What are privacy-focused cryptocurrencies?
A privacy-focused cryptocurrency or privacy uses advanced cryptographic techniques to make a digital currency that keeps user details anonymous. Most cryptocurrencies are pseudonymous, meaning that the transaction details are kept public while the user details remain private. Privacy coins completely keep the user’s transaction details hidden.
Privacy-focused cryptocurrencies have gained immense popularity among many people as these coins are designed to prioritize the anonymity of the users. Some popular examples of privacy coins include ZCash (ZEC), Monero (XMR), and Dash (DASH).
Understanding the importance of privacy coins
With the rapid growth of cryptocurrencies, the need for privacy coins has also increased on a larger scale. The major reason behind this is the users’s growing concern that online breaches interrupting their privacy. Privacy coins became a favorable choice among those people who wanted to keep their details private.
The transaction details of non-anonymous cryptocurrency users are recorded on public ledgers that are visible to everyone. This makes it easy for a third party to trace the transaction through the addresses used on the blockchain networks. However, in the case of privacy coins, the transaction and identity details of a user are untraceable. This is the major reason why the privacy coin became a favorable choice among those who prefer to hide their financial activities. The reason to keep the financial activities could be due to a wide range of reasons which could be legal as well as illegal.
Let us look at some of the positive aspects of privacy-focused cryptocurrencies.
One of the standing benefits of privacy coins is that they maintain the privacy and anonymity of their users. The transaction details of a user completely remain private and cannot be traced by a third party. The privacy coins enable anonymous online transactions that can easily escape any surveillance, tracking, and censorship problems.
Privacy coins are designed using advanced cryptographic techniques that offer improved security measures than other types of cryptocurrency.
Privacy coins are frequently used in corporate endeavors to conduct private transactions, including proprietary contracts or mergers. They have also proven beneficial to the citizens who reside in oppressive or dictatorial regimes. Citizens can use privacy coins to carry out their financial activities without revealing their identity and other details.
Risk factors of privacy-focused cryptocurrency
Even though privacy coins offer much security and privacy which are essential factors for digital transactions, experts say that there might be a hidden side to this privacy-focused cryptocurrency. The anonymous nature of privacy coins has earned them the tag of illicit or illegal by the government. Even though the privacy coins offer various benefits, it has also opened the door to many criminals to conduct illegal activities. Let us look at some of the possible ways privacy coins accelerate crimes.
- Money laundering: It is an illegal activity that launders a huge amount of money through illegal means. Privacy coins are used for this purpose as the user’s origin remains anonymous.
- Tax evasion: Privacy coins can be used to evade tax implications and hide huge assets from the authorities.
Regulatory laws faced by the government
The government and other official agencies have put forward many measures to strengthen the cryptocurrency landscape. With the rise of technology, the cryptographical sphere has become vulnerable to many illegal activities and cybersecurity threats. The anonymous nature of privacy coins has grabbed the government’s attention. Illegal activities like money laundering and consumer scams have alerted government officials.
In 2024, the European Union updated its anti-money laundering law stating that cryptocurrency providers will be prevented from listing, selling, or purchasing privacy-focused cryptocurrency through their services. The new updation also put bars on criminal activities by enabling the process of initially converting the privacy coin to non-privacy coin before they can withdrawn as cash. In 2023, the Financial Crime Enforcement Network (FinCEN) also issued a notice regarding reporting requirements for the process of the convertible currency mixing process. This official notice made it compulsory for the crypto asset providers to report within 30 days if their services have raised suspicions regarding convertible currency mixing practices.
The regulatory laws have also raised the beneficial sides of privacy-focused cryptocurrency. One of the standing advantages of such regulatory laws is that it has made the financial providers more responsible and serious with their services.
Also Read: Crypto Governance: Why It’s Crucial for Investors?
Conclusion
The unique characteristics of privacy coins have played a major rolee in crypto exchanges. It has gained much attention from many people for featuring its private and anonymous nature. The nature of privacy coins has both been a boon and a curse. Even though they can be used to protect the security interests of users, they also paves the way for many illegal activities to thrive. Such activities make it prone to many regulatory laws.
The actual fate of privacy coins remains a matter of debate. However , such form of privacy-focused coins have a chance to strive in the furture with improved technological advancements and regulatory developments.