Binance was wrong to boot Monero, ZCash and other privacy coins

Aug 26, 2023

Binance betrayed our interests with its decision to delist privacy coins. In the long run, it may mean that users leave Binance in the dust.

Binance announced in May that it would delist so-called "privacy coins" such as Monero (XMR), Zcash (ZEC) and others in several countries, including France, Italy, Spain and Poland. The decision underscored the reality that some companies might step over their own feet to ban privacy tech — even where it is legal — out of a combination of risk aversion and compliance confusion.

Some Monero users have long advocated for keeping their tokens off exchanges, emphasizing that on-exchange transactions undermine user privacy by requiring personal identification data. And yet listing privacy coins on exchanges has its merits: It facilitates new user adoption, bolsters liquidity and contributes to price momentum.

European Union regulators recently enacted two significant crypto legal frameworks: Markets in Crypto-Assets rules and a Travel Rule. These mandates necessitate the collection of user data and identification information for withdrawal recipients. While these regulations might seem burdensome, privacy coin users and exchanges listing privacy coins can, in fact, comply.

Related: Are we still mad at MetaMask and ConsenSys for snooping on us?

Take Zcash, for instance. It offers a transparent send function and an option to privately share view keys in shielded transactions. Monero provides a similar view key feature. Discussions are underway among EU officials about a potential ban on privacy coins, but this is still in the early stages.

Binance's overreaction is not a result of any clear regulatory mandate, and its actions also seem internally inconsistent. It delisted Secret's SCRT governance token, which is not private itself but can be traded for a private coin. In contrast, Litecoin (LTC), which has a privacy feature, has not been delisted.

These actions from Binance might be less about European regulators’ demands and more about its unique circumstances. For instance, Binance is currently embroiled in a legal dispute with the Commodity Futures Trading Commission over alleged failures to uphold requisite Anti-Money Laundering measures.

Even in countries where privacy coins are banned outright, like the United Arab Emirates, savvy users can acquire them via virtual private networks to access peer-to-peer transfers or decentralized exchanges. Platforms like Sideshift.ai for Zcash and Bisq for Monero serve as gateways to these privacy coins. While such methods ensure privacy coins’ survival during prolonged periods of bans, they may slow the adoption among a broader user base who need crypto privacy tools for financial security and the exercise of their human rights.

The crypto industry should avoid creating its version of "Operation Choke Point," a practice where the U.S. government discourages banks from doing business with crypto clients due to regulatory pressures. Crypto exchanges should refrain from banning privacy coins when there's no legal obligation to do so, lest they create their own chokepoint.

Regulated exchanges manage to comply with U.S. Anti-Money Laundering laws — including Kraken, which lists Monero, as well as Gemini, which not only lists Zcash but allows customers to engage in shielded transactions on the platform.

Privacy tools in crypto are just that— tools. They are used by both everyday users and, in some cases, bad actors. But this doesn't mean the tools themselves are inherently bad. Just like cash or the internet, these tools can be used for both legal and illegal activities. It's important to differentiate between the tool and how it is used.

Related: Infura is to blame for MetaMask's violation of the crypto spirit

The crypto industry is still in its early stages, and it's crucial to establish a balanced regulatory environment that respects users’ privacy while also deterring and punishing illegal activities. Overly restrictive regulations could stifle innovation and discourage new users from joining the crypto space.

Privacy is a fundamental human right and an essential aspect of the crypto ecosystem. Regulatory bodies and crypto organizations should work together to create a regulatory environment that respects and protects user privacy while also ensuring compliance with laws and regulations. This will ensure the long-term sustainability and growth of the crypto industry.

Binance should retract its misguided delisting of privacy coins, take a better view of its actual compliance requirements in EU countries, and, even more than that, get active in advocating against the EU's consideration of a future privacy ban. Privacy will become increasingly important in crypto, and Binance and other exchanges will be left behind if they don't take privacy coins and privacy tools seriously.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author's alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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