BIG BROTHER IS WATCHING: The Raise of Privacy Coins — zCash, Dash & Monero see demand increase.
Privacy-focused currencies such as Monero, ZCash, and Dash are enjoying significant price increases as the IRS and ATO issue warnings about taxable crypto transactions.
The price of privacy currencies Monero (XMR), ZCash (ZEC), and Dash (DASH) all increased by more than 20% in the 24 hours following a recent warning by the Australian Tax Office (ATO) that the agency has the capacity to see transaction data from cryptocurrency exchanges and other businesses.
“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer,” said ATO Assistant Commissioner Tim Lo in a statement.
Following the ATO’s notification on May 28 encouraging Australia’s 600,000 crypto traders to pay capital gains taxes on their holdings, the price of Monero — the most well-known and popular privacy currency — jumped from approximately US$220 to a high of US$293 the following morning.
The rapid price increase for Monero was comparable to the 30 percent spike witnessed on May 21, following the statement by the United States.
Treasury has mandated that crypto transactions above $10,000 be reported to the Internal Revenue Service (IRS) beginning in 2023.
“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime,” according to a May 2021 Treasury tax compliance plan for America.
Why privacy coins?
Privacy coins enable crypto traders to conceal the origins of transactions as well as the identities of senders and recipients. As a result, Monero and other currencies such as Zcash and Dash are frequently utilized in dark web markets, where they are commonly used in transactions involving illicit commodities such as narcotics and firearms. — However this is not to say that the USD is still not the most used currency for illicit transaction.
In this scenario, some investors are purchasing up these coins in large amounts, most likely to disguise their taxable cryptocurrency earnings from authorities throughout the world.
Cypherpunks
When Bitcoin was first released as the first cryptocurrency, everyone assumed its ownership and use were private and anonymous. However, most Bitcoin users, as well as those of the other main cryptocurrencies, such as Ethereum and Ripple, are simply pseudonymous.
Bitcoin is backed by a blockchain, which is basically a distributed ledger, and each node that checks the ledger has a complete record of all Bitcoin transactions from its creation. As a result, if the wallet can be connected or associated with an individual or business, these transactions may also be monitored.
“When you have blockchain analytics companies like Elliptic and Chainalysis, that are able to track addresses and transactions 20 layers deep, they’re able to link everything together,” — Trent Barnes, principal of ZeroCap
The IRS and other government agencies are collaborating with these types of firms, which makes Bitcoin and Ethereum bad privacy coins because, effectively, if you’ve engaged with a centralized exchange, you may be identified.
However, according to Joseph Liu, an associate professor in the Department of Software Systems and Cybersecurity at Monash University, whose research on linkable ring signatures established the theoretical foundation of Monero, this difficulty also exists for people wanting to cash out their XMR.
“If you want to sell Monero into a fiat currency, just like the Australian dollar, of course, you need to go through the crypto exchanges and all Australian exchanges are registered with the government. It is traceable because the money will be sent into your bank account once your Monero has been sold.” — Joseph Liu
Decentralized Exchanges
“If people do not sell their Monero into the Australian cryptocurrency market, but instead choose to sell their XMR into markets without any regulation at all, then it’s quite hard for the Australian government to trace because they do not command any regulatory oversight,” — Joseph Liu
“There are now decentralized exchanges (DEXs). In a DEX, no one knows who you are, you can be completely anonymous interacting with these unregulated exchanges on the internet.” — Trent Barnes, principal of ZeroCap
Barnes believes that the price increases in ZEC, DASH and XMR are “definitely heavily correlated” with pronouncements from the US Treasury and ATO of tax scrutiny on investors.
In the United States, the IRS has already spent millions of dollars attempting to develop methods of tracking tax fraud assisted by privacy coins. The tax office hired two blockchain forensics companies, Chainalysis and Integra FEC, in September 2020 to create methods for tracking privacy currencies. The IRS has also set a US$625,000 prize for anyone who can unlock Monero’s anonymity mechanism.
Thus far, no one has been able to claim the award.
ALL in ALL
Stay safe and do your own research. If you need to pay Taxes on your capital gains… Just follow the laws in your country.
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