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Privacy Coins are on the Front Lines in the Battle Between Regulators and Cryptocurrency Markets

Oct 17, 2018

  • Privacy coins are cryptocurrencies that utilize cryptography and other encryption techniques in order to preserve the anonymity of the sender and receiver in a transaction.  Although cryptocurrencies like Bitcoin (BTC) mask some private information in a transaction, information on the Bitcoin blockchain is ultimately transparent and transactions are not necessarily private. 
  • Although privacy coins preserve one of the fundamental ideals that cryptocurrencies were founded on by maintaining anonymity, they may lack long-term viability. Regulators across the globe that are cracking down on cryptos have primarily focused on instituting Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations in the cryptocurrency industry -- the main point of this is to remove anonymity from cryptocurrency markets to prevent cryptocurrencies from being used for illegal activities.  
  • Below, we compare the 1-year cumulative returns of  BTC with the three largest privacy coins by cryptocurrency market capitalization, Monero (XMR), Dash (DASH), and Zcash (ZEC).
  • BTC has been the top performer on a 1-year cumulative return basis, generating returns of 17.67% while XMR has lagged just slightly behind with 1-year returns of 17.66%. 
  • DASH and ZEC tell a different story as the #2 and #3 privacy coins by market capitalization have generated 1-year returns of –45.61% and –50.10%, respectively -- perhaps investors have fled from smaller privacy coins like DASH and ZEC in favor of a larger, more established privacy coin in XMR.
  • There is certainly a high level of demand for privacy coins and the services they provide, but in the case of privacy coins, demand is not enough. The agendas of regulators entail the elimination of anonymity from cryptocurrency markets, and privacy coins will be the first to suffer.