Curious as to why privacy coins are under attack?
Monero’s regulatory challenges have made it something of a poster child for privacy in the cryptocurrency world. Privacy coins might be attractive, but most regulators are drawing a line in the sand when it comes to anonymous coins.
Let’s look at the issues.
The Tension Between Privacy and Compliance
Monero was built to be totally private and untraceable.
Bitcoin transactions are public. Anyone can see the sender, the receiver, and the amount transferred. But with Monero, the sender, receiver, and amount are all hidden from public view using privacy-enhancing technology like stealth addresses and ring signatures.
Privacy or something akin to it.
The attraction of absolute privacy has become especially clear in resource guides. For example, it is a normal situation that a user of any coin, wishing to pay attention to privacy, discovers and uses 비스크로 모네로구매 (buying Monero with Bisq in Korean). There are many people who, for various reasons – from purely personal financial protection to the inability to work in countries with total control of central government agencies over the activities of citizens – need an increased level of anonymity that cryptocurrency technologies can provide.
However, this privacy comes at a cost. Regulators are actively fighting the use of anonymized transactions for financial criminality. Their goal is to regulate virtual asset service providers to mitigate these risks. However, at the moment, tools like Monero and analysis of statistics show that 87% of privacy coin transactions that get flagged for illegal activity use Monero.
That number is enough for the cryptocurrency to be a red flag for regulators.
Financial crimes without leaving a trace are what governments want to root out completely. Privacy coins make that extremely difficult, if not impossible. The government can’t regulate what it can’t see.
Privacy vs. compliance. The conflict is only intensifying.
Exchange Delisting Crisis
These regulatory problems are only becoming more significant with time.
Privacy coins have faced 60 delistings in 2024 alone – the most since 2021. Monero has been particularly hard hit. The number of delistings grew six times over the previous year.
CoinRise, Binance, and Kraken all delisted Monero. In Europe, the OKX exchange also took it off.
The situation is happening for reasons.
On the one hand, cryptocurrency exchanges have the choice to comply or to lose their licenses. Some still take a stand for what they believe is right, but most choose to do what they are told.
The EU Markets in Crypto-Assets regulation went into full effect in December 2024, and exchanges have to start complying with all the rules.
The European Union already plans to introduce a ban on privacy coins starting in 2027. It is not just a threat.
Exchanges and Decentralized Alternatives
It’s also worth noting that the delistings haven’t actually stopped the trading of Monero. People have simply switched to less regulated exchanges.
Decentralized exchanges like Poloniex and Yobit now account for nearly 40% of all privacy coin trade volume, compared to just 18% back in 2021.
The demand for Monero is still there. Access is just more challenging than it used to be.
If the bans start in earnest as expected, look for trade to further decentralize.
Regulatory Problems When Buying Monero With Bisq
The Financial Action Task Force (FATF) is a global regulator of anti-money laundering practices.
It has a new rule that they call the Travel Rule. This rule says exchanges have to know who is sending a crypto transfer above $1,000. In particular, they have to know names, addresses, and other identifying information.
This requirement isn’t optional.
This kind of information does not exist for Monero. They design the cryptocurrency this way so that transactions are private.
A survey of the industry found that 74% of privacy coin developers feel the FATF Travel Rule is their biggest compliance headache. They are torn between the demands of regulators and the core technology they have built.
Some have attempted to respond to these complaints. Zcash has introduced optional transparency features to address them. Monero’s developers have not.
Refusal has cut them off from major markets but has also allowed them to hold their ground.
Legal Uncertainty With Privacy Coins
Countries around the world are taking a line on privacy coins that differ significantly.
Japan’s ban on privacy coin trading came in 2018. South Korea and Australia followed with their own restrictions in 2020. Dubai banned privacy coins entirely in 2023.
The European Union is perhaps taking the strictest approach with the 2027 ban.
The differences in global regulation mean the market is very fragmented.
Trying to run a centralized exchange in these circumstances has to be quite a challenge. Navigating the difference in jurisdictions is a constant and very real problem for anyone using Monero.
Legal Risks for Users
Users of Monero are also at risk. As the pressure builds, it is only going to get more difficult to exchange Monero and fiat currency.
Regular users are going to have to jump through more hoops.
Decentralized peer-to-peer platforms like Haveno and Bisq are some of the easiest ways to trade Monero. But these are more technically complex and lack liquidity.
The reality for users is that using Monero is only becoming more difficult. For both the privacy criminals and those who need it for legitimate reasons, it is a difficult situation.
International Legal Space for Monero
The situation is set to get even more complicated as time goes on. As stated above, the European Union is banning privacy coins in 2027. They have made their position clear.
The United States Securities and Exchange Commission has taken a similar approach. Both bodies are clear on their position.
This has a major impact on privacy coins and the current legal space they have. For example, the United States has already started to approve exchanges.
The number of jurisdictions becomes very significant. It is only going to get more difficult to manage a compliance program to service everyone equally. The problem becomes finding jurisdictional holes where these activities are acceptable.
New Regulations and Risks
Of course, with any market, legal changes have a real impact.
Bitcoin is primarily an investment and store of value currency, while Ethereum and its smart contracts primarily serve in the DeFi sector and are used to develop non-financial decentralized applications (DApps).
Monero is even more at risk as a privacy coin. These changes will be direct and will only become more and more aggressive with time.
Key Takeaways
Monero continues to use technology to anonymize transactions.
Bitcoin transactions can be public. Monero transactions have no way to connect them to a person or organization.
The problem regulators have with Monero and other privacy coins is that they want oversight. The exact opposite of the core benefit that privacy coins offer. Privacy coins are a financial technology advancement that governments do not want to allow.
Privacy coins are having a more difficult time than many would think. Strict compliance requirements. Exchange delisting. Governments have consistently been building pressure on the use of privacy coins.
Legal compliance problems continue for privacy coins like Monero. Regulations aren’t easing up. The bans are coming.
At the same time, Monero remains. It is still being used. The community is still active, and development is ongoing.
The question of survival is far from the actual issue at hand. The question is what survival will actually look like given all the circumstances.
Peyman Khosravani is a global blockchain and digital transformation expert with a passion for marketing, futuristic ideas, analytics insights, startup businesses, and effective communications. He has extensive experience in blockchain and DeFi projects and is committed to using technology to bring justice and fairness to society and promote freedom. Peyman has worked with international organizations to improve digital transformation strategies and data-gathering strategies that help identify customer touchpoints and sources of data that tell the story of what is happening. With his expertise in blockchain, digital transformation, marketing, analytics insights, startup businesses, and effective communications, Peyman is dedicated to helping businesses succeed in the digital age. He believes that technology can be used as a tool for positive change in the world.
