Bitcoin has been referred to as a threat to the existing financial system because of its decentralized nature that does not allow central control. Bitcoin transactions have also formerly been said to be anonymous and so allows bad actors to use it for illegal activities on the darknet. This view seems to be changing now as privacy coins are starting to evolve.
A recent report from the German ministry of finance on the assessment of risks to financial security suggests that privacy-focused cryptocurrencies actually pose a greater threat to financial security than Bitcoin according to a Decrypt report.
This is primarily due to the anonymous nature of transactions carried out using Monero which criminals are starting to leverage on the darknet. The report read:
“Due to the increasing popularity of Monero on the Darknet, it can be foreseen that this crypto asset, especially, will gain more practical relevance in the future in the area of securing and exploitation”
Privacy coins are cryptocurrencies that were created with privacy and anonymity of transactions as its primary use case. These coins employ different cryptographic methods to enhance the anonymity of the network beyond those of conventional cryptocurrencies.
Monero, for instance, uses Ring Confidential Transactions (RingTC), Stealth (One-time) addresses and Ring Signatures in addition to the default enforced privacy to ensure anonymity, privacy and security of transactions.
According to the report, these features which make it impossible to track Monero’s transactions make it suitable for use by criminals. Bitcoin which has been suspected of being a currency for criminal darknet activities has been found to be far from anonymous and is less palatable for such activities.
This is shifting attention to privacy coins which the German ministry of finance says the German government will amend its laws to make cryptocurrency exchanges, wallet providers and other providers of custodial services responsible for money laundering, probably in a bit to get these parties to stop the use of privacy coins and Monero in particular.
The government has developed a keen interest in cryptocurrencies recently with the determination to monitor transactions carried out using such coins. Unfortunately, privacy seems to be important to users, which explains why privacy coins have become more popular. Will the legislative amendment be able to stop the use of these coins?