Zcash (ZEC), a prominent privacy coin, has recently experienced a sharp surge, breaking into the top 10 cryptocurrencies by market capitalization. However, it remains unavailable for trading on South Korean exchanges. Privacy coins are digital assets that use advanced cryptography to mask transaction details such as sender, recipient, and amount, ensuring anonymity on the blockchain.
Five years after South Korea banned privacy coins due to money laundering concerns, there are growing calls to reassess listing criteria in light of technological advancements.
Paradigm and Grayscale Boost Zcash to 9th Place in Market Cap
As of Tuesday, cryptocurrency data platform CoinMarketCap reports that Zcash has a market capitalization of approximately 25 billion USD, ranking 9th among all digital assets. Its price has surged over 30% in the past week.
Recently, Matt Huang, co-founder of crypto investment firm Paradigm, revealed the company’s investment in Zcash, describing it as a privacy complement to Bitcoin, which has fueled investor interest.
The expansion of institutional investment channels has also played a significant role. Grayscale’s Zcash Exchange-Traded Fund (ETF), ZCSH, is now trading on NYSE Arca. On September 18, Grayscale announced plans for a 3-for-1 stock split of ZCSH shares.
In contrast, Zcash remains unavailable for trading on South Korean crypto exchanges.
In March 2021, financial regulators amended the Enforcement Decree of the Specific Financial Information Act, prohibiting virtual asset businesses from handling dark coins – cryptocurrencies that pose high money laundering risks due to untraceable transaction histories. Consequently, privacy coins like Zcash have been effectively banned from domestic exchanges since then.
At the time, regulators cited difficulties in fulfilling anti-money laundering obligations, such as Know Your Customer (KYC) and Suspicious Transaction Reporting (STR), due to the anonymity features of privacy coins.
Improved Transaction History Transparency Calls for Reevaluation of Listing Criteria
However, privacy-related technologies have evolved significantly over the past five years, raising questions about whether the mere presence of privacy features should be the sole determinant for listing eligibility.
New technologies enabling selective disclosure have emerged, allowing users to keep their transaction details private while providing information to regulatory bodies, financial institutions, or exchanges when necessary.
Zcash’s Viewing Key is a prime example. While Zcash supports shielded transactions that obscure details using zero-knowledge proofs, users can provide a Full Viewing Key to third parties, granting access to the account’s shielded transaction history.
Moreover, third parties with Full Viewing Keys can track both incoming and outgoing transactions. This means users can disclose deposit histories and asset holdings to auditors or financial institutions upon request.
Additionally, major exchanges like Kraken only support Zcash withdrawals as public transactions, not shielded ones. Public transactions reveal all details, including sending and receiving addresses and amounts, on the blockchain. Zcash supports both public and shielded transactions.
Kim Nam-woong, Chief Executive Officer (CEO) of Populous, explained that exchanges initially delisted privacy coins due to compliance challenges with anti-money laundering regulations. However, privacy coin projects now recognize these issues and are actively developing technologies to address them.
He added that Zcash’s Viewing Key allows transaction history verification without compromising spending authority, maintaining privacy while ensuring compliance when needed.
Zcash isn’t alone in this effort. Aleo, another privacy blockchain project, generates a Record View Key for each transaction. Users can share this key with auditors or counterparties to confirm specific transaction details without exposing their entire account history.
The Railgun project utilizes Private Proofs of Innocence (PPOI) to verify that incoming funds aren’t associated with designated illegal or suspicious transactions, without revealing user transaction histories or balances.
Given these developments, industry experts argue for a shift away from blanket bans on privacy-enabled cryptocurrencies. Instead, they propose that exchanges should individually assess their ability to monitor fund flows effectively. This suggests a need to revise the 2021 dark coin prohibition to align with technological advancements.
Kim emphasized that privacy coin projects are continuously updating their technologies to balance privacy and compliance. Considering these advancements, domestic exchanges should reconsider their listing policies.