As the crypto space continues to evolve, regulatory scrutiny is shifting towards privacy coins, with authorities wary of their misuse in activities such as money laundering.

regulatory scrutiny is shifting towards privacy coins […] Understanding how they will be implemented in systems that are decentralized, where the developers and maintainers often maintain anonymity, is complex.

E.g. Bisq, Haveno

compliance with these regulations becomes a paradox for such projects since the crux of privacy coins lies in their ability to mask transaction details, which inherently contradicts the essence of regulations […] Therefore, achieving full regulatory compliance for privacy coins may sometimes seem impossible. […] in the UK, the Financial Conduct Authority (FCA) has been proactive in educating consumers about the risks associated with privacy coins but has not implemented bans or specific regulations concerning them.

in the United States, proposed legislation such as the STABLE Act could further extend the regulatory framework […] it’s plausible that the provisions of the STABLE Act […] could potentially mean that transactions involving privacy coins would need some form of identity verification

A prime example of a regulatory shift impacting privacy coins is the European Union’s Fifth Anti-Money Laundering Directive (5AMLD) […] these platforms are now obliged to implement customer due diligence measures, […] verifying user identities and monitoring transactions for any signs of activity.

Potentially:

  • Alice (unhosted wallet) sends coins to Bob (CEX) -> Alice is also KYCed by the CEX
  • Alice (CEX) sends coins to Bob (unhosted) -> Bob is KYCed too