Academic study suggests government targets privacy coins, sparking industry concern
Recently, an academic paper titled (Reconciling anti-money laundering tools with European data protection requirements in the permissionless blockchain space) has caused widespread discussion. The author of the paper, published in (Journal of Cybersecurity), suggests that governments should target cryptocurrencies, specifically privacy protection chains, to combat money laundering. The paper proposes a variety of methods to weaken trust in permissionless blockchains, including 51% attacks, price suppression, and Sybil attacks.
The author contends: “Successful attacks on the network may significantly weaken users’ confidence in the network, thereby shaking the blockchain community’s trust in the protocol to ensure smooth operation.”
However, the paper also states that these methods should be used as a "last resort" to combat money laundering, and only be considered after other policy measures (such as blacklisting wallet addresses, flagging transactions, sanctions and other regulations) have been exhausted. Ultimately, any approach taken should strike a balance between ensuring compliance with existing laws, promoting innovation, and protecting individual user privacy.
Privacy coins become the focus of regulation, and the industry questions the reasons for crackdowns
Although the paper was published in 2021, its content has attracted greater attention in recent times. Some users have speculated that some of the strategies discussed in the paper are currently being used to manipulate the price of Monero ($XMR), a privacy-enhancing cryptocurrency mentioned in the academic paper. This has led people to question whether the government is using the pretext of combating money laundering to impose stricter supervision and suppression on privacy coins.
In fact, United Nations officials revealed in 2022 that terrorist groups primarily use cash to fund illegal activities—a view later confirmed by a U.S. Treasury Department report in May 2024, which found that criminal organizations prefer fiat currencies over Non-cryptocurrency. Even when digital assets are used in illegal activities, they are often used in traditional scams that can also be carried out using cash or other asset classes.
Source: U.S. Treasury Department U.S. Treasury Department report shows criminal organizations prefer fiat currencies to cryptocurrencies
However, this has not stopped the US government from cracking down on cryptocurrency mixers and other privacy-enhancing tools. On September 26, 2024, a US judge ruled that the case against Tornado Cash co-founder Roman Storm can continue. The government’s crackdown on these privacy-enhancing tools has sparked debate about the viability of these services, with many users questioning whether mixers can survive under the current regulatory regime.
The game between privacy and regulation, the encryption community faces challenges
In the digital age, financial privacy has become a pressing issue as surveillance becomes deeply embedded in all electronic transactions. Every transaction generates data that can be aggregated, stored, revisited, misused and manipulated. According to Shane Neagle, editor-in-chief of The Tokenist, in the article (The Privacy Imperative: Achieving true final settlement in Bitcoin), theoretically the Fourth and Fifth Amendments to the U.S. Constitution provide protection against interception of transactions by third parties, but paper The rules on the page only have meaning if they are interpreted and enforced. Therefore, more robust solutions must come from hard technology sources.
The innovation of Bitcoin lies in its blockchain technology, which makes transactions inviolable through the Proof-of-Work mechanism. However, this transparency also brings privacy concerns. Although the Bitcoin network provides pseudonymity, once a Bitcoin address is associated with an individual's identity, it leaves a digital trace that could lead to government or criminal seizures or attacks on personal assets.
To solve this problem, the industry has proposed a variety of privacy-enhancing technologies and challenges. One way to do this is to upgrade the Bitcoin Core protocol, introducing technologies such as Taproot upgrades aimed at improving transaction privacy and efficiency. However, the implementation of these technologies requires network-wide consensus and may face regulatory resistance.
The future fate of privacy coins is uncertain, and the encryption market is in urgent need of balance
With the proposal and implementation of the EU (Market in Crypto Assets Act) (MiCA), the future of privacy coins has become even more uncertain. Many countries have begun to follow suit and strictly regulate privacy coins. Major cryptocurrency exchanges, such as Kraken, Huobei, Binance, and OKX, have all removed privacy coins, leaving users unable to access these assets through fiat currency and unable to use them at merchants.
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This series of events demonstrates that many governments view financial privacy as something beyond a natural human right. Although Bitcoin has always remained transparent due to its proof-of-work mechanism, as it gradually enters the mainstream financial market, whether it should further improve its privacy has become a focus of discussion in the industry.
Ultimately, the crypto community needs to find a balance between privacy and regulation. On the one hand, users want to protect their financial privacy; on the other hand, the government hopes to prevent illegal activities through regulation. The key to the future lies in whether technological innovation and policy coordination can be used to maximize the interests of both parties and ensure the healthy development of the cryptocurrency market.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
