10th March 2022 > > Privacy coins.

tl;dr

Privacy coins and why I avoid them.

Market Snap (at time of writing)

Market Wrap

That short squeeze induced rally quickly petered out with another breach of $40k to the downside. That $2.4k drop in the price of BTC happened in just four hours this morning.

Curious Cryptos’ Commentary – Privacy coins

Privacy coins are enjoying at least a temporary boost with overnight gains of 10% to 20%.

Privacy coins were created as it became commonly recognised that although theoretically all blockchain transactions are anonymous, in practice that is often not the case.

As an example, if I have on-ramped into BTC via a centralised exchange (CEX) using fiat and have then transferred that BTC into my hardware wallet, then my public wallet address is associated with my identity by the CEX. The CEX can do this because of the requirement for Know Your Customer (KYC) rules as dictated by Anti-Money Laundering (AML) regulations, which means that I must identify myself, my home address, and my bank account details to the CEX.

This is in my opinion a GOOD THING, as I have no interest in any illegitimate uses for cryptos, and neither do I have any plans to avoid paying taxes, income, capital gains, or otherwise.

The benefits of this transparency have frequently been seen when the proceeds of various hacks of exchanges, or scams of individuals, have been returned to their rightful owners.

In some ways, I remain annoyed that privacy coins were ever invented, as they provide an easy target for critics to maintain and enhance the popular view that cryptos are only of use to terrorists, drug dealers, and money launderers, as if USD and the legacy financial system are bereft of such problems.

…

Monero (XMR) is the largest of all privacy coins by market capitalisation.

XMR was launched in 2014 with the intention of allowing all transactions to take place privately and with anonymity. To achieve this, the code uses a mathematical technique known as zero-knowledge proof (ZKP) which is an extraordinary creation that allows one to prove knowledge of a fact without revealing anything about that fact. More details will be available in a later module of the Curious Cryptos’ Training Course (www.curiouscryptos.com).

…

Crypto critics do have a point when they state that privacy coins are useful to terrorists, drug dealers, and money launderers. Darknet websites that years ago accepted only BTC, now largely accept XMR, or so I am reliably informed.

I did have a brief investment in XMR some time ago, but I closed it and I will not get involved in privacy coins again.

Much as I would like to claim otherwise, this is not because of some moral stance that I am taking, though the decision has certainly cost me some opportunity profits that I have foregone.

Tax authorities worldwide have expressed their concern that privacy coins can be used to avoid paying taxes.

I think if you have privacy coins in your crypto portfolio, you are far more likely to come under intense scrutiny from the taxman. Even after you have declared profits from your crypto portfolio, and paid the appropriate tax, it is not inconceivable that you have made genuine mistakes, or that you are not cognisant with all the wrinkles of any particular tax regime.

Keep your life simple. Avoid privacy coins at all times.