The War on Crypto Privacy

The recent events represent a serious warning to those operating outside the great sphere of surveillance.

“Sh*t, sh*t, and more sh*t” – was one reaction in our company Slack channel when asked about this week’s roundup of news.

A lot of that sentiment has to do with prices being down coupled with the recent onslaught of regulatory threats, arrests, and reactions clogging up the newswire.

To catch everyone up, over the past week there have been a number of attacks on non-custodial crypto services. These are services like self-hosted wallets or money mixers that value user privacy, don’t participate in Know-Your-Customer (KYC) standards, and where the crypto owner is fully responsible for managing their own funds.

  • The Samourai Wallet Indictment: Last week, the BTC privacy tool was taken down and its founders were arrested. The charges are conspiracy to launder money and conspiracy to operate an unlicensed money transmission business.

  • The government’s response in the case against Tornado Cash’s developers: Late last week, the DOJ opposed Roman Storm’s motion to dismiss conspiracy and money laundering charges. To no surprise, the dismissal was “filled with technical inaccuracies, obvious disdain for privacy and emerging technology, and misapplication of the law.”

  • PSA issued by the FBI: Simultaneously, the FBI’s bulletin essentially warned Americans to stay away from self-hosted wallets and non-custodial services or you could lose your funds. The warning shot was foggy and nuanced given how broad the circumstances are, as it could easily impact many DeFi projects who don’t KYC or hold money transmitter licenses.

In response to the latest wave of crackdowns – not to mention the ongoing SEC investigation into MetaMask, the most popular Ethereum access point – two bitcoin wallets (Wasabi & Phoenix) have decided to pull out of the US market. Other self-hosted wallets (Zeus) are standing firm.

As Always, Two Sides

The government will tell you that they are simply cracking down on illicit activity, terrorism financing, *, etc.

But at the same time, you have crypto policy groups and advocates arguing that the government is once again practicing regulation by criminal enforcement. (CoinCenter and their very own Peter Van Valkenburgh talk a great deal about this, for those interested)

Overall, however you want to slice it, the recent events represent a serious warning to those operating outside the great sphere of surveillance.

Our Take

In a world not too long ago, circa 2018, your CoinSnacks editor’s were actively allocating a small portion of our crypto investments to something called privacy coins. These were coins like Zcash (ZEC), Monero (XMR), and ZenCash [Now Horizen (ZEN)], that preserved anonymity by obscuring the flow of money across their networks.

We did this simply because of diversification purposes. Privacy, known to be a backbone of crypto since its inception, and the coins that supported it stood the chance to appreciate in value over time as more people bought in.

You see, before things like DeFi and Web 3.0, crypto was way simpler. There were cryptocurrencies (bitcoin, ripple, etc.), cryptocommodities (ethereum), and a bunch of privacy coins. Maybe I’m missing one or two sectors, but that was about it!

But over the years, the privacy aspect of crypto has just about vanished. Everyone operating in crypto, especially here in the US, has slowly began to realize that if you don’t cooperate with authorities, you won’t survive.

Before we knew it, domestic exchanges and even the cold-wallet providers such as Ledger were implementing KYC features.

It’s kind of sad to think about.

Where in this world can you store money… without centralized risk… or without the ability of a government body accessing or tracing it?

Those that have survived up until this point, including the companies now facing charges, have subsequently served what people now refer to as the darkweb. And without a doubt, bad actors will in some way, shape, or form will be active in those corners of the internet.

But that doesn’t mean the right to online privacy isn’t a noble cause.