Privacy-enhancing coins are a way to comply with GDPR as well as a protection of the innate right to privacy. Can they also comply 100% with regulatory requirements?
With TornadoCash being drawn into the public arena with the arrest of one of its founders under national security concerns, and with the even more public collapse of Sam Bankman-Fried’s FTX empire, lawmakers and regulators have been under pressure to do something about it.
Privacy-enhancing coins are already very much under the gaze of the regulators, and given the current political environment, governments just might seek to ban them.
The role of privacy-enhancing coins
Much against what many commentators are saying about the cryptocurrency sector, blockchain technology is transparent and open by definition. All transactions that were ever made are time stamped and logged on the blockchain.
However, that isn’t always a good thing. Not everyone wants their entire history of transactions to be open to the seller when they pay for any goods, especially if they might include delicate financial transactions or payments for an embarrassing medical procedure for example. None of your bank transactions are public information either.
The simple fact that one’s entire transaction history is on view will surely lead to bad actors targeting individuals. It is for this reason that privacy protocols like Dusk Network have the dual focus of privacy for the individual on the one hand, and regulatory compliance on the other.
Dusk Network believes that regulated DeFi, together with the privacy system it is building, can become the building blocks of how finance is done going forward.
Will the EU ban privacy-enhancing coins?
It must be an extremely hard life for regulators and lawmakers in the current break-neck speed environment of crypto, blockchain, and other associated technologies. Keeping up with the technology would require far more than just an average understanding of the space.
Probably lacking the deep knowledge to engage with the technology, regulators seem to be inclining towards making it impossible for anyone to conceal their financial activities, whether they be legal or otherwise. Their argument is that privacy-enhancing protocols can hide money laundering and other such activities.
Fraudsters use cash for their illegal activities far more than they might use crypto, especially given the trail they can leave. But nobody is talking about banning cash, even though it is the main way to transact in drugs and just about any other illegal activity.
What is known about the EU proposal?
Part of the draft regulation includes the following:
“Credit institutions, financial institutions, and crypto-asset service providers shall be prohibited from keeping …anonymity-enhancing coins”
This suggests that centralised exchanges will not be able to list privacy-enhancing coins. The proposed regulation also states that any transaction under 1000 EUR would need to have a KYC, and that any transaction over 1000 EUR cannot remain private.
This would mean that even without the restrictions on privacy-enhancing coins, there would be no privacy, leading to user accounts being doxxed.
Where Dusk Network comes in
Dusk Network has its main goal to provide the financial ecosystem with a protocol that retains the privacy of the individual while at the same time complying 100% with regulatory requirements.
While using cutting edge zero-knowledge technology, Dusk Network is of the view that privacy is an innate right as well as a necessity if mass adoption of cryptocurrency and blockchain technology is to take place.
Dusk also posits that European GDPR rules currently make it impossible for blockchains to meet them, given that the ledgers are public, and the data on them is immutable. Therefore, the only way to meet GDPR compliance is to approve the type of privacy that Dusk Network can provide.
Dusk Network is building into its protocol regulated DeFi that is compliant with KYC rules. Those who use the protocol will have carried out KYC but this will be kept private during transactions thanks to the use of zero-knowledge cryptography.
How it works is that if an individual tries to transact with an entity that has particular sanctions against it, then the protocol will not allow the transaction to take place, so the only way for an individual to carry out transactions is by doing them in full compliance, and the protocol will mathematically ensure that this happens.
What next for Dusk?
From the standpoint of Dusk Network, the sooner that rules and regulations are in place, the better. Without hard and fast regulations the current environment is shifting beneath the feet of the entire crypto and blockchain sector.
Until that time Dusk Network has stated its aim of continuing to work on educating institutions and the authorities on the tech that it offers. The way that its technology is designed, auditors will have no problem in ensuring that full compliance is achieved.
Institutions will be able to use Dusk Network’s platform in the full knowledge that they will be doing so in full compliance with the latest rules and with no danger of accumulating any penalties.
Individual users will have the same satisfaction of knowing that they retain full control over their assets and can transact with the knowledge that their transaction history is hidden from view.
Dusk Network is optimistic for the future and believes that RegDeFi is the way to go. Regulation will be applied across the crypto sector and Dusk Network means to continue building out its technology so that users can be fully compliant and take advantage of its innovations in order to fully retain their privacy.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.