Binance delisting raises privacy concerns

Hello. Welcome to the latest edition of the FT's Crypto Finance Newsletter. This week we look at the future of privacy coins.

This week, Binance, the world's largest cryptocurrency exchange, announced it would delist a token called Monero, sparking controversy in some quarters of the industry.

Not among the new wealth managers and Wall Street suits who got into this business for the fees, but those who defend cryptocurrencies because of the belief that people's finances should be impossible to control or censor. I'm inside.

Monero is a so-called privacy coin, loved by libertarians as the closest thing to everyday private money.

I can give them my bank account number to send money, but they can't see any other payments I'm making or receiving from that account unless I'm committing a crime.

Once I give you my cryptocurrency wallet address for payment, you can see any other activity I do through that address from then on. Privacy coins mean you can't spy on other people's lives. Information about the transaction, such as the transaction amount and the wallet in which the transaction is executed, is hidden.

“This is not a revolutionary idea. We all have financial privacy when we pay for a meal in cash or drop a few dollars in a donation box,” says Director of the Decentralized Web Filecoin Foundation said Laney Reitman, a civil liberties advocate. “Privacy coins are importing these fundamental features into the digital world.”

However, despite its high principles, it remained a niche coin. Bitcoin's market cap is a whopping $920 billion, while Monero's market cap is just $2.2 billion. Given the modest impact, I asked Binance why they chose to delist Monero.

Binance “takes regulatory compliance seriously,” and the decision is consistent with its move toward “improving transparency within an evolving regulatory framework,” a spokesperson said.

It's not hard to guess what “evolving regulatory framework” means.

Last year, Binance paid a hefty $4.3 billion fine to U.S. authorities and pleaded guilty to money laundering charges. As part of our settlement with FinCEN, we agreed to monitor improvements in identifying suspicious transaction reports. Without being able to track where Monero comes from and where it goes, it will be difficult for Binance to list it. The team behind Monero is X, who said Binance now requires all deposits to come from publicly transparent addresses.

Is the money Binance makes by offering a particular coin on its platform worth the risk of possible compliance violations? FinCEN's proposed settlement also includes the threat of an additional $150 million in fines for non-compliance.

Monero is down almost 25% since delisting, but the bigger picture is that if you're an ardent libertarian, there are fewer places to trade your coin. Binance rival OKX also delisted its privacy coins, including Monero, in December.

“I'm concerned that this is part of a larger backlash against privacy coins,” Reitman added. “People who care about digital privacy should be concerned and speak out.”

If virtual currency exchanges are heading down the path of listing coins in the belief that they can monitor suspicious activity, the virtual currency market began in 2008, when the Bitcoin white paper envisioned a world without financial institutions. There's a compelling case that it's a little better than that. institution.

“If the world we end up in is using cryptocurrencies through an intermediary, and that intermediary prohibits the use of private cryptocurrencies, then users will have privacy from the intermediary, from the government, from the government. You will be in a situation where you will not be able to do so. or general citizen . . . That’s a pretty big failure,” Peter Van Valkenburgh, head of research at Coin Center, told me.

“In the banking system, you have no privacy from your bankers or the government, but at least your neighbor Ted isn't seeing every transaction you're making,” he added.

But this withdrawal from Binance is yet another blow to efforts to build a truly private financial network backed by cryptocurrencies. In 2022, the United States imposed sanctions on the mixing platform Tornado Cash, a service aimed at completely obfuscating people's financial traces. Authorities claimed they helped North Korean criminals launder more than $7 billion in money.

Tornado Cash and other mixers are not intended to be intermediaries such as exchanges. Mixer is intended to be a tool that can run permanently even after a developer leaves the project (or in the case of Tornado, even after they leave the project). (He was indicted and arrested).

Privacy coins can still be traded on smaller exchanges like Kraken and Bitfinex, but they are now relegated to the fringes of cryptocurrencies. Mr. Van Valkenburgh speculated as follows.

“At that point, I would wonder why we have cryptocurrencies at all. If we are still dependent on these, why do we have such farcical proof-of-work and proof-of-work policies?” Will I participate in the Of Stake discussion? [entities] For most of your daily financial tasks? ”

What do you think about Binance’s decision to delist Monero? As always, email me scott.chipolina@ft.com

weekly highlights

Do Kwon's extradition from Montenegro to the United States was deferred this week after a court upheld his appeal and decided to begin a retrial against the former CEO of Terraform Labs. However, his partner, former Terraform Labs chief financial officer Han Chang-jun, was extradited to South Korea.
Another cryptocurrency company is also reeling. Bakkt, a US-listed cryptocurrency company majority owned by the $76 billion Intercontinental Exchange, has warned that it could run out of cash next year. The company previously partnered with Starbucks to offer customers the opportunity to buy coffee with Bitcoin. Needless to say, you need regular cash or credit to buy coffee at Starbucks.

Soundbite of the week: Yellen takes aim at stablecoins again

US Treasury Secretary Janet Yellen has renewed her call for federal stablecoin regulation in the US.

Yellen said during a Senate Financial Services Committee hearing this week that the Financial Stability Oversight Council, which she leads, is focused on the potential implementation of digital assets.

“It is important that there are federal regulatory floor limits that apply to all states, and that federal regulators have the ability to determine whether stablecoin issuers should be prohibited from issuing such assets. It is.”

Data mining: Ransomware returns to plague cryptocurrencies

Cryptocurrency advocates have been arguing throughout the last year that it will be 2023 before the industry cleans up its act following the collapse of FTX.

One sub-sector of the market, ransomware, did not get the memo. Ransomware attackers pocketed more than $1 billion in cryptocurrency payments extorted from victims, setting an all-time industry record of $983 million set in 2021, according to blockchain analysis firm Chainalysis. It is said that he broke the

Last year's record also undermines the idea that cryptocurrencies are slowly solving the ransomware problem. The numbers dropped significantly in 2022, partly due to Russia's invasion of Ukraine disrupting the activities of some actors, but compared to the boom in 2023, this decline is more of an anomaly than a real cleansing act. It looks like the situation.

“Despite the decline in 2022, the long-term trend line shows the ransomware problem is growing,” said Jackie Corben, Head of Cyber Threat Intelligence at Chainalysis. he told me.