Are anonymous blockchains starting to censor themselves? Horizen has just announced the end of anonymous transactions on its main network. At issue are certain international laws which, like the European Union and its MiCA and TFR texts, require cryptocurrency exchanges to collect personal information about their users. We take stock of the situation.
Anonymous blockchain soon to be transparent
Since the beginning of June, the cryptocurrency industry has been plagued by discussions about regulating the sector. While in the United States, the main debate concerns the qualification of certain cryptocurrencies as securities, other reflections are taking place on the confidentiality of transactions.
In this context, the Horizen blockchain community recently voted in favour of a change to its protocol involving the end of anonymous transactions on its network.
$ZEN will no longer be considered a privacy coin after the deprecation of the mainchain shielded pools. We are actively working with our exchange partners to keep $ZEN accessible for our global users.
– Horizen (@horizenglobal) June 27, 2023
” The ZEN token will no longer be considered an anonymous cryptocurrency after the depreciation of protected pools on the blockchain. We are actively working with exchanges to keep ZEN token accessible to our global users. “
In addition, from September 2023, transactions will be published on the blockchain mainnet in a transparent manner. With this update, support for so-called “protected” transactions will be impossible at the blockchain consensus level.
The team behind the project is trying to reassure users that this change does not mean the end of confidentiality in its ecosystem: sidechains developed on Horizen will still be able to guarantee the confidentiality of personal data.
Anonymity on Web3 and its regulatory implications
To understand why this update will be implemented on Horizen, we need to look at the regulatory side. Last May, Binance announced that it was suspending support in Europe for cryptocurrencies with enhanced anonymity (CAE). The list included Monero’s XMR, the Zcash network’s ZEC and the Horizen ecosystem’s ZEN.
Although the cryptocurrency exchange is keen to re-evaluate its position to exclude certain cryptocurrencies from this list, this measure does not appear to apply to the ZEN cryptocurrency.
As Binance is the leader in the exchange field, with the highest transaction volumes in the entire industry, the exclusion of these anonymous cryptocurrencies could greatly reduce the use of their blockchains, not least because of the loss of visibility among investors.
However, it should be stressed that Changpeng Zhao’s company is merely adapting to the demands of European regulators. As part of the fight against money laundering and the financing of terrorism, the European Union has approved the MiCA (Markets in Crypto-Assets) and TFR (Transfer of Funds Regulation) regulations.
These two texts stipulate that companies providing services involving digital assets, such as cryptocurrency exchanges, must be able to provide their users’ personal data.
This means that companies like Binance cannot afford to host cryptocurrencies that run counter to the legislation soon to be in force.
Horizen has chosen to restrict anonymity around its transactions to maintain its presence on cryptocurrency exchanges and guarantee the survival of its ecosystem. MiCA and TFR will come into force in 2024.
