How private are privacy coins? Are they legal? In this article, you will get to know deeply about it.
Privacy coins are a class of cryptocurrencies that power private and anonymous blockchain transactions by obscuring their origin and destination. It was introduced to keep user transactions anonymous leaving no trace of how the money moved through the network. It employs various methods to do this, such as hiding the wallet’s address and mixing multiple transactions using a coin mixer.
The anonymity that privacy coins provide offers a potentially appealing outlet for money laundering or other criminal transactions. They make it difficult to work out who sent what to whom, which is useful if you don’t want anyone snooping on your financial activity. Regulating privacy coins continues to be a top priority for financial authorities as they attempt to clamp down on illicit crypto trading activities.
How will privacy coins work?
For cryptocurrencies operating on public blockchains, any recorded transactions will show the sender, the receiver, and the amount exchanged.
Privacy coins appear pretty similar to coins like bitcoin. They run on blockchains, decentralized ledgers, and are maintained by a network of anonymous validators. The two main privacy coins on the market, are Zcash, and Monero.
It was designed to preserve the anonymity of people making cryptocurrency transactions. Monero is one of the only privacy coins that are private by default. Unlike Zcash, you can’t turn its privacy functions off. Zcash offers private and transparent transactions.
Zcash can choose either t-address or z-address, which will conceal the identity of the seller. These z-addresses operate on zero-knowledge proofs, without revealing any information about the transactions with both buyer and seller. Monero uses stealth addresses, also known as one-time public keys, which dissociates the two accounts participating in a Monero transaction to outside viewers of the blockchain.
Why privacy coins are not widely accepted yet?
One of the biggest problems of privacy coins that are preventing the broader adoption of privacy coins is their legality. The risks of using these coins for financial fraud have led to restrictions on their use in many countries. Several countries have imposed restrictions on exchanges to allow the trading of these coins. However, several countries are tightening their KYC norms for privacy coins under their prevailing anti-money laundering laws.
Are Private Coins Legal?
The legality of privacy coins depends on individual jurisdictions, it depends on the country. Australia and South Korea have banned exchanges from offering privacy coins, while Japan has banned them entirely. In the US, privacy coins remain legal. Private transactions using these coins do not necessarily promote malicious activities such as money laundering and terrorism financing.
Some cryptocurrency exchanges have also stopped offering privacy coins as a result of anti-money laundering guidance. And the majority of cryptocurrency volume is on the dark web. While privacy coins are not banned as of yet, financial action task forces are making things difficult for both countries and exchanges
Privacy coins are facing increased scrutiny from regulators in the last couple of months, which has compelled some exchanges to delist these untraceable cryptocurrencies to avoid regulatory complications. According to experts, privacy coins are another additional layer to a form of currency that is already an issue for governments.