Skip to content
Binance was wrong to boot Monero, ZCash and other privacy coins
Binance announced in May that it would be delisting so-called “privacycoins” such as Monero (XMR), Zcash (ZEC) and others in several countries, including France, Italy, Spain and Poland. The decision underlined the reality that some companies could step over their own feet to ban privacy technology – even where it is legal – out of a combination of risk aversion and compliance confusion.
Some Monero users have long advocated keeping their tokens off-exchange, stressing that transactions on the exchange undermine user privacy by requiring personal identification information. And yet, listing privacy coins on exchanges has its advantages: it facilitates adoption by new users, strengthens liquidity and contributes to price momentum.
European Union regulators have recently introduced two major legal frameworks for crypto: Markets in Crypto-Assets Rules and a Travel Rule. These mandates require the collection of user data and identification information for withdrawal recipients. While these rules may seem cumbersome, users of privacy coins and exchanges that list privacy coins can, in fact, comply with them.
Related: Are we still mad at MetaMask and ConsenSys for spying on us?
Take Zcash for example. It offers a transparent sending function and an option to privately share display keys in shielded transactions. Monero offers a similar display key function. Discussions are ongoing among EU officials about a possible ban on privacy coins, but this is still in the early stages.
Binance’s overreaction is not the result of a clear regulatory mandate, and its actions appear internally inconsistent as well. It removed Secret’s SCRT governance token, which itself is not private, but can be traded for a private coin. In contrast, Litecoin (LTC), which has a privacy feature, has not been delisted.
These actions from Binance may be less about the demands of European regulators and more about the unique circumstances. For example, Binance is currently embroiled in a legal dispute with the Commodity Futures Trading Commission over alleged failures to enforce required anti-money laundering measures.
Even in countries where privacy coins are outright banned, such as the United Arab Emirates, savvy users can obtain them through virtual private networks to access peer-to-peer transfers or decentralized exchanges. Platforms such as Sideshift.ai for Zcash and Bisq for Monero serve as gateways to these privacy coins. While such methods ensure the survival of privacy coins during extended periods of prohibition, they may slow adoption among a wider user base that needs crypto privacy tools for financial security and the exercise of their human rights.
The crypto industry should avoid creating its version of “Operation Choke Point”, a practice where the US government discourages banks from doing business with crypto clients due to regulatory pressure. Crypto exchanges should refrain from banning privacy coins if there is no legal obligation to do so or they will create their own bottleneck.
Regulated exchanges manage to comply with US anti-money laundering laws, including Kraken, which lists Monero, as well as Gemini, which not only lists Zcash, but also allows customers to engage in shielded transactions on the platform.
Privacy tools in crypto are just that: tools. They are used by both regular users and, in some cases, bad actors. But this does not mean that the tools themselves are inherently bad. Like cash or the internet, these tools can be used for both legal and illegal activities. It is important to distinguish between the tool and how it is used.
Related: Infura is responsible for MetaMask’s cryptomind violation
The crypto industry is still in its infancy and it is critical to establish a balanced regulatory environment that respects user privacy while deterring and punishing illegal activity. Overly restrictive regulations could hinder innovation and discourage new users from entering the crypto space.
Privacy is a fundamental human right and an essential aspect of the crypto ecosystem. Regulators and crypto organizations must work together to create a regulatory environment that respects and protects user privacy while ensuring regulatory compliance. This will ensure the long-term sustainability and growth of the crypto industry.
Binance should withdraw its ill-considered delisting of privacy coins, gain a better understanding of the actual compliance requirements in EU countries and, even more, become active in advocating against the EU’s consideration of a future privacy ban. Privacy will become increasingly important in crypto, and Binance and other exchanges will be left behind if they don’t take privacy coins and privacy tools seriously.
JW Verret is an associate professor at George Mason University’s Antonin Scalia Law School. He is a practicing crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Advisory Board of the Financial Accounting Standards Board and a former member of the SEC Investor Advisory Committee. He also heads the Crypto Freedom Lab, a think tank that champions policy change to preserve freedom and privacy for crypto developers and users.
This article is for general information purposes and is not intended to and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Stay connected with us on social media platform for instant update click here to join our Facebook
