When cryptocurrencies started hitting the mainstream, regulators soon felt themselves being drawn into to pass their judgment. Decentralisation was a sticky point, but not as much as its anonymity. Regulators and governments were suspicious of how quasi-anonymous digital payments would be used with money laundering and terrorist funding two major red flags.
As time has gone on, and cryptocurrencies have accepted the need to be regulated, so has the narrative changed from the regulators. Fiat-to-cryptocurrency exchanges have been seen as centralised entities that are subject to financial rules and regulations; exchanges are being seen as money services and have to adhere to anti-money laundering rules, as well as Know Your Customer (KYC)
However, other regulations have also come to the fore, some which fly directly in the face of public blockchains that store data freely and for all to see. The General Data Protection Regulation (GDPR) in the European Union is one such regulation which is aimed at data protection but contradicts blockchain’s transparent nature. It demands that user’s data be put in their control and consent.
This, of course, sent shockwaves through the European blockchain community as they had to second-guess products that were utilising public blockchain; even the US needs to be wary as there are calls for similar regulations on the horizon.
But, as time has gone on, the narrative has changed again, and there have been conclusions being drawn that added layers of privacy are what is needed on the blockchain, shifting the spotlight onto cryptocurrencies like Zcash.
Zcash prides itself on being a public blockchain with added privacy aspects, such as zero-knowledge proofs, and now shielded transactions which are attracting businesses in Europe who are looking for GDPR compliant cryptocurrency payment services.
Understanding Zcash’s shielded transactions and how it bypasses GDPR
On a base level, Zcash is a cryptocurrency that has been designed to try and remove as much data from public view as possible. While this sounds like a perfect tool for nefarious needs, it is interesting to consider just how full circle things have come, and now, instead, Zcash’s privacy is what is needed for mass adoption.
Jack Gavigan, in charge of product and regulatory affairs at Zcash, explains just how shielded transactions work:
“The reason that Zcash is suitable for this [adhering to the needs of GDPR] is that it was designed from the ground up with privacy in mind. It is optional, so you can choose for your transaction to be transparent, like a Bitcoin transaction, so it is visible on the blockchain. But if you choose to do a shielded transaction then all the normal information – the from and to address, and the amount, is not visible on the blockchain.”
According to a recent TechGDPR report contracted by the Zcash Company to analyse the use of Zcash within a subscription payment system, these private addresses prevent publicly transmitted information from being linked back to an individual, therefore making them compliant for GDPR purposes and out of the scope of the regulatory requirements.
It is for this reason that Liz Steininger, CEO of Least Authority, which recently designed a protocol called the Private Periodic Payment Protocol, or P4, have teamed up with Zcash to reduce the amount of personally identifiable information (PII) available to merchants for subscription services.
“The conversation used to be – about two years ago – that people were put off from public blockchain because of GDPR and the likes,” explains Steininger. “Now the conversation has shifted to people saying that they know it is possible, but we have to use technologies that enhance privacy on top of these public blockchains.”
“People are acknowledging that exactly what Zcash is doing is the solution; you can put personal data, on a public blockchain in a way that still protects privacy, it rather matters how you are storing that data.”
“There is definitely more of a movement to blockchain projects, but they are analysing what data they want to be stored on the blockchain, and how they will do that. It is good to see people shifting from that ‘we can’t use the technology’ to ‘okay, how do we use it correctly,’ while protecting privacy and being GDPR compliant.”
Fears of anonymity?
The original fears of cryptocurrencies leveraging their anonymity for nefarious needs persists, however, things are starting to change.
Gavigan goes on to explain why Zcash is called Z-CASH as opposed to Zmoney:
“It is very situational. If you look at the way in which Zcash is used, it affects whether regulators will be happy or not. Take an exchange; in the US, all are regulated as money services which means they have to comply with anti-money laundering and KYC regulations, and they have to report suspicious activities too.”
“So, if someone is dealing in crypto through an exchange, then they have to provide KYC information, they check to make sure the source of funds is reasonable and not suspicious. As a result, the regulators effectively have visibility of those on and off ramps between fiat and crypto.”
“We keep using the analogy of cash, if I withdraw cash from the bank, the bank knows I have done that, if I deposit, they know as well – but nobody knows what I do with the cash in the meantime.”
“When we explain the analogy of cash, and the way the anti-money laundering rules that apply can be applied to Zcash – there is a reason it’s called ZCASH rather than ZMoney – the regulators get a lot more comfortable. Regulations, like the GDPR and the equivalent in the US, come from the same source, they are balancing the need to protect the public, both for their privacy and general consumer protection, with the need to also prevent the use of these new technologies for money laundering and terrorist funding.”
A drive towards adoption
Essentially, Gavigan is explaining that the regulations governing banks are sufficient enough to monitor cash, and as such, the same regulations watching exchanges can make sure that the usage of cryptocurrency with added privacy is also kept in check.
Gavigan goes on the explain that this is where the essence of mass adoption lies. With Zcash, data protection regulations, which are on the rise, are taken care of, but data privacy is also taken care of in an era where people are waking up to the power of their personal information.
“We believe that for crypto to go mainstream, it will need to have a privacy aspect,” adds Gavigan. “If you imagine someone published your credit card history online, they would know a huge amount about you; they would know how much you earn, how much you pay in rent or mortgage, they’d probably figure out where you shop, what political parties you support through donations, issues and charities you support, and so on.”
“So we believe in order for cryptocurrency to realise its potential it will have to have a privacy element, and as awareness of privacy and the risks associated with the lack of confidentiality grows, so people are going to look at Bitcoin, and they will think – ‘do I really want to expose all my transactions to the world, or what other options are there?’”
A rise in use cases.
Even currently, there are areas where a cryptocurrency like Zcash is more favourable because of its added layer of privacy that has nothing to do with criminal or nefarious activities.
“Regarding use cases, we have seen interests from not-for-profits in the USA where they are looking to receive donations privately,” adds Gavigan. “Another use case that seems to have become popular is paying for VPNs, people who have this awareness of privacy are more likely to try and use a private way of paying something for privacy-preserving technologies.”
Zcash’s aim, within its evolution, is precisely to operate as an actual digital cash, offering the same level of privacy as fiat currency, but digitally. This, according to the likes of Gavigan and others at Zcash is the direction that individuals will be heading concerning online purchases.
There are already many merchants and products accepting Zcash to offer the ease of cryptocurrency, but without the necessity of a transparent ledger as would be expected from Bitcoin and others.
The Zcash Community Site boasts a long list of vendors, services, stores and non-profit organisations encompassing a wide range of interests from apparel to internet services and more that are utilizing Zcash Pay with Zcash is another list of products, services and causes as well as some regional lists, user groups and podcasts accepting the private digital currency.
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