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While some countries such as El Salvador saw this as an opportunity to improve their financial system and fully embraced the revolution, others, such as China, announced a blanket ban on cryptocurrencies. In an interesting turnaround, India, the country of millions of crypto holders, recently levied a 30% tax on crypto income and unveiled plans to introduce their own digital currency. The country is still waiting for the official digital currency bill that will clarify its stance on cryptocurrencies.
While the taxation is a step in the right direction for India’s crypto future, the imminent bill could backfire on privately owned cryptocurrencies in the country, and that’s a bigger problem than many are willing to admit.
What exactly is the bill?
The Cryptocurrency and Regulation or Official Digital Currency Bill, in its current form, seeks to ban all “private cryptocurrencies” as a method of payment in India, except for a few for the development of underlying technology. The original plan was to introduce this bill during the winter 2022 parliamentary session in India. However, given the impact this bill could have on investors and financial markets in general, the Indian government stepped back to reassess its view of cryptocurrencies. However, the problem lies in the use of the term “private cryptocurrencies”.
When news of this impending bill broke on November 23 last year, people were quick to speculate about what the term “private coins” meant, and many of them came to the conclusion that these were privacy coins. The founder of QuickSwap, Sameep Singhania, also thought this bill was different from that of 2019, saying, “Our finance minister has said several times that the government will support the blockchain and crypto innovation happening all over the country. This time they specifically put a ‘private crypto’ ban in the bill.”
Now there is still a visible confusion about what exactly the government means by “private crypto”. But if the speculations are correct, banning privacy coins like Monero, Zcash and Dash may not be the right move for the crypto industry’s future.
What are cryptocurrency privacy coins?
One of the hallmarks of cryptocurrencies is transparency. The underlying blockchain networks of cryptocurrencies are public ledgers and anyone can get a complete view of all the transactions taking place on the network. For example, if X sends 10 ETH to Y, this transaction will be permanently recorded on the blockchain using their wallet addresses. This makes the network pseudonymous and anyone who knows X’s wallet address can see a full record of every transaction they’ve ever made on the Ethereum network.
It doesn’t take a genius to understand the flaw in the plan here. The lack of user privacy on blockchain networks started to become fully apparent as the number of users started to grow. This is exactly why privacy coins were created. Using technologies such as zero-knowledge proofs and zk-SNARKS, these coins created a way to protect users’ privacy while transacting on blockchain networks. This naturally raised concerns about the use of this technology for criminal activities such as money laundering and this could be why the Indian government would deem it appropriate to ban these coins. However, if you look beyond the surface, these coins could be quite important to the growth of the crypto industry.
The benefits of cryptocurrency privacy outweigh the risks
Users today are more concerned about privacy than anything else, and when it comes to crucial information such as financial transactions, this concern is on the rise. This is why privacy cryptocurrencies are very crucial in protecting and safeguarding the interests of users in the decentralized world. They ensure that sensitive user data is not accessible to everyone and create a safe space for transactions. Some privacy coins such as Zcash and Dash allow users to shield or unprotect their transactions, giving them ultimate control over their data. This kind of trust could attract more users to the crypto revolution.
Moreover, as cryptocurrencies continue to become mainstream and their adoption increases, these coins can be used to protect the privacy of organizations and businesses. It allows companies to sign deals using smart contracts through the blockchain, while well protecting all financial transactions between them. The use cases are virtually endless.
In addition, multiple reports have shown that less than 1% of crypto transactions are responsible for criminal activity and that cash is still a useful tool for criminals. Given all these benefits of privacy coins, a full ban could pose a threat to users’ privacy and ultimately to the underlying technology.
hope for the best
Like any other innovation ever made in human history, privacy coins can have a few drawbacks. But in the end, their benefits outweigh the risks. While the Indian government’s final decision is still pending, we hope the government will consider the interests and privacy concerns of all users.
Sameep Singhania is co-founder and lead developer at QuickSwap.
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This post Beyond Money Laundering: Why Cryptocurrencies Matter to Privacy
was original published at “https://venturebeat.com/2022/04/13/beyond-money-laundering-why-privacy-cryptocurrencies-are-important/”