Educational Byte: Are Privacy Coins Like Monero and Zcash Legal?

They’re often (mis)used by malicious hackers and other cyber-criminals, so the question about their legality could come to mind easily. Privacy coins are cryptocurrencies designed to enhance user anonymity by hiding transaction details, such as the sender, receiver, and amount. Popular examples include Monero and Zcash, but there are more of them. The concerns about them are obvious: potential use in illegal activities, such as money laundering or tax evasion.

To be fair, that could also be perfectly done (and it is done) with traditional cash. Even with electronic fiat money, and with cryptocurrencies that aren’t privacy-focused. If criminals have a can-do attitude, they surely can accomplish their dark goals, no matter the tool involved. Privacy coins have legitimate use cases, of course, including protecting personal financial information, safeguarding against identity theft, enabling secure donations to sensitive causes, and facilitating private transactions in oppressive regimes.

That’s maybe why privacy coins aren’t illegal in most countries, per se. However, there are some exceptions and limitations.

Regulations on Privacy Coins

Privacy coins are subject to varying regulations globally, reflecting the balance between financial privacy and the need for security against illicit activities. While these cryptocurrencies remain legal in most of the world, countries like Japan, South Korea, and Australia have implemented restrictions, leading to the delisting of prominent privacy coins such as Monero and Zcash from some exchanges.

The European Union has also considered a comprehensive ban, highlighted by a draft anti-money laundering bill proposing that financial institutions and crypto service providers be prohibited from dealing with anonymity-enhancing coins. Mainstream exchanges like Kraken, Huobi and BitBay have acted on these regulatory pressures by ceasing support for privacy coins.

In the U.S., the government has taken a hard stance against privacy services, exemplified by sanctions imposed on Tornado Cash, a mixing service associated with money laundering activities. The Internal Revenue Service (IRS) has even invested in potential technology to de-anonymize privacy coins, reflecting a broader governmental commitment to transparency in cryptocurrency transactions.

Now, we have to say this: as long as transactions are made directly peer-to-peer (P2P), users are completely safe using these coins. Current bans apply to businesses, and not to individual users. Things get complicated when they touch centralized crypto exchanges, subjected to strict regulations worldwide. Especially about identifying their customers (KYC) —which, by the way, kills all the purpose of using privacy coins in the first place.

Blackbytes in Obyte

Blackbytes (GBB) is a privacy-focused currency on Obyte, designed to enhance transaction confidentiality. This token conceals recipient information and payment amounts on the public ledger and only transaction hashes are published, while sensitive data is shared via private messages. This approach allows users to verify the legitimacy of transactions without exposing the full history, thereby providing a higher level of privacy compared to public assets like GBYTE and other cryptocurrencies.

Blackbytes are legal and safe to use by individual users, since they were designed to be exchanged solely through peer-to-peer (P2P) transactions. This means that these privacy tokens don’t engage with centralized exchanges, which have faced increasing scrutiny and restrictions regarding privacy coins worldwide.

By focusing on a P2P trading directly from the Obyte wallet, Blackbytes can avoid the complicated landscape faced by other privacy coins worldwide. In many jurisdictions, while these tokens may face significant regulatory challenges, the operation of tokens like Blackbytes can continue without the same level of scrutiny, as they don’t require engagement with regulated financial institutions. This positioning may provide a path for privacy-focused cryptocurrencies to navigate the current legal landscape while maintaining user anonymity.

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