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EU Moving to Ban Privacy Coins: Report

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  • November 19, 2022

Key Takeaways

  • The European Union reportedly has plans to restrict or ban the use of privacy coins in its jurisdiction.
  • The thinking behind the potential ban appears to be primarily concerned with money laundering.
  • As on-chain surveillance becomes more sophisticated and legislators on both sides of the Atlantic become increasingly vigilant, the case for privacy-preserving cryptocurrencies is ever more apparent.

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The European Union is said to be mulling a ban on privacy coins, including Monero (XMR), Zcash (ZEC), and Dash (DASH).

Leaked Document

EU legislators are working on an anti-money laundering policy proposal prohibiting banks and crypto providers from interacting with privacy coins, according to an anonymous EU diplomat who reportedly revealed the plans to CoinDesk.

If enacted, the policy would effectively blacklist a host of popular cryptocurrencies, including Monero (XMR), Zcash (ZEC), and Dash (DASH).

In March, the European Parliament forwarded legislation to impede transactions between exchanges and unhosted wallets. The parliament now seems prepared to escalate restrictions against anonymity in crypto.

In a draft of the legislative proposal dated November 9, initially reported by CoinDesk, the body said: “Credit institutions, financial institutions and crypto-asset service providers shall be prohibited from keeping…anonymity-enhancing coins.”

The draft is believed to have been drafted by Czech officials and has since been shared among its 26 member states. As of yet, the privacy-busting proposal has yet to be made official.

Privacy In Trouble?

Earlier this month, Crypto Briefing spoke with Zcash CEO Josh Swihart to gain an insider perspective on the challenges and opportunities within the privacy coin sector. Swihart told us that public blockchains are a serious security risk for individual users and corporations.

“If I’m a business accepting cryptocurrency natively, not through a third-party intermediary, I can’t afford to let my competitors see all of that [personal] information,” said Swihart. “Not only the information about my business—what’s coming in and out—but information about my customers who may be transacting with me online or using cryptocurrency. So I expect there to be a tipping point where there’ll be a flood of demand.”

Swihart expects that the demand for privacy coins will become increasingly urgent as “now you have all kinds of crypto surveillance companies, Chainalysis and others, that are not only tracking transactions in order to look at flows, but they tag addresses.”

It is possible that regulators and ever more sophisticated on-chain surveillance could catalyze increased demand for privacy coins. Ironically, regulators could argue for privacy coins rather than kill them off.  

That’s a lesson that might apply equally to regulators in the US. The recent blacklisting of Tornado Cash by the US Treasury Department’s Office of Foreign Assets Control (OFAC) is one such example.

“There’s healthy concern about the direction in which regulatory conversations have been going,” Swihart told us. “I think what OFAC did was a massive overreach.”

Disclosure: At the time of writing, the author of this piece owned BTC and ETH.

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