Cryptocurrency exchange ShapeShift recently delisted three privacy coins: Dash, Zcash (ZEC) and Monero (XMR). This was an unexpected move to say the least, given the exchange’s historic commitment to privacy.
As a noncustodial platform, Shapeshift did not impose user identification requirements on traders in its early days, although this began to change with the gradual introduction of a mandatory membership model, compliant with Know Your Customer rules, as of 2018.
Why then, did it move to delist Dash, Zcash and Monero, even as other exchanges such as Coinbase, Kraken and Binance.US still list these coins? In a statement shared with Cointelegraph, the chief financial officer of Dash Core Group, Glenn Austin, said he found the delisting “particularly frustrating because [it] could have been entirely avoided by a simple 10–15 minute call.”
Austin believes the delisting boils down to “an educational issue.” While the reasons for the delisting have not been officially clarified, Austin has speculated that the move may be influenced by the currency having been mentioned twice in the Department of Justice’s recently published “Cryptocurrency Enforcement Framework.”
In both cases, Dash was cited alongside Monero and Zcash as an example of an anonymity-enhanced cryptocurrency. The DoJ identified the use of such currencies as a “high-risk activity indicative of possible criminal conduct.”
Dash’s argument is that its currency is not truly a privacy coin. The group cites major law firm Perkins Coie’s assessment in September 2019 that “the widespread perception that Dash is a ‘privacy-coin’ is likely a legacy of its former ‘Darkcoin’ moniker and does not accurately reflect its actual functionality.” Perkins Coie has argued that Dash has the same functionality in this regard as Bitcoin (BTC). Austin explained:
“There are various privacy-enhancing techniques that can be implemented on top of any public blockchain including features like off chain-transactions, shielding addresses or amounts, Mimblewimble, tumbling/mixers, and Coinjoin. CoinJoin is the only privacy feature that currently exists in Dash wallets. Bitcoin also has many wallets that support CoinJoin.”
Chainalysis, a leading blockchain analytics firm, agrees that from a technical standpoint, privacy coin is “a misnomer for Dash.” The firm, which offers investigation and compliance support for the Dash Core Group, has emphasized that “independent wallet software provides more advanced forms of CoinJoin that are being used with major cryptocurrencies not labeled as privacy coins, such as Bitcoin, Bitcoin Cash and Litecoin.”
Austin goes even further with this argument. Beyond his emphasis on misconceptions surrounding Dash, he argues that the support of off-chain transactions with Bitcoin via Lightning Network as well as Bitcoin’s prevalence in darknet markets make it a higher risk from a regulatory perspective. Moreover, software such as Chaumian CoinJoin, which can be used with Bitcoin wallets but not Dash ones, are an even more sophisticated means of obscuring data from other participants in the network, he says.
“We did present all of this information to FinCEN but it appears the message never filtered through to the DoJ,” Austin said. The company has also reached out to ShapeShift and says it will continue to pursue the matter until it has been resolved.