Privacy Coin

Privacy coins are cryptocurrencies designed with cryptographic features that obscure transaction details including sender addresses, recipient addresses, and transaction amounts, providing stronger anonymity guarantees than pseudonymous blockchains like Bitcoin or Ethereum.

Leading privacy coins employ different technical approaches to achieve anonymity. Monero uses ring signatures combining multiple inputs making sender identification impossible, stealth addresses generating unique one-time addresses for each transaction, and RingCT concealing transaction amounts. Zcash implements zk-SNARKs enabling zero-knowledge proofs that transactions are valid without revealing any transaction details when using shielded pools.

Privacy coins present significant regulatory challenges and AML concerns because transaction anonymity prevents blockchain analytics from tracing illicit fund flows, identifying wallet owners, or linking addresses to real-world identities. FATF has expressed concerns about privacy coins enabling sanctions evasion, money laundering, and terrorist financing. Many regulated exchanges have delisted privacy coins including Monero and Zcash to reduce compliance risk and regulatory scrutiny. Some jurisdictions are considering or have implemented outright bans on privacy coins. Regulatory frameworks including MiCA and the EU's Transfer of Funds Regulation create compliance barriers for privacy coins by requiring customer identification and transaction traceability incompatible with privacy coin architecture. Despite regulatory pressure, privacy advocates argue privacy coins serve legitimate purposes including protecting financial privacy, commercial confidentiality, and individual security in authoritarian regimes.