The Problem of Privacy Coins

This post was originally published on August 16, 2019, and sent to Messari Pro subscribers.

Coinbase stirred up the “privacy coin” sector of crypto on Friday as Twitter discovered that Coinbase would delist Zcash from its UK markets. Several users shared screenshots of an announcement email from the company which states that all UK users would be required to transfer or sell their Zcash ($ZEC) by August 28. Otherwise, Coinbase would liquidate their balances once the asset was delisted.

The preferred explanation?

Coinbase chose to preemptively avoid any friction with law enforcement agencies that might result from their support of an asset with features optimized for transactions that were difficult to surveil. Or they were simply avoiding friction with a new banking partner, having recently lost their banking relationship with Barclays. Zcash’s founder, Zooko, disagreed with the implication (of course), tweeting that Coinbase’s delisting had nothing to do with “any incompatibility between Zcash and the UK AML/KYC laws and regs” and pointing out other UK entities that still offered Zcash support.

Indeed, Coinbase has been more conservative historically in the UK and NY markets than in most of its other reasons. Their initial Zcash listing restricted user access in those jurisdictions. And Coinbase had previously noted they would not support withdrawing Zcash to shielded address, but instead were open to “explore support for sending ZEC to shielded addresses in locations where it complies with local laws.”