According to a study published in the Journal of Information Technology, attempting to ban privacy coins would be nearly impossible for regulators due to the tokens’ anonymous, decentralized nature.

The report was compiled in collaboration with the Applied Research and Innovation team at Trilateral Research, and it zoomed in on the popular private coin Monero.

Privacy coins work differently to cryptocurrencies like Bitcoin and Ether—payments are untraceable, and users stay anonymous. Where every Bitcoin transaction can easily be linked to a user’s address, Monero preserves anonymity with an obfuscated public ledger. 

Highlighting the difficulties regulators are likely to face in halting privacy coins, Copenhagen Business School researcher Rob Gleasure said:

“If decentralized privacy-preserving cryptocurrencies become popular in the future, to the point they can be routinely exchanged without users having to convert to other currencies and systems, there is no obvious way for regulators to impose post-hoc regulation.”

Gleasure suggested that authorities would benefit from adapting and preparing for the possibility of being unable to prevent the spread of privacy coins in the future. “What the regulators do not realize is those who control the code will control the rules,” he said. “So far, they have not accepted this and are in denial.”

The study, Trilateral Research’s Dr. Robin Renwick explained, observed Monero’s community of developers and users to draw its findings. Crypto Briefing got in touch with Renwick to hear his thoughts on how privacy coins will play a role in the future of the cryptocurrency landscape.

“I think it’s possible that governments will try to outright ban any cryptocurrency that attempts to provide a level of privacy above the current ‘status quo.’ This will ensure that privacy-preserving currencies become the route for protest against the incumbent financial system. Don’t forget that privacy infractions and violations have become the mainstay of the financial system.”

He also outlined an alternative outcome in which governments are more accepting of private cryptocurrencies. Renwick says that relaxed regulations and a deeper understanding of the dangers of transparent coins like Bitcoin could lead to wider adoption of privacy coins, “much like how users are starting to realize the nefariousness of [Big Tech companies like] Facebook and Google.”

In both of Renwick’s scenarios, private cryptocurrencies would still be around, though the suggested outcomes differ greatly depending on the level of government intervention.

Given the nascent stages of the cryptocurrency space as a whole, it’s not yet clear whether privacy coins could ever see mainstream adoption, nor to what degree authorities will attempt to stamp out anonymous payment systems.  

Nonetheless, cryptocurrencies have been an increasing point of focus for government officials in recent years.

In the past, much discussion has fallen on the role cryptocurrencies sometimes play in criminal activities such as money laundering and drug dealing, thanks in no small part to Bitcoin’s prominence on darknet marketplaces such as the Silk Road. 

While Bitcoin has in many ways been embraced as an asset class since Silk Road’s widely documented shutdown, private cryptocurrencies still represent a largely unknown area of the ecosystem. Still, Justin Ehrenhofer, a community lead for Monero, said privacy for all tokens is becoming top of mind for many.

He told Crypto Briefing:

“Regulators and compliance professions should soon realize that Monero is not the only project that offers useful privacy features. Other ‘privacy coins’ offer intrinsic or opt-in privacy enhancements that they need to be prepared for. Even Bitcoin and Ethereum, which are widely-supported, are adopting new privacy enhancements. These technologies can no longer be ignored.”

Monero is considered by many to be the de facto privacy coin. Its market cap totals roughly $2.1 billion today, making it the 15th ranked cryptocurrency. 

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