Dubai has recently announced plans to ban all privacy coins, following Japan, South Korea, and Australia. More countries will inevitably follow.
On Tuesday, the Emirate of Dubai announced plans to ban the issuance of “anonymity-enhanced cryptocurrencies” and all virtual asset activities “related to them.” At the moment, these restrictions will only apply to Dubai. It’s not clear yet whether these regulations will be extended throughout the other six emirates which make up the UAE.
The new regulations also lay out licensing requirements for crypto firms looking to operate in Dubai.
The news has already caused some consternation among privacy activists. These restrictions are the latest government measures to outlaw so-called anonymity-enhancing (or “privacy”) coins. Last November, leaked plans showed the EU was considering something similar. Japan banned privacy coins all the way back in 2018, South Korea followed suit in 2021. In 2020, regulatory pressure in Australia pushed privacy coins to the fringes.
Dubai has recently announced plans to ban all privacy coins.
What Exactly Is Being Banned?
Generally, these coins can allow transactions to be anonymous, private, and untraceable. Although each has different techniques that allow for different levels of privacy in certain contexts. Monero (XMR) uses a combination of stealth addresses and ring signatures to hide the identity of both the sender and recipient. Ring signatures involve mixing an authentic signature with decoys. All transactions on the Monero network are private by default.
Zcash (ZEC) uses shielded addresses and a type of zero-knowledge proof called zk-SNARKs to achieve privacy. However, the privacy element in transactions is optional.
Privacy coins are also some of the most established on the market, reflecting crypto’s long-held ideals of anti-censorship and surveillance. Monero (XMR) was launched in April 2014 as a fork of Bytecoin. Dash (DASH) was originally launched in January 2014 as XCoin, rebranded as Darkcoin, and finally renamed to Dash in March 2015, and Zcash (ZEC) was launched in October 2016. They currently rank 24th, 69th, and 63rd in terms of market capitalization.
In the current proposals, all of them would be outlawed. Although it’s unclear whether it would extend into other cryptos too. “This overlooks the reality that a vast majority of digital assets, including bitcoin, possess some level of anonymity-enhancing features, and many more digital assets are continually enhancing their privacy capabilities,” wrote the Electric Coin Company and Dave Weinstein in a blog post published on Wednesday. Electric Coin Company launched and supports the development of Zcash.
“This trend not only undermines the value of these assets but also the privacy rights of individuals and businesses. It is essential to recognize the crucial role that privacy features play in the digital asset landscape and take steps to preserve and enhance them.”
Dubai Ranks Low In Terms Of Privacy
Perhaps we shouldn’t be surprised. Unfortunately, the Arab state has a poor record regarding censorship and surveillance. An analysis by Freedom House puts the country’s “Global Freedom Score” at only 17/100. Its “Internet Freedom Score” was only slightly better at 28/100.
In 2016, the UAE banned the private messaging app, Signal. Voice over Internet Protocols (VOIP) like WhatsApp, Facetime, Skype, and Skype for Business are also prohibited. If there were going to be countries to ban privacy coins, Dubai (an emirate in the UAE) would be on a “not very surprised” list.
Dubai released new crypto regulations. Issuance of privacy coins are outlawed. Exchanges and firms must be licensed or risk up to $50k in fines. There goes any hope for Dubai as far as freedom goes, if that’s something you care about.
— Edmond Bugos (@ebugos) February 9, 2023
Privacy advocates in the blockchain space believe that Dubai won’t be the last. “I don’t know where next, but [laws banning privacy coins] will continue because, ultimately no state wants to let go of the power to control money, and [they] are incentivized toward wanting to more perfectly surveil and tax transactions,” says Douglas Tuman, the host of MoneroTalk and a former candidate for New York’s 4th congressional district.
“There will be some jurisdictional arbitrage that takes place where some nations will become safe havens but the big question is what will happen in the US, where it would be unconstitutional on multiple grounds to ban Americans from running open source code on their computers and communicating peer to peer. My answer, I don’t think it will ultimately be banned in the US. I think Monero, like PGP in the war against encryption in the 90s, will survive.”
The US is Unlikely to Ban Privacy Coins
Most countries do not have constitutional rights to use privacy coins. (Of course, neither explicitly does the US, but the legal argument is that an outright ban would conflict with the constitution in various ways. However, this would have to be confirmed in the courts.)
For those that don’t have American-style protections, the debate becomes how to track and prevent financial crimes. For many, privacy coins make activities like money laundering and organized crime too easy, and bans become the obvious answer.
Max Sapelov, CTO and co-founder at CoinLoan, who is a big fan of privacy coins (“particularly XMR”) is not surprised that regulators have taken this approach. By making all crypto privacy-oriented like Monero, regulators might restrict its mass adoption, he says. “However, I believe there should be more projects like Monero, as there is currently nearly no competition.”
“The core idea is that crypto does need regulation for higher-scale adoption, which is unavoidable, but it should be approached differently by regulators. Applying well-known techniques from traditional finance to the crypto industry and disregarding knowledge gained by regulated market players could significantly limit its potential.”
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