government

US Treasury issues framework addressing engagement on crypto with foreign regulators

The Treasury report was required under President Joe Biden’s executive order on digital assets issued in March.

The United States Department of the Treasury has delivered to President Joe Biden a framework on crypto for U.S. government agencies to work with their foreign counterparts.

In a Thursday announcement, the U.S. Treasury said it had reported on a regulatory framework for cryptocurrencies in consultation with the Secretary of State, the Secretary of Commerce, the Administrator of the U.S. Agency for International Development and other government agencies as required by President Biden’s executive order on digital assets issued in March. According to the Treasury Department, the framework aimed to encourage the development of digital assets while respecting “America’s core democratic values” and ensuring the stability and safety of the global financial system and international monetary system.

President Biden’s executive order required the Treasury Department to lead an interagency effort in developing policy recommendations for mitigating risks associated with crypto. The government department cited the need for “international cooperation among public authorities, the private sector, and other stakeholders” given the potential risks to investors with “uneven regulation, supervision, and compliance across jurisdictions.”

“Inadequate anti-money laundering and combating the financing of terrorism (AML/CFT) regulation, supervision, and enforcement by other countries challenges the ability of the United States to investigate illicit digital asset transaction flows that frequently jump overseas, as is often the case in ransomware payments and other cybercrime-related money laundering,” said the Treasury report.

In terms of international cooperation and coordination, the Treasury Department said it would engage with policymakers and regulators at the G7 on issues related to digital assets, including central bank digital currencies (CBDC), integrating new technologies into the international monetary system. The United States will also work with G20 member countries to identify potential risks to financial stability due to digital assets, push for crypto regulations, and consult with members regarding “macro-financial challenges.”

Related: California governor issues blockchain executive order building on US President’s regulatory efforts

Other regulatory bodies the U.S. will use for engagement and coordination of crypto-related policy included the Financial Stability Board, Financial Action Task Force, Organization for Economic Cooperation and Development, International Monetary Fund, Federal Reserve Board forums for central banks at the Bank of International Settlement, the World Bank and other Multilateral Development Banks:

“The United States will explore opportunities for joint experimentation on digital assets technologies, market innovations and CBDCs, with this core set of allies and partners to increase our shared learning about ways to develop systems that meet our shared policy objectives.”

Announced in March, President Biden’s executive order aimed to establish a unified national policy on cryptocurrencies by requiring coordination and consolidation among U.S. government agencies and departments. In addition to Treasury’s recommendations on a regulatory framework, the order requests the Federal Reserve to research the development of a central bank digital currency. In June, as part of its obligation under the executive order, the Justice Department released a report on how it might “strengthen international law enforcement cooperation” over the illicit use of digital assets.

UK prime minister announces departure following mass resignations

Many outlets have reported Rishi Sunak could be one of the possible replacements for Boris Johnson, suggesting that crypto regulations could be central to the government’s agenda.

Boris Johnson, who has been the prime minister of the United Kingdom since 2019, said he will step down as leader of the country’s Conservative Party but will remain head of state until a replacement has been found.

In a speech in front of 10 Downing Street in London on Thursday, Johnson said “it is clearly now the will of the Parliamentary Conservative Party, that there should be a new leader of that party and therefore a new prime minister,” with a transition timetable set to be announced next week. The prime minister added that he would remain in government, as would recently-appointed cabinet members, to serve until the party decided on a new leader.

Many in Johnson’s government and opposing political parties had called for his resignation following reports the prime minister knew former deputy chief whip Chris Pincher had allegedly groped two men but chose to promote him to a senior position. This week, Chancellor of the Exchequer for the United Kingdom Rishi Sunak and Economic Secretary to the Treasury John Glen both announced they would be leaving their positions in Johnson’s cabinet in response to his handling of the allegations, as did more than 50 members of parliament before the prime minister’s speech on Thursday.

Nadhim Zahawi, a member of parliament for Stratford-on-Avon since 2010, has taken over for Sunak as chancellor of the Exchequer. At the time of publication, the U.K. government had not announced a replacement for Glen, who said in his resignation letter that “vital reforms” to the country’s financial services were ready to be presented to parliament.

Under Johnson, who took office three years ago, the U.K. government and regulatory agencies adopted many policies largely favorable to crypto firms, but also addressed possible risks and misuse of the innovative technology. The country’s Advertising Standards Authority banned many crypto companies from advertising in public spaces, citing the need to warn investors of volatile crypto prices.

The U.K. Treasury Department has also made pushes to incorporate stablecoins used as a means of payment into the country’s existing regulatory framework, working with the Financial Conduct Authority, the agency responsible for permitting firms to “carry out crypto asset activities.” At the time of publication, the FCA has approved 35 companies to operate in the U.K. in compliance with Anti-Money Laundering and Combatting the Financing of Terrorism regulations.

Related: UK government targets crypto in latest legislative agenda

It’s unclear how the change in leadership in the U.K. government could affect these policies going forward. Many reports have put forth Sunak as one of the possible replacements for Johnson, suggesting that pro-crypto regulations could remain at the forefront of the government’s agenda — the former chancellor of the Exchequer was behind many proposed reforms promoting the adoption of cryptocurrencies and stablecoins.

Crypto owners banned from working on US Government crypto policies

A new legal advisory notice from the US Office of Government Ethics prohibits any employee who owns cryptocurrency from working on Federal crypto regulation.

US government officials who privately own cryptocurrencies are now banned from working on regulations and policies that could affect the value of digital assets.

A new advisory notice released by the US Office of Government Ethics (OGE) on Tuesday stated that the de minimis exemption — which allows for the owners of securities who hold an amount below a certain threshold to work on policy related to that security — is universally inapplicable when it comes to cryptocurrencies and stablecoins.

“As a result, an employee who holds any amount of a cryptocurrency or stablecoin may not participate in a particular matter if the employee knows that particular matter could have a direct and predictable effect on the value of their cryptocurrency or stablecoins.”

The notice provided an example scenario whereby an employee who owns a mere $100 of a certain stablecoin, is asked to work on stablecoin regulation — the employee in question cannot participate in work concerning regulation “until and unless they divest their interests in [that] stablecoin.”

The notice specified that this ruling still applies even if the cryptocurrency or stablecoin in question were to ever “constitute [a security] for purposes of the federal or state securities laws.”

The new ruling applies universally to all federal government employees including The White House, The Federal Reserve and The Department of the Treasury.

The term “de minimis” comes from a longer Latin phrase, meaning: “the law does not concern itself with trifles.”

Related: Self-regulatory organizations growing alongside new US crypto regulation

The only exemption from the OGE’s crackdown on crypto ownership is that policy makers are allowed to hold up to $50,000 in mutual funds that invest broadly in companies that would benefit from crypto and blockchain technology. The reasoning for this exemption is because they “are considered diversified funds.”

Despite the seemingly harsh rules concerning employee investment in the crypto sector, the United States continues to move forward in integrating the cryptocurrency industry, with the US president Joe Biden announcing a “whole-of-government” approach to regulation concerning the digital asset sector.

According to Raymond Shu, the co-founder and CEO of Cabital, recent legislative proposals could make the U.S. one the only Western countries to fully regulate and accept stablecoins and other digital assets as official parts of the financial system.

Singapore’s financial watchdog considers further restrictions on crypto

The Monetary Authority of Singapore may consider “placing limits on retail participation” for investors, as well as introduce rules on the use of leverage for crypto transactions.

The Monetary Authority of Singapore, or MAS, has been “carefully considering” adding restrictions that could affect how retail investors handle crypto, according to one of the government’s senior ministers.

According to parliamentary records published on Monday, Singapore senior minister and MAS chair Tharman Shanmugaratnam said the financial watchdog may consider “placing limits on retail participation” for crypto investors as well as introducing rules on the use of leverage for crypto transactions. Shanmugaratnam also called for regulatory clarity among financial regulators around the world, “given the borderless nature of cryptocurrency markets.”

In January, the MAS barred crypto service providers from advertising or marketing in public spaces, and was behind regulations to shut down crypto ATMs in Singapore — services that seemingly show “cryptocurrency trading being portrayed in a manner that trivialises its risks.” According to the MAS, the country’s Payment Services Act empowers the regulator to impose additional restrictions on crypto service providers ”to ensure better consumer protection, and to maintain financial stability and safeguard the efficacy of monetary policy.”

The financial watchdog said that “recent events” — likely referring to extreme volatility in the prices of major cryptocurrencies including Bitcoin (BTC) — highlighted the risks of crypto investments. On June 30, the MAS reprimanded Three Arrows Capital for allegedly “providing false information and exceeding assets under management threshold.” The Singapore-based company may be facing liquidation amid reports it failed to meet margin calls from its lenders.

Related: Why Singapore is one of the most crypto-friendly countries

Amid the market downturn, the MAS continues to consider giving the regulatory green light to companies handling digital assets in Singapore. In June, the financial regulator granted Crypto.com an in-principle approval, allowing the crypto exchange to provide certain payment services in the country. Crypto companies including Bitstamp Limited, Coinbase Singapore and Gemini Trust have been granted exemptions for having a license in Singapore, while Binance announced plans to shutter its operations in the country in February.

Coinbase providing customer geolocation data to ICE: Report

The U.S. government agency is reportedly using Coinbase Tracer to access customers’ historical geo-tracking data and transactions on over a dozen cryptocurrencies.

A new report has indicated that crypto exchange Coinbase has provided Immigration and Customs Enforcement (ICE) agents with a “suite of features” intended for tracking the company’s customers. According to the report, ICE has been granted access to an intelligence-gathering application, called Coinbase Tracer, that provides a variety of forensic data tracking capabilities.

U.S. Immigration and Customs Enforcement is an government agency under the Department of Homeland Security. The primary purpose of ICE is to protect the country from cross-border crime and illegal immigration.

Coinbase Tracer’s intent is to assist ICE with tracing malicious and fraudulent transactions on blockchains. According to The Intercept, the tool will allow ICE agents to “connect addresses to real-world entities.”

An additional email released by the Freedom of Information Act has shown that ICE wasn’t required to agree to an End User License Agreement with Coinbase. An End User License Agreement is used to describe what users can and cannot do with a company’s software products. Purportedly, this means ICE is free to use the data tracking tool as it wishes with minimal restrictions.

When Coinbase was questioned about these developments, spokesperson Natasha LaBranche merely supplied a link to the company’s website with verbiage addressing the issue. The link on the Coinbase website states “Coinbase Tracer sources its information from public sources and does not make use of Coinbase user data.” The Coinbase spokesperson did not provide information regarding limitations on Coinbase Tracer’s use by ICE.

ICE’s access to Coinbase Tracer stems from a $1.36-million contract it signed with the crypto exchange in September 2021. At the time, the nature of the contract was vague and primarily consisted of Coinbase delivering “application development software as a service” to the agency. 

Related: Coinbase to shut down Coinbase Pro to merge trading services

Coinbase has been in the news a lot lately and for various reasons. As Cointelegraph reported, the exchange is seeking aggressive European expansion to broaden its footprint. Meanwhile, Goldman Sachs downgraded Coinbase stock to “sell” on Monday following a more than 80% correction.

Integrating blockchain-based digital IDs into daily life

Blockchain tech is pushing the boundaries of ID management as governments look for scalable solutions that promote privacy, control and decentralized data management.

The last 13 years have seen blockchain technology evolve into numerous use cases — finance, data, logistics and security, among others. However, the idea of using blockchain’s immutable capabilities to ID humans got new life when Changpeng “CZ” Zhao visited the island country of Palau to kick off its digital residency program. 

The blockchain identity management market is estimated to grow by $3.58 billion in the span of five years from 2021 to 2025. Key factors include the rising demand for digitalization and privacy-respecting identity solutions. As a result, a myriad of solutions breached the market serving this need in the form of nonfungible tokens (NFT), distributed ledger technology (DLT) and barebone blockchain technology.

Considering the plethora of use cases that blockchain can serve on a day-to-day basis, numerous government organizations began experimenting with the technology — weighing heavily on central bank digital currencies (CBDC) and verifiable and immutable user identity.

Problems with traditional IDs

Correctly identifying — or ID-ing — an individual has always been paramount to governments to ensure targeted delivery of services and allowances, among other requirements, which holds true to this day. However, ongoing advancements in technology empowered the general public with tools to create IDs visually identical to the original. Given blockchain’s capability to store immutable records, authorities see the technology as a fighting chance against fraud related to ID theft and fakes. 

With traditional paper-based IDs comes the difficulty of confirming their legitimacy across different systems. History has shown how people successfully use fake ID cards to claim unauthorized access to a myriad of benefits. However, technological advancements such as blockchain have provided authorities with the opportunity to issue verifiable certificates and IDs while ensuring scalability, speed and security of the identity management system.

Efforts on this front saw the rise of a new ecosystem comprising various blockchain-based digital ID offerings. For example, Shubham Gupta, an Indian Administrative Service (IAS) officer, recently spearheaded the launch of a Polygon-based system for issuing verifiable caste certificates on behalf of the government of Maharashtra.

Speaking to Cointelegraph, he said, “if identity management systems have to be rated on a scale of 0 to 1 based on decentralization and individual control, traditional centralized ID systems will be on the far left and fully self-hosted, public blockchain-based IDs on the extreme right.”

Forms of blockchain-based digital IDs

While blockchain technology can and has been used as-is for maintaining immutable records over the internet, innovations spanning over the last decade resulted in the birth of sub ecosystems around the use of blockchain technology. 

“The idea of blockchain-based digital IDs has been floating around for quite a while but came into the limelight with the recent NFT boom,” blockchain adviser and Bundlesbets.com CEO Brenda Gentry told Cointelegraph.

An Italian electronic identity document.

While NFTs were first marketed as a tool to represent real-world objects including intellectual and physical assets, the technology found itself well-suited for a variety of applications. Recently, government organizations have begun testing NFTs for ID-ing citizens as means to reduce operational costs.

“Wide-scale implementation of blockchain-based digital IDs — like issuance of national identity cards such as passports and driving licenses — takes time but I strongly believe that is the destination that the world should move toward,” Gentry added. In addition to helping authenticate people, blockchain technology discourages counterfeiting, tampering or identity theft attempts.

Citing the involvement of luxury brands and artists that promoted the use of NFTs to authenticate the legitimacy and ownership of a product or art, Gentry opined that “luxury items can be checked for their authenticity on-chain which completely eliminates the chance of owning a counterfeit product.”

Recent: Uganda’s gold discovery: What it could mean for crypto

Neil Martis, the co-founder and project lead of LegitDoc, which is known in the space for delivering numerous blockchain-based certificates and ID solutions to the state governments of India, envisions a greater adoption of public blockchain-based ledgers over the next decade. Web3-native decentralized IDs will play an incremental role in identifying users and authenticating them to participate in different types of Web3 native transactions.

Benefits of blockchain-based digital IDs

While blockchain’s elevator pitch is heavily inclined toward immutability, the technology boasts multiple advantages over traditional software and paper-based systems. The opinions regarding the benefits of blockchain boil down to the control over personal information.

Self-sovereignty stands as one of the biggest benefits of blockchain-based digital IDs, according to Martis. This means that blockchain empowers users to share partial or selective information with their service providers instead of handing over their complete identity.

With blockchain-based IDs eradicating the misuse of information, experts envision the birth of a truly trustless system without the involvement of third parties. Gentry, too, reiterated verifiability, traceability and uniqueness as some of the major benefits brought about by blockchain, as she highlighted that blockchain IDs cannot be duplicated because it’s on the distributed ledger. “All the Digital ID can be verified on the blockchain and can be traced back to the owners’ account which can also be used for Know Your Customer,” she added.

Limitations of blockchain-based digital IDs

Mainstream acceptance of blockchain-based digital IDs will ultimately have to mean overcoming the most pressing challenges that threaten to hinder its adoption. Some of the roadblocks that stand out in the current landscape include a lack of education among the masses and a supportive regulatory environment.

On the education front, Gentry has noticed a fast-changing scenario brought about by mainstream discussions and widespread adoption of the technology. However, the creation of pro-crypto regulations will need greater intervention from industry players to help countries and institutions get onboarded onto the blockchain network.

Martis concurred with Gentry’s thoughts on regulations as he highlighted that blockchain IDs, no matter how decentralized, will need attestation or recognition by the issuing authorities. He added: “if the issuing authorities don’t recognize the validity of the blockchain IDs, then the same cannot be used for availing a majority of public services. This in my opinion is the biggest limitation.”

Blockchain of choice for ID-ing people

Given that a majority of real-world identity systems are under the purview of governments and sovereigns, Martis envisions greater adoption of permissioned distributed ledger networks for issuing Identities that require government services.

Gentry noted that choosing the perfect blockchain for IDing people or goods will require weighing the unique advantages and limitations of the various blockchain ecosystems. While highlighting the existing concerns such as Ethereum’s gas fees or Solana’s infamous outages, the blockchain advisor suggested that Binance’s BNB Chain is the perfect choice of blockchain because of its high transactions per second and low latency and fees.

Recent: Bitcoin payments make a lot of sense for SMEs but the risks still remain

Speaking from personal experience, Gupta shared that Indian state governments tend to choose a middle ground wherein instead of a single authority fully in control of citizen identities, a group of independent departments will share a common distributed ledger that hosts citizen identities, anchored periodically on a public blockchain.

The Maharashtra government is currently working to deploy a scalable blockchain-based ID system for a tribal population of 1.2 million. Martis explains that the IDs created will be used by various departments to perform analytics and identify the right beneficiaries for various national schemes.

Regardless of the challenges that slow down blockchain adoption across business verticals, the advantages of the technology make its dominance inevitable. Government organizations and private entities have amped up efforts in uncovering futureproof fintech solutions via blockchain innovations. Blockchain disruptions that are well-positioned to go mainstream in addition to identity management include localized CBDCs, supply chain solutions and cross-border settlements.

Decentralized identities or DIDs (decentralized identifiers) have yet to see wide-scale implementation. According to Martis, they should be settled or issued by highly decentralized public blockchains that are outside state control, adding that “Bitcoin and Ethereum stand out as the obvious choices in this regard.” 

US govt delays enforcement of crypto broker reporting requirements: Report

The reporting requirements, aimed at reducing the size of the tax gap, were scheduled to take effect in January 2023, with crypto firms sending reports to the IRS starting in 2024.

The provision in the U.S. infrastructure bill signed into law in November, which will require financial institutions and crypto brokers to report additional information, could reportedly be delayed.

According to a Wednesday report from Bloomberg, the United States Department of the Treasury and Internal Revenue Service may not be willing to enforce crypto brokers collecting information on certain transactions starting in January 2023, citing people familiar with the matter. The potential delay could reportedly affect billions of dollars related to capital gains taxes — the Biden administration’s budget for the government for the 2023 fiscal year previously estimated modifying the crypto tax rules could reduce the deficit by roughly $11 billion.

Under the current infrastructure bill, Section 6050I mandates that crypto brokers handling digital asset transactions worth more than $10,000 report them to the Internal Revenue Service with personal information likely including the sender’s name, date of birth and social security number. The requirements, aimed at reducing the size of the tax gap, were scheduled to take effect in January 2023, with companies sending reports to the IRS starting in 2024.

“Delaying is smart,” said Jake Chervinsky, head of policy at the Blockchain Association, in response to the news. “We’re getting closer & closer to the effective date of the infrastructure bill’s tax provisions & we’re still waiting for guidance or rulemaking on implementation.”

Related: Crypto miners exempt from IRS reporting rules, US Treasury affirms

Since the passage of the $1 trillion infrastructure bill, many industry experts and lawmakers have suggested the crypto broker reporting requirements are overly broad, placing an undue burden on individuals who may not have the necessary information on transactions. In June, crypto and blockchain advocacy group Coin Center filed a lawsuit against the Treasury Department, alleging the tax reporting requirement could “impose a mass surveillance regime on ordinary Americans.”

US Air Force taps SIMBA Chain to develop budgeting and accounting system

They said the purpose of DiBaT is to convert all dollars in the USAF supply chain budget into tokens and monitor fund movement across billing centers, purchasing centers and suppliers.

For many years, the United States Military has been experimenting with blockchain in a number of settings to enhance its operations. Now, the U.S. Air Force (USAF) is adopting blockchain into its budgeting and accounting processes.

According to a Thursday press release, the USAF has enlisted SIMBA Chain, a blockchain-as-a-service platform, to develop a blockchain-based system for tracking and monitoring the military’s cash flow and supply chain quality and management. The goal of the project, dubbed Digital Blockchain Budgeting Accountability and Tracking (DiBaT), is to tokenize all dollars within the USAF supply chain budget, as well as track fund movement across billing centers, purchasing teams and suppliers.

DiBaT, as per the release, uses SIMBA Blocks to track and audit funds in a secure, zero-trust, tamper-proof blockchain that allows USAF management to view where money is being utilized and how it is presently positioned within the allocation and payment system. It will also increase supply chain visibility and transparency in the materials purchased.

Speaking with Cointelegraph, Joel Neidig, co-founder and president of SIMBA Chain, said that the firm and the US Air Force anticipate the project will have a beneficial influence on transparency and efficiency while also assisting them in determining the return on investment from items they acquire frequently. He added that:

“We have been working with Air Force for the past 4 years on various implementations, we are excited to move out of the pilot and proof of concept phases to more production environments. Air Force is definitely the leader in blockchain adoption for DoD.”

Related: US Air Force files trademark application for ‘SpaceVerse’ initiative

The United States military is made up of six branches: the Marines, Coast Guard, Army, Navy, Air Force, and Space Force. Half of these branches have previously announced major plans to utilize blockchain technology or other forms of digital assets.

In 2019, the USAF selected SIMBA Chain to help secure its supply chain and also partnered with blockchain big data management startup Constellation. The U.S. Navy awarded Consensus Networks a $1.5-million contract in November to create a blockchain-based logistics system called HealthNet. Last year, Space Force said that it would release nonfungible token versions of patches and coins specifically tailored for the launch of one of its spacecraft.

Regulations and exchange delistings put future of private cryptocurrencies in doubt

At a time when privacy tools and coins have become the primary target of regulators around the world, the future of privacy-focused coins looks obsolete.

The core principles of cryptocurrency were based on financial independence, decentralization and anonymity. With regulations being the key to mass adoption, however, the privacy aspect of the crypto market seems to be in jeopardy.

In 2022, even though no particular country has come up with a universal regulatory outline that governs the whole crypto market, most countries have introduced some form of legislation to govern a few aspects of the crypto market such as trading and financial services.

While different countries have set different rules and regulations in accordance with their existing financial laws, a common theme has been the strict implementation of Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

A majority of crypto exchanges operating with a license obtained from the government body or government-affiliated bodies have discouraged any form of anonymous transactions. Even in countries where there is no particular law on privacy coins, there is a ban on private transactions over a certain threshold.

The governments of the United States and the United Kingdom have also demanded regulatory action against the use of coin mixing tools, a service used to obscure the origin of a transaction by mixing it with multiple other transactions.

Coinjoin, a popular crypto mixing tool, recently announced they would block illicit transactions amid-regulatory heat.

Related: Crypto mixers’ relevance wanes as regulators take aim

The recent delisting of Litecoin (LTC) by several crypto exchanges in South Korea owing to its recent privacy-focused MimbleWimble upgrade is another example of how the privacy aspect of the cryptocurrency is the first to fall on the road to regulatory acceptance. Apart from South Korean exchanges delisting LTC, many global exchanges including Binance and Gate.IO also refused to support transactions using the MimbleWimble upgrade.

Most regulations focus on making cryptocurrencies more transparent so that consumers and businesses feel at ease with them. This may be good news for institutional and corporate investors, but it could be a blow for privacy-focused coins.

At a time when regulatory oversight is at its highest, there is a special threat to privacy coins such as Monero (XMR) and ZCash (ZEC), which are already banned on several leading exchanges. However, experts believe that despite the ongoing case against privacy coins, people will continue to use them.

Privacy tokens are a red flag for many regulators, who often prefer that blockchain transactions are auditable, verifiable and take place on a public chain.

Under regulatory scrutiny around the world

Privacy coins obscure the key identifiers of transactions such as the address of the sender or receiver, a feature that regulators believe could be misused by miscreants. Even some nations like Japan, which was once seen as the leading country in terms of progressive crypto regulations, decided to do away with privacy coins.

Japan banned the use of privacy-focused cryptocurrencies in 2018, after which several registered crypto exchanges in the country delisted privacy coins from their platform. Similarly, South Korea has not just banned privacy coins, but any form of private transactions is prohibited on Korean crypto exchanges.

In the United States, privacy coins remain legal. However, the Secret Service recommended that Congress regulate privacy-enhanced cryptocurrencies.

In August 2020, Australian regulators forced many exchanges to delist privacy coins. The Financial Action Task Force (FATF) has similarly listed the use of privacy coins as a potential red flag for money laundering through virtual assets.

Some cryptocurrency exchanges have also stopped offering privacy coins as a result of AML guidance. In January 2021, Bittrex, the eighth largest cryptocurrency exchange by volume, announced that it would drop Monero and Zcash from its platform. Kraken, the fourth largest exchange, delisted Monero in the United Kingdom in November 2021 following guidance from the United Kingdom’s financial markets regulator.

Ankit Verma, chief investment officer at crypto investment platform Mudrex, told Cointelegraph:

“While some exchanges periodically prohibit trading privacy coins, most of the largest privacy coins are currently available for trading across major exchanges in different jurisdictions. Yet, the institutional skepticism around the adoption of privacy coins persists. It is difficult to predict the usage of privacy coins on a wider scale primarily because of the strict enforcement of KYC and AML guidelines. Our belief is the absence of institutional affinity for privacy coins combined with the fact they are unregulated further dampens the possibility of widespread adoption of privacy coins.”

Regulatory pressure has mounted to such a level where even privacy features of particular cryptocurrencies come under scrutiny, even if the crypto itself is not solely focused on privacy. Thus, experts believe the real winners will be those who combine the best of privacy and regulatory compliance. 

Fennie Wang, CEO at Humanity Cash — a community-based currency development platform — told Cointelegraph:

“The winners will be protocols that balance between user privacy and regulatory compliance using a combination of cryptographic techniques and sound policy translation. Decentralized identity primitives alongside zero-knowledge Proofs, homomorphic encryption and multi-party computation will be central to this equation.”

Can privacy coins survive the regulatory onslaught?

Privacy coins remain a gray area in several countries where they are not banned but governments have discouraged their use.

Chris Kline, chief operating officer at Bitcoin IRA — a crypto retirement plan provider — believes privacy coins can co-exist despite the current regulatory downturn. She explained:

“Privacy coins can co-exist in a regulatory environment. This coexistence will take place alongside new rules and challenges as the CFTC takes the lead on standards ahead.”

Many other experts believe that, while privacy coins will find it hard to get regulatory approval, regulators will become more sophisticated toward privacy coins and bring them under their regulatory purview.

Nikos Kostopoulos, a blockchain adviser at European Union IT infrastructure firm NetCompany, told Cointelegraph:

“While it is foreseen that privacy coins might not have a position in regulated cryptocurrency exchanges, the privacy coins will not be evaporated from the market cap, but rather will find audiences and venues where privacy is fundamental while regulators will become more sophisticated towards their approach to privacy coins — for example with imposed KYC/AML once there is a transaction with fiat currencies or cryptocurrencies.”

Recent: Consensus 2022: Web3, unpacking regulations, and optimism for crypto’s future

Privacy is still a key concern for many in the crypto community, and this concern is amplified when it comes to sensitive information such as financial transactions. This is why privacy coins are so important for preserving and securing users’ interests. They ensure that sensitive user data is not accessible to just anybody and that transactions are conducted privately. Some privacy coins such as Zcash and Dash (DASH) let users choose whether or not to encrypt their transactions, giving them complete control over their data.

Multiple reports have shown that less than 1% of crypto transactions account for criminal activity and cash still remains the currency of convenience for criminals. Given all these positives of privacy coins, declaring a full ban on them might cause a threat to user privacy and, ultimately, the underlying technology.

CAR president urges citizens to understand Bitcoin to bring long-term prosperity

For the past few weeks, the crypto market has been in a tailspin. While other investors may have given up on BTC, its ardent supporters continue to extol its virtues.

Despite the cryptocurrency market’s prolonged bearish trend, some of its most ardent supporters have not been discouraged. This includes the president of the Central African Republic (CAR), who remains bullish on Bitcoin (BTC) and crypto.

In a tweet shared on June 14, President Faustin-Archange Touadéra reaffirmed his country’s decision to make Bitcoin legal currency. He stated that “Understanding Bitcoin is crucial to acknowledge its disruptive power to bring long-term prosperity,” adding that:

“Mathematics doesn’t account for human emotions. Future generations will look behind at these very moments to [celebrate] our strength & unity in choosing the right path during hard times.”

Currently, the cryptocurrency market is facing one of its longest and deepest bear markets in history. BTC, the world’s largest digital currency by market capitalization, is down by almost 70% from its all-time high of $68,789 reached in November 2021 according to data from Cointelegraph Markets Pro. The term ‘hard times,’ as used by the President, refers to the recent crypto market downturn, which has harmed all digital assets and resulted in a total market capitalization loss of $370 billion over the course of a single week.

In late April 2022, the CAR government officially recognized Bitcoin as legal currency after passing a bill regulating digital assets in the country. The move made the central African nation the second country to recognize BTC as legal tender after El Salvador did so in Sept. 2021.

Related: ‘Nothing issue’ — MicroStrategy CEO plans to hodl Bitcoin ‘through adversity’

According to the World Bank, CAR is one of the poorest countries in the world, with a GDP of about $2.4 billion. The country has been beset by political instability and violence for years, making it difficult for residents to access banking services and leading many to turn to cryptocurrency as an alternative way to store value and make payments.

The CAR government’s decision to make Bitcoin legal currency was met with a variety of responses. The World Bank, for example, raised its concerns about the move and stated that it will not support the new “Sango” crypto hub launched in the country.