In June, the Financial Action Task Force (FATF), an organization that comprises 37 countries and is led by the United States, released a 47-page manual of global regulations for cryptocurrency exchanges. Member countries have 12 months to implement these rules, meaning a global audit will be performed in June 2020. It is theorized that up to 200 countries may implement FATF rules, which is most of the planet.
The goal of the FATF is to suppress money laundering and the use of cryptocurrency for criminal and terrorist activity, and in order to do this, the FATF is requiring that exchanges collect the name and addresses of both the sender and receiver of each cryptocurrency transaction. Further, this information must then be shared among other cryptocurrency exchanges and government regulators.
Essentially, the point of the FATF is to completely remove anonymity from the cryptocurrency trading industry. It is probably not a coincidence that Binance announced it was banning United States users a week before the FATF guidance was released since Binance was one of the most popular venues where United States residents could trade cryptocurrency anonymously.
A major side-effect of FATF regulations is that stealth cryptocurrencies are steadily being delisted from exchanges worldwide.
A Brief Review of Stealth Cryptocurrencies
Monero (XMR) is perhaps the king of stealth cryptocurrencies, with the origin, destination, and the amount of a transaction not being viewable to outside observers. Zcash (ZEC) has stealth capabilities but is also optionally transparent. It’s a bid to be compliant with exchange regulations while simultaneously being anonymous for users. Dash (DASH) is the numbe one masternode cryptocurrency, with all transactions being automatically mixed through a masternode, obfuscating the origin, destination, and amount of a transaction. There are numerous other less popular stealth cryptocurrencies as well.
It is clear why stealth cryptocurrencies simply do not mix with FATF regulations. The moment a stealth cryptocurrency leaves an exchange, it is impossible to trace, violating the FATF rule that the identity of a receiver of a transaction must be recorded.
In August, Coinbase UK delisted Zcash (ZEC), although for now, Zcash (ZEC) is still available on Coinbase in the United States.
OKEx Korea just announced that due to FATF rules it is delisting Monero (XMR), Zcash (ZEC), Dash (DASH), Horizen (ZEN), and Super Bitcoin (SBTC).
Japan’s Financial Services Agency (FSA) made regulations against stealth cryptocurrencies in 2018, causing Coincheck to delist Monero (XMR), Zcash (ZEC), and Dash (DASH).
The recent OKEx Korea delisting is perhaps the most important since it was done directly to follow FATF regulations. Likely that means this action is probably a precursor to a worldwide delisting of stealth cryptocurrencies before the June 2020 deadline.
But as alcohol prohibition in the United States in the 1920s proved, when the government bans something that people want, a black market usually arises.
Case in point, Monero (XMR) was already not available on Coinbase — the biggest retail exchange in the United States — so the best place to get Monero (XMR) was Binance. Now, Binance is not available in the United States, and Binance.US will not be listing Monero (XMR) due to regulations. This means that there is essentially no exchanges available to obtain Monero (XMR) in the United States, and if there are any left, they will have to delist Monero (XMR) before June 2020.
Since Monero (XMR) is the most popular stealth cryptocurrency, and there are plenty of people who desire true anonymity when using cryptocurrency, this will fuel a peer to peer Monero (XMR) black market. Simultaneously, Monero (XMR) is so anonymous that regulators will have an extremely difficult time trying to stop underground Monero (XMR) trading.
Perhaps this eventuality was inevitable since Monero (XMR) is by design so anonymous that it cannot be regulated properly, forcing governments to outlaw cryptocurrency exchanges from using Monero (XMR). That’s despite the fact that governments have no way to stop peer to peer Monero (XMR) trading.
There is already a website called LocalMonero in which traders can make peer to peer deals without any identification. The major flaw in this is that fiat payments are centralized and require some sort of identification information, so law enforcement can track down traders. That being said, each trader would have to be tracked down individually, which would be a difficult and never-ending job. Even if the whole website is shut down, another one would probably pop up within a day because the desire to obtain stealth cryptocurrencies will never cease.
Zooming out, this is bringing to light a schism in the crypto space. Most of the economic activity surrounding Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and other major cryptocurrencies has gone above board and is fully compliant with regulations. This is especially true since Bitcoin (BTC) and other cryptocurrencies with transparent public ledgers are not anonymous, so people that use them have no choice but to follow the law. On the other hand, stealth cryptocurrencies have all the technology required to survive in a black market situation.
This is certainly a profound transition. Bitcoin (BTC) originally gained popularity and notoriety for being an anonymous cryptocurrency that could be used on Darknet websites like the Silk Road. Now, Bitcoin (BTC) is merging with the regulated ‘Wall Street’ economy while Monero (XMR) is taking Bitcoin’s (BTC) place on the Darknet and has become number one in the same community that originally made Bitcoin (BTC) so popular. The main difference is that there were little to no cryptocurrency regulations in the early days of Bitcoin (BTC), but now the law is clear that anonymously trading cryptocurrency is illegal.