Invisible but active, privacy coins continue to flow through financial systems every day. While often seen as tools for legitimate privacy, they can also be exploited for activities like evading sanctions and financing terrorism.
For banks, exchanges, and fintech firms under regulation, lacking the ability to spot risks tied to privacy coins like Monero, Zcash leaves you vulnerable to serious compliance gaps.
With the EU set to de facto prohibit anonymous crypto accounts and privacy coins by 2027, what does this mean for the future of these assets and the platforms that handle them?
In our recent live session, Yulia Murat, Head of Regulatory Affairs at Global Ledger, and Priscilla Adams, Compliance Director at Bullish Group, broke down the current state of privacy coins, valid use cases, and complex compliance challenges they present to VASPs and regulators worldwide.
Before exploring the key takeaways from their discussion, let’s briefly review what privacy coins are.
Privacy coins, or anonymity-enhanced coins (AECs), are crypto-assets that use advanced cryptography to obscure transaction details — unlike traditional crypto, where wallet addresses and transaction amounts are publicly visible.
Here are some common privacy-preserving techniques:
Ring signatures hide the actual sender among a group of potential signers.
Example: Monero.
Zero-knowledge proofs allow transaction validation without revealing underlying information.
Example: Zcash.
Stealth addresses create one-time addresses for each transaction.
Example: Monero uses this as a privacy feature in addition to the ring signature.
Yulia and Priscilla discussed the risks, technologies, and global regulations shaping the future of privacy coins. Here are some highlights:
1. Not all privacy is the sameMonero and Zcash use fundamentally different cryptographic methods. For example, Monero uses ring signatures and stealth addresses, while Zcash uses zero-knowledge proofs.
What’s more, some techniques (like stealth addresses) are increasingly being used beyond privacy coins.
2. Privacy vs. Compliance isn't “black and white”
The thing is that privacy coins aren't always used for illicit purposes. Legitimate use cases are also the case, for example:
Note: Some tools allow privacy without breaking compliance, such as selective disclosure in smart contracts.
3. The legal landscape of privacy coins around the world
Privacy coins are legal in some jurisdictions, banned in others and heavily scrutinized almost everywhere:
The EU’s Anti-Money Laundering Regulation (AMLR), set to take effect by July 2027, will effectively ban privacy coins for regulated entities. Technically, it will still be possible to use privacy coins through unhosted wallets or for smaller transactions under the €1,100 threshold, but regulated platforms will be prohibited from facilitating them.
Therefore, how can VASPs and compliance teams prepare?
Watch the full recorded webinar on Youtube for a complete discussion, including detailed technical insights, policy forecasts, and how to prepare.
Fill out the form to get the full live session recording.