Japan’s Ban may be a warning call to Defend Privacy Coins
Robert Viglione is that the co-founder of ZenCash and a PhD candidate in finance at University of South Carolina. before ZenCash, Rob was a physicist, mercenary mathematician, and U.S. officer with experience in satellite radar, space launch vehicles, and combat support intelligence.
Crypto enthusiasts, heed this warning: Japanese regulators are veering into the unknown.
A country that when served as a beacon of hope for the event of blockchain-backed initiatives within the region has abruptly changed its stance in recent months, reconsidering the role that cryptocurrencies should be allowed to play in Japan’s commercial ecosystem.
And this is often no more apparent than when discussing the present state of privacy coins.
Earlier in the week , the japanese Financial Security Agency (FSA) announced that on June 18, there'll be an outright ban on all cryptocurrencies that provide a sufficient degree of anonymity to its end users.
For the foremost part, Japanese exchanges are listening, pulling four major privacy coins — monero (XMR), dash, Augur’s reputation (REP), and zcash (ZEC) — from their platforms.
As the wider crypto community begins to assess the implications of this decision, it’s becoming increasingly evident that the January hack Japanese cryptocurrency exchange CoinCheck, which resulted within the theft of 523 million NEM tokens (worth an estimated $524 million), has created a ripple effect that has had repercussions for the longer term of the space.
To understand the road ahead, I posit that crypto companies — especially those within the privacy space — should consider the benefits , rather than the disadvantages, that privacy coins will provide to the greater community in order that they will better advocate for regulatory leniency in both Japan and beyond.
Making the case
Stepping back, if you were to ask any industry expert what the elemental aspects of cryptocurrencies are, they might likely say immutability, fungibility, decentralization, and confidentiality. initially glance, these attributes could seem incongruous; however, they're all uniquely important to the long-term success of the industry.
For a platform to really be considered “decentralized,” it must eliminate the likelihood of manipulation or control exhibited by centralized entities, which cannot happen without confidentiality. And, as evidenced by the recent incidents at major multinationals Equifax and Facebook, the necessity to guard one’s identity has never been more top-of-mind.
In fact, at the present , there are an estimated 12,918,657 exposed records so far in 2018 alone, which number is merely expected to extend . this is often why blockchain-based cryptographically secure projects are so necessary — to shield the overall public from major multinationals (or hackers) looking to require advantage of their valuable information.
Similarly, for a platform to be considered “immutable,” it must provide unprecedented transparency to the exchange, which cannot effectively occur unless there's another layer of privacy. whenever a cryptocurrency transaction occurs, a user’s information is viewable to the whole community.
On its surface, it'd seem as if most cryptocurrencies — from bitcoin to ethereum — satisfy these criteria. However, as lately , bad actors have found ways to outsmart the system. And once they are doing so, not only can they connect a private to at least one transaction, but they will connect them to their entire crypto history.
It’s becoming an undeniable truth that traditional coins will simply not fit the bill. Exchanges of the longer term would require safer platforms that protect users with strong cryptography.
So where can we go from here? In their assessment of privacy coins, the FSA explicitly stated that a primary justification for its preemptive ban was to eliminate bad actors from having the ability to conduct criminal activity under the guise of anonymity.
Admittedly, the justification is sound. within the wake of the CoinCheck hack, the presence of anonymity has undoubtedly proven to be an obstacle for authorities looking to seek out the culprit of the attack.
But don’t be fooled. There are myriad reasons for why this hack occurred within the first place, and none of them are anonymity. If the hack CoinCheck was a primary justification for the FSA’s decision, then privacy coins were an unfortunate scapegoat.
To ensure a consequence doesn’t occur in countries round the world, crypto companies should take the initiative and educate regulators about the potential value proposition that privacy coins provide to the blockchain industry.
The FSA decision is one among the primary instances where a government entity has questioned the status of privacy coins and their ability to positively impact our commercial ecosystem. It won’t be the last.
By taking precautionary action, companies can quell any misconceptions about the use-cases of the technology, and ensure long-term sustainability of the space for years to return .