- Regulators are increasingly cracking down on privacy-focused Monero.
- The crypto is popular among both privacy advocates and bad actors.
- Monero proponents say adoption is the best way to reverse the trend.
Bitcoin’s financialisation boom this year shows an increasing acceptance of crypto among trillion dollar financial institutions and lawmakers.
But, at the same time, some are taking a more hostile stance towards another asset: $2.8 billion privacy-focused crypto Monero.
“Regulators need a boogeyman, and Monero is that boogeyman,” Riccardo Spagni, former lead maintainer of Monero, told DL News. Bitcoin’s broad acceptance has pushed regulators to point fingers at other crypto assets, Spagni said.
In Europe, regulators are looking to ban crypto assets like Monero which enhance anonymity. Several crypto exchanges, including Binance, OKX, and Kraken have this year delisted Monero across multiple jurisdictions, if not entirely.
The reason? Monero, unlike most other crypto assets, is untraceable, as long as users aren’t lax about their security.
Monero’s commitment to privacy has earned it a cult following among privacy advocates and those distrustful of government. But it also means it is a popular choice for criminals, money launderers, and as the go-to currency on darknet marketplaces.
Framing issue
With many instances of Monero’s use by criminals, it’s easy for regulators to take a hard stance.
In October, Japanese authorities arrested 18 people for laundering money using Monero. In 2022, a US nuclear engineer and his wife were caught attempting to sell secret nuclear propulsion technology to a third country. The pair requested payment in Monero.
North Korean crypto crime groups have also been observed using Monero to break the traceability of stolen assets.
Proponents argue that Monero shouldn’t be banned just because it is used by criminals.
For example, criminals in the US frequently use the postal service in their crimes, Spagni said. Yet authorities don’t have the right to open and search mail unless they have a warrant or probable cause.
Bitcoin, too, was once the most popular currency on the darknet market Silk Road. Now the world’s biggest asset manager, BlackRock, issues a $47 billion exchange-traded fund for the asset.
“It’s like describing encryption as a way for criminals to pass secret messages while it also protects our internet connections,” Spagni said.
A few extra steps
Exchanges delisting Monero may protect them from regulatory scrutiny, but it hasn’t meaningfully impeded the asset’s use.
Monero buyers can first purchase other crypto assets like Bitcoin or stablecoins then swap them for Monero within non-custodial crypto wallets like Cake.
Seth, the vice president of operations at Cake, told DL News he’s seen an influx of users bringing in cryptocurrencies other than Monero to Cake over the past year. Seth did not give his full name to protect his anonymity.
“Almost always, the majority of volume is people swapping into Monero from other cryptocurrencies,” he said.
‘If we use it, we win’
Although the fresh crackdowns haven’t stopped users accessing Monero, they have thrust the crypto’s future into uncertainty.
All it might take is a single high-profile incident of criminals using Monero to prompt a more severe regulatory backlash.
The only way Monero can avoid such a situation, proponents say, is through adoption.
If Monero adoption were to grow in the same way Bitcoin adoption grew after 2017, it would be much more difficult for regulators to crackdown on it, Anthony, a prominent Monero advocate, told DL News. He did not give his full name to protect his anonymity.
“If we use it, we win,” Anthony said, repeating a phrase popularised by Monero podcast host Douglas Tuman.
Tuman told DL News he sees Monero adoption growing.
He gave the example of CoinCards, a site where users can purchase gift cards using crypto. In July, the dollar volume of purchases using Monero overtook Bitcoin for the first time.
On Shopinbit, another site that lets users purchase goods privately using crypto, Monero this year also became the most popular crypto used by purchase volume.
“When people want to spend crypto in a digital cash-like manner they are using Monero,” he said.
While still niche, these use cases for Monero are closer to the digital cash system many early crypto supporters hoped Bitcoin would be used for.
With Wall Street recasting Bitcoin as an investment asset, and high transaction fees putting off those who might want to use it as digital cash, Monero could pick up Bitcoin’s mantle.
Streisand effect
But there’s still the lingering question of why regulators don’t just outright ban Monero, instead of nudging exchanges to delist it.
“They could just publicly say Monero is illegal,” Seth said. “But they don’t, because I think that that makes the whole Streisand effect happen.”
“What’s going to happen is people who don’t want to be surveilled by their government are going to rush to Monero,” Seth said.
While Monero’s future looks increasingly uncertain, its community is still optimistic.
As long as there’s still a way to get from Bitcoin or other crypto assets into Monero, Anthony said, they’re still winning.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.