2025-08-30
In February 2024, top exchanges such as Binance and OKX collectively delisted privacy coins such as Monero (XMR) and Zcash (ZEC), citing "high-risk projects" and "regulatory compliance pressure." These cryptocurrencies, which natively support anonymous transactions, completely conceal transaction addresses and amounts through technologies such as ring signatures and zero-knowledge proofs. However, they have also become a key target of global regulation due to their use in illegal activities such as dark web drug trafficking and Ransomware money laundering.
Monero (XMR) uses ring signature technology to mix the signatures of real transaction parties into a randomly generated "bait address" group, making it impossible for external observers to determine the identity of the specific signer. Each transaction also generates a one-time hidden address, and the payee can only decrypt the transaction information through the private key, completely cutting off the connection between the address and the user's identity. This design has made Monero the mainstream Payment Instrument in the dark web market. In the $82,000 drug case cracked in India in 2025, the main culprit built a cross-border money laundering network through Monero.
Zcash (ZEC) 's zk-SNARKs technology allows users to prove the legitimacy of transactions without disclosing details. For example, users can prove "I have enough funds to pay" without disclosing account balances or counterparties. This technology has been adopted by mixing protocols such as Tornado Cash. In 2022, the US Treasury imposed sanctions on the protocol for being used to launder $7 billion, but in 2024, the court ruled that decentralized smart contracts are not "controllable property", triggering legal boundary disputes between regulation and technology.
FATF's Travel Rule requires virtual asset service providers to share cross-border transaction information, but the design of privacy coins directly circumvents this rule. In 2025, the European Union passed the Anti Money Laundering Regulation, announcing a complete ban on anonymous encrypted accounts and privacy coin transactions from 2027. Violators will face a maximum fine of 5 million euros. Compliance exchanges such as Hong Kong HashKey Exchange have fully removed privacy coins. Its KYT system identifies risky transactions in real time through 400 million address tag library. In 2024, it intercepted transfers involving Tornado Cash for more than 8.90 million US dollars.
Supporters argue that privacy is a fundamental human right and technology itself should not be stigmatized. For example, Vitalik Buterin proposed the Ethereum Privacy Address Proposal (EIP-5564), which aims to protect user asset ownership through stealth addresses and prevent whale transactions from being targeted by the market. However, opponents point out that in 2024, the FBI arrested the founder of Samourai Wallet for using its currency mixing function to launder $100 million in criminal proceeds, highlighting the social harm of privacy technology abuse.
Some projects attempt to seek a balance between privacy and compliance. For example, Secret Network implements encrypted storage of smart contract data through Trusted Execution Environment (TEE), allowing users to selectively share transaction information to meet tax reporting needs. Compliance mixing service provider Cce Cash requires users to complete KYC before using the mixing function, achieving identity traceability while protecting privacy.
Law enforcement agencies around the world are cracking down on anonymity through on-chain analysis tools. The AI graph algorithm of platforms such as Arkham can associate anonymous wallets with real identities and identify "decentralized-centralized" money laundering patterns. When a single transaction exceeds $1 million and involves privacy coins, the system automatically triggers freezing and manual review. In 2025, an anonymous DEX was fined by multiple countries for not accessing the system, resulting in $23 million of USDT flowing into the illegal fund pool.
The controversy over privacy coins is essentially a value conflict between technological innovation and social governance. From the anonymous design of Monero to the legal game of Tornado Cash, from the comprehensive ban of the European Union to the compliance practice of HashKey Exchange, the industry is experiencing the pain of "wild growth" to "rule restructuring". Users need to be vigilant: privacy coin transactions that are not connected to the anti-money laundering system on the chain may result in assets that cannot be traced due to compliance vulnerabilities.