The Year in Crypto: War on Digital Protection

Protection is not a murder. &nbsp,

However, projects and coins that let users tread lightly on-chain are in higher need of attention than ever in the crypto industry.

In 2024, government-led efforts to combat the use of coin-mixing companies continued apace as engineers behind Bitcoin Fog, Tornado Cash, and Samouri Wallet all faced difficulties in court. However, so-called private cash faced barriers as some markets stopped supporting them.

With Bitcoin’s inventors drawing inspiration from the Cypherpunk activity, protection and blockchain have been intertwined since the company’s origins as a means of internet-based weight.

However, as exchanges navigated a maturing economy and developers faced prosecution this year, that link, which was rooted in suspicion of governments and large banks, started to deteriorate.

As a layer-1 system, Midnight uses zero-knowledge facts to protect information associated with consumers, businesses, and transactions. &nbsp,

CEO Eran Barak said he’s noticed a growing sense of unease among engineers working on options that help protect private on-chain, despite the fact that it is significantly different from the protection devices the government has cracked down on.

” I think there’s certainly shyness around the topic of privacy”, Barak told . ” People saw the hammer being thrown down on]industry ] players”.

Private Jobs

Pioneered over a decade ago, private currencies have shielded people from prying eye on-chain for much of the crypto company’s life. However, this time, some exchanges, like Monero (XMR), distance themselves from cash that help protect the privacy of their users. &nbsp,

Binance began converting customers ‘ XMR to cryptocurrencies as part of its divestment procedure in September after being warned that it would delist Monero in February. At the beginning of this year, Binance also hit Monero competitors with a “monitoring tag” on its platform, including Zcash ( ZEC ) and Firo ( FIRO ). However, those bitcoin have yet to be delisted.

Monero received a second blow in October because Kraken announced it would delist the coin on its platform for European users, citing regulatory changes in the European Economic Area ( EEA ). However, other bitcoin tasks have been navigating privacy-focused investigation.

Key Network, launched in 2020, is a cryptocurrency featuring personal smart contracts. Secret Network, which is far from allowing developers to create applications that support encrypted data on-chain, essentially providing a form of private computing.

According to SCRT Labs CEO Alex Zaidelson, many markets warned his crew that Secret Network’s gift may be delisted alongside Monero’s problems. He claimed it took occasion and persuasion, but later the exchanges decided that Secret Network was acceptable from an AML view when it came to regulating markets.

We’ve seen a number of regulated people who have a hard line between themselves and everything related to privacy, Zaidelson told . It took us some research and description to make sure that people understood the distinction between private coins. that and secure technology networks.

Zaidelson added that if the technology has any chance of becoming widely used, there must be genuine privacy in the crypto sector. He cited two typical examples: a medical program that wants to store patient information on a blockchain and a hedge fund that is reluctant to disclose its positions.

” We don’t expect everyone to live in a crystal house”, Zaidelson said. Without protecting the information, “you may create technology rails to manage all.” It’s unfathomable”.

Coin Machines

Coin mixers are a popular tool for cash launderers, but the government has targeted them for years as a popular resource for them. Allowing customers to obscure the source and destination of crypto deals, the government’s assault on gold mixers continued this time, whether it was tied to Bitcoin or Ethereum.

Even though Tornado Cash was sanctioned by the U. S. Treasury’s Office of Foreign Asset Control in 2022—effectively blacklisting the tool for Americans—charges against the mixer’s developers wouldn’t be filed until a year later. Meanwhile, privacy advocates like whistleblower Edward Snowden decried the government’s move as “profoundly authoritarian“.

In 2023, Federal prosecutors charged Tornado Cash founders Roman Storm and Roman Semenov with money laundering, sanctions violations, and conspiracy to operate an unlicensed money-transmitting business. According to U. S. law enforcement, Semenov remains at large, while Storm was arrested and faces prosecution in the Southern District of New York.

In September, a federal judge in New York denied Storm’s motion to dismiss his three charges, ruling the case could proceed. The judge determined that Storm’s invocation of First Amendment rights had little to do with the legal statutes under which he was charged, despite the fact that the crypto industry has portrayed his legal battle as a matter of free speech. Effectively, the court determined that the court’s decision to ignore free speech protections at that point in the trial was irrelevant.

Those tied to Tornado Cash also experienced legal issues this year elsewhere. In May, a Dutch judge at s-Hertogenbosch court found Tornado Cash developer Alexey Pertsev guilty of money laundering, stating that the privacy-preserving tool was “intended for criminals”, handing down a 64-month prison sentence. While Perstev has since appealed the ruling, Ethereum co-founder Vitalik Buterin described Perstev’s prosecution as downright chilling.

” The Alexei thing is definitely really unfortunate”, Buterin said at a Berlin conference. ” I think a lot of people have been believing that simply creating software is something that’s acceptable and is a completely legal and legitimate way to fight for privacy,” he said.

In late November, a glimmer of hope for Tornado Cash emerged. The Department of the Treasury overstepped its purview by approving Tornado Cash’s smart contracts, ruling that autonomous software cannot be regarded as property.

” No one wants criminals to use crypto protocols”, Coinbase’s Chief Legal Officer Paul Grewal wrote in a post on X ( formerly known as Twitter ). ” It is not what Congress authorized to completely block open source technology because a small percentage of users are bad actors.” &nbsp,

A litany of cases

Although Storm’s case in a federal New York court has drawn the attention of various sectors of the crypto industry, he is not the only one creating privacy-focused crypto tools under legal scrutiny there.

The Department of Justice detained and charged the Saumouri Wallet’s creators with operating an unlicensed money transmitter in April. Prosecutors described the product as a coin mixer that “facilitated$ 100 million in money laundering” while allowing users to obfuscate Bitcoin transactions by combining them.

Rodriguez, who faces prosecution in the Southern District of New York, was denied bail in September because of” bug out prep “notes. Despite Hill’s release on bail, Republican senator Cynthia Lummis in Wyoming criticized the case as a whole.

In a letter from May, she wrote that” the DOJ’s unprecedented and unlawful change in interpretation of the law threatens to criminalize fundamental elements of Bitcoin.” The illicit finance industry is not attributable to wallet software more than a highway to a bank robber’s getaway car.

Roman Sterlingov, who was found guilty of money laundering earlier this year, ran the cryptocurrency mixer Bitcoin Fog ten years ago. Federal prosecutors alleged that he laundered more than$ 400 million in criminal proceeds through his maintenance of the tool.

While the developer was arrested in 2021, he wasn’t sentenced until November. Representing one of the industry’s most notable cases involving a coin mixer, a federal judge in Washington, D. C., sentenced Sterlingov to 12 years in prison.

Ultimately, the regulatory heat for some projects with coin mixing services in the U. S. grew too intense this year. Projects like Wasabi Wallet and Phoenix Wallet closed their doors to American users rather quickly after the arrest of the Samouri Wallet developers, putting their privacy tools out of reach for the foreseeable future.

Coin mixers ‘ use as a national security concern was requested by a group of Capitol Hill lawmakers in November to receive an update on Tornado Cash’s status from the U.S. Treasury Department. &nbsp,

They expressed concern in a letter that North Korean-linked hackers are still utilizing the service to launder money among a plethora of elicit actors, including child abusers and human traffickers.

” Despite sanctions, Tornado Cash has remained online and continues to function,” the lawmakers wrote”. This issue is in no way going away.