delisted privacy tokens in some regions, and exchanges collectively delisted privacy tokens in South Korea, among other instances.
The delisting of privacy tokens by exchanges undoubtedly reduces the liquidity and accessibility of privacy tokens. The fate of privacy tokens being delisted fundamentally reflects the crypto industry's surrender of privacy coins to regulatory authorities.
What needs to be considered by ordinary users behind this phenomenon is whether the demand for privacy is genuine. Apart from regulatory factors, have privacy tokens been abandoned by the market? And what is the development of the privacy track behind privacy tokens?
Is the demand for privacy genuine?
Bitcoin, the token with the highest acceptance in the crypto industry, is not completely anonymous. Bitcoin is a public centralized ledger, where user addresses and balances are entirely transparent on the chain. In the industry, it is common practice to track and monitor Bitcoin on-chain transaction data to create user profiles and monitor fund flows.
Therefore, privacy tokens were created in response to this crypto spirit. For example, Monero, born in 2014, is a typical token that meets the demand for privacy. Some geeks and anti-government activists believe that privacy is essential when facing government sanctions, and Monero achieves complete privacy in transactions through technologies like ring signatures, stealth addresses, and ring confidential transactions.
Not only privacy coins, but similar mixing services like Tornado Cash are favored by some whales, with some seasoned whales regularly using it to conceal their asset status. According to Rootdata, there are currently more than 120 privacy-related projects involving various technologies such as Layer1, Layer2, privacy coins, mailboxes, DeFi, mixing services, DID, VPN, social media, and privacy-address wallets.
For example, well-known tools like Umbra for privacy addresses, privacy public chains like Secret, Aleo, Mina, Layer2 solutions like Manta, Starknet, among others.
Moreover, mainstream tokens like LTC also show interest in privacy technologies. Privacy technology has been flourishing in recent years, and mainstream VCs are bullish on the privacy track. In the eyes of VCs, privacy is a growing field. In recent years, it has received hot investments from VCs such as A16z, Binance Labs, Samsung Ventures, and Sequoia Capital, with valuations in the billions of dollars.
Regulatory challenges facing the privacy track
Despite real applications and steady development in the privacy track, capital optimism, and a favorable market view, regulatory scrutiny has never been absent.
Privacy coins are the primary target. Due to the characteristics of privacy tokens, they are often associated with activities such as darknet crime, money laundering, extortion, and ransom. It is precisely because of these illicit applications that privacy tokens are often identified by governments as facilitating money laundering. The delisting of privacy tokens by centralized exchanges is an act of compliance with regulations, or a capitulation to regulatory demands.
According to a 2020 report, Australian regulators and banks encouraged cryptocurrency exchanges to delist Monero, or face the risk of "disconnection of banking services." Dubai also prohibited the use of Monero under its digital asset regulatory framework. Japan and South Korea also banned Monero from exchanges to curb money laundering and organized crime.
Japan enacted self-regulatory measures for cryptocurrency exchanges in June 2018, prohibiting the trading of anonymous currencies. Subsequently, in November 2018, the Japanese Financial Services Agency issued new standards for cryptocurrency exchanges, explicitly prohibiting highly anonymous and easily laundered cryptocurrencies. South Korea, slightly later than Japan, announced a legislative amendment to the Enforcement Decree of the Specific Financial Information Act in November 2021. According to the decree, virtual asset service providers will be prohibited from trading anonymous coins and handling virtual assets with money laundering risks, meaning that anonymous coin assets will be completely phased out of South Korea.
In response to regulatory policies in various countries, as early as May 31, 2023, before the comprehensive delisting, Binance announced the cessation of providing Monero, Zcash, Dash, and other 12 privacy coins to users in four EU member states: France, Italy, Poland, and Spain.
Privacy protocols and applications in the privacy track have also not been spared. In 2022, the privacy application Tornado Cash protocol was sanctioned by the United States. The consequences of the sanctions mainly include: Tornado Cash being regulated, the founder's Github account, project code repository, website domain, USDC contract, and RPC service (originally provided by Alchemy and Infura) being fully banned.
It can be seen that the biggest problem facing the privacy track is regulation, and the most direct problem with regulation is that it reduces the accessibility of these privacy products. However, for the core users of privacy products, they will still find other ways to access these products. The problem is that there may not be as many core users of privacy coins as initially thought.
Privacy tokens are not the only choice for meeting privacy needs
For privacy coins, perhaps the biggest threat is not regulation, but other products in the same track.
Firstly, mainstream tokens entering the privacy track and endowing their tokens with privacy features. For example, in 2022, Litecoin's MimbleWimble implementation allows users to choose to send confidential Litecoin transactions, where the amount sent is only known to the sender and receiver, and MWEB addresses hide account balances. However, this upgrade in functionality led to Litecoin being delisted in South Korea because Litecoin's functionality did not comply with Korean anti-money laundering regulations.
In late 2022, Vitalik proposed a privacy solution for Ethereum in an article. He introduced the EIP-5564 protocol on Ethereum, also known as the proposal for privacy addresses. Stealth addresses are disposable wallet addresses that give users ownership of assets without revealing any wallet address or user identity. Stealth addresses also enable the recipient of a transaction to remain anonymous, thereby preventing any publicly available connections between sender and recipient identities on the blockchain.
The Ethereum ecosystem has been advancing privacy protection with ZK technology. Vitalik has emphasized that ZK-SNARKS will be as important as blockchain in the next decade. The expected Ethereum Layer2 built on ZK technology has also been introduced in recent years.
It can be imagined that mainstream tokens embedding privacy features have a wider audience than privacy tokens.
Privacy technology has been progressing, and the mainstream privacy technologies in the industry mainly include zero-knowledge proofs (ZK), trusted execution environments (TEE), secure multiparty computation (MPC), and homomorphic encryption technology (HE). General privacy public chains are based on these four technologies. Among these four technologies, ZK, MPC, and HE are cryptographic privacy technologies, and TEE is based on hardware design.
Zero-knowledge proofs provide a method to prove knowledge of a specific set of information or data in an encrypted manner without revealing the specific details of the information or data set. |
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Post time 1-3-2024 15:52:29