While the world has grown increasingly connected, privacy has continued to erode. For many libertarians and users of cryptocurrency Bitcoin does not offer enough privacy. This is why tokens such as Monero (XMR) and zCash (ZEC) have made privacy their number one priority.
Tokens such as Monero make transactions more difficult trace by using Ring signatures and stealth addresses. These methods help to hide the identities of both the sender and the receiver. Large scale adoption due to a number of issues such as:
- Regulatory uncertainty
- Privacy in question
- Increase in competition
In an effort to avoid becoming irrelevant, there are efforts being made which will hopefully allay these above fears.
Regulatory uncertainty has hung over privacy coins from day one. As a result, cryptocurrency markets have seen various high profile exchanges decide to delist privacy-centric projects over the past few years. The most common occurrence of this has taken place in Japan, as the nation’s regulators have made a concerted effort to do so.
In these instances, the greatest strength of these projects has also become their greatest weaknesses. If these projects are to survive, there needs to be a clear path forward, in which they can continue to operate while placating regulators. Developers have recognized this hurdle and decided to do something about it.
These efforts are expected to result in the completion, and release, of a new whitepaper. This whitepaper, being completed in conjunction with developers behind Monero, Tari Labs, and law firm Perkins Coie, will be titled ‘The Fundamentals and Regulation of Privacy-Enabling Cryptocurrencies’. As its title implies, this new whitepaper will serve as a guideline for exchanges to follow, allowing for privacy based projects to be listed in a regulatory compliant manner.
Although the whitepaper has yet to be released, early commentary from involved individuals sounds promising. Louis Willacy, of Tari Labs, recently stated, “While the authors support their findings with exhaustive research and detailed analysis, the whitepaper’s core conclusion is deceptively simple: Regulated financial institutions can comply with AML obligations when supporting privacy tokens. Period.”
The whitepaper, which is expected to be released any time now, is a potentially massive boon for, not only Monero, but all coins of similar build.
Coinbase Will Not List
Coinbase is a prime example of why the upcoming whitepaper is an important step. Arguably the most well-known company associated with cryptocurrencies is Coinbase. Its CEO, Brian Armstrong, recently shared his thoughts on Monero. He indicated that while he would have no issue supporting the asset, this will not occur as it stands, due to regulatory uncertainty in the U.S. It is this very issue which the forthcoming whitepaper looks to address.
Armstrong stated, “Privacy coins are the next topic, one of the next on the horizon, among many. (The regulators) are very concerned, so we haven’t been able to list it at least in the way we want for those reasons. But, I think with enough time and vision, the regulators will be comfortable with that. Then, there will be another new issue on the horizon that will concern them.”
While those hoping to see privacy coins like Monero of zCash soon listed on leading exchange, Coinbase, might be out of luck, the pending whitepaper will, hopefully, be able to sway decisions such as these – and in doing so, ramp up the adoption of privacy-centric projects.
Not So Private
Fears surrounding the use of privacy coins may not always be an issue though. Through the use of artificial intelligence, the ‘Russian Federal Financial Monitoring Service’ is in the midst of attempting to develop a new analytics tool. This tool is being developed with the goal of reducing illicit activity, through the tracing of transactions on privacy based protocols – such as Monero, Dash, and more.
People turn to privacy coins for just that, privacy. If you remove this attribute, the appeal to these coins is lost. If Russia can truly track coins, such as Monero, other will surely follow suit, bringing forth their demise.
Not all privacy coins are created equal. Some utilize suspect measures to achieve privacy, some provide the ability to toggle privacy features, while others are robust and private on a permanent basis. Regardless of which category a privacy coin falls in to, it may be in trouble.
When thinking of privacy coins, there are a few which immediately come to mind – Monero, zCash, Dash. This list may soon begin to grow, as various other projects implement network upgrades.
Another battle, which will eventually need to be fought by privacy coins, is this increase in competition. As it stands, they are able to exist because they offer something that popular currencies like Bitcoin cannot – anonymity. If this advantage is removed, why use these projects at all?
Developers behind products such as Litecoin (LTC), GRIN, and others, are actively working to support privacy. This is being done through the development, and implementation, of a network upgrade known as ‘Mimblewimble’.
While the inner-workings of Mimblewimble may be complex, their effect will be simple – it will allow these projects to steal users and marketcap from the aforementioned, more traditional, privacy projects.
All of these points, good or bad, will continue to affect adoption of privacy coins. There are other factors at play however, which may help certain projects catch the eyes of investors.
For those that follow cryptocurrency markets, we’ve all seen what a ‘halvening’ event can do for a project. These events are typically associated with projects utilizing proof-of-work protocols, such as Monero and zCash.
In recent months, Monero has seen its standing within the market drop to 15th, overall. Later this year, the project potentially stands to drop even further. This would be because rival, zCash, will be undergoing a halvening in the fall of 2020, drastically reducing its rate of inflation. Such an event could entice Monero users to switch to zCash in anticipation of potential gains.
If this does occur, will zCash be able to leapfrog Monero as the most popular privacy coin?
Monero was once a top-ten respected cryptocurrency. While it may still be regardless as a fantastic project, and the crème de la crème among privacy coins, it has been unable to hold its grasp on a top ten spot.
Due to various controversies, such as those discussed here today, involving Russia, Coinbase, and exchange delistings, it now finds itself with a tenuous grasp on the 16th spot on Coinmarketcap.
Despite this drop among CoinMarketCap rankings, Monero network participation remains near all-time highs when measured by hash-rate.