By Mary Ann Callahan

Privacy and anonymity are buzzwords in the cryptocurrency sphere, both for positive and negative reasons. Initially, privacy was heralded as the way forward for crypto tokens because it afforded users to be able to transact without others prying into their affairs and keep transactions safe, secure and personal details anonymous.

Step in Zcash.

What is Zcash?

Zcash is a cryptocurrency that combines both currency and cryptography to provide users with a platform to transact with complete anonymity. Currently, the ZEC to USD price is set at around $140. To date as a token, it has performed relatively well, not setting the world alight but growing and increasing in value steadily.

This was all historically very good news for investors and users alike who saw the currency as a stable and trusted token that could be easily transacted and keep details anonymous. Compared to other anonymous coins Zcash is without question the top of the anonymous coins. But being top isn’t always great as Zcash has been put under a lot of the regulatory spotlight.

So, What’s the Problem?

There came some big changes in the real world that had a knock-on effect with widespread consequences in the crypto world. Certainly, some real-world changes have been in line with how many crypto tokens operate, a good example of this would be the introduction of GDPR (General Data Protection Regulation) by the EU. The idea behind the regulation is to keep user details safe and to put identifiers in places such as numbers instead of names and addresses.

This type of regulation is something that has complimented the way many crypto tokens work.

Other regulation has not been so positive, and with regulatory bodies tightening up fast on cryptocurrency, there have been serious concerns raised about tokens, especially those that provide complete anonymity.

Zcash, along with many other crypto tokens, faces a mountain of scrutiny that they are about to climb.

Taxation is Coming: In a Big Way

Previously, crypto was a lucrative investment opportunity because people could buy up the currency of their choice and for the most part not worry about taxation. This was for a number of reasons. Cryptocurrency has been flying under the taxation radar for many years because governments: a) thought it had little to no real-world value; and b) didn’t put regulation in place to appropriately deal with the taxation of crypto.

This all changed when media attention grew and governments began to realize that there was indeed a very high value in crypto tokens and many people were making a lot of money and paying minimal or non-existent tax on the proceeds.

This led to the US government cracking down on crypto, followed shortly by Canadian officials and the HMRC in the UK. All of the regulatory bodies started open communication with banks and other financial institutions to ascertain the identities of individuals that were buying and profiting from cryptocurrency. This would ultimately mean that individuals the world over would begin to get letters landing on their doorstep with hefty tax bills inside.

It isn’t that straightforward, though. The biggest issue that taxation bodies are finding is that they can’t accurately track the profit, and therefore can’t accurately assess the tax. To do this they would need to track an individual’s transactions from source (bank) through to the exchanges and then onto the blockchains themselves.

So, guess what happened? The taxation bodies teamed up with the exchanges to further track money going in and out of individual accounts. This meant they had banks, financial institutions and exchanges all on side and now they needed the last piece of the puzzle. The ledgers of the tokens.

For public ledger operations, this will pose no issue, and governments will likely strike up a conversation with the likes of Bitcoin to ascertain where money has come from and where it is going.

For Zcash this is a staggering problem. And in the world of taxation that is going to be a potentially crippling issue, Zcash is in the situation where it either faces being shut down or it completely restructures its platform; both things that Zcash will not want to happen.

Anti-Money Laundering and Financial Crime

In mid-2018, there were whisperings that Japanese authorities were investigating Zcash along with 2 other anonymous crypto tokens for failing to have safeguards in place that would protect the token being exploited by criminals.

The investigation came to fruition, and the Japanese regulator found that a significant amount of Zcash was being used in anonymous transactions on the dark-web for illegal purposes. Among their findings, they outlined that major criminal enterprises were moving a lot of money in it and that Zcash was by default supporting organized crime.

The result was that the Japanese government is now looking to stop Zcash trading in Japan. But that is only one country, right? Well, it has led to a wave of regulators now casting a very keen eye on Zcash, and the outcome will always be the same unless Zcash changes its operation. In the UK, the FCA is looking to remove anonymous coins, and in the US regulators are looking closely at the internal workings of such coins.

For now, Zcash is on a precarious rope. It can certainly be the king of anonymous coins, but in a world where governments are demanding transparency, it finds itself at odds with the powers.

It’s not All Doom and Gloom

The good news for Zcash comes from its underlying technology. Unlike Monero that is completely anonymous, Zcash allows users to decide on the type of transaction they would like to perform. Simply put, the Zcash blockchain supports two types of transactions: transparent and shielded. Such an approach can certainly play into Zcash’s hands once the regulatory crackdown takes the stage.

About the Author: Mary Ann Callahan

As an expert on Bitcoin-related topics, I’ve found myself as a Journalist at Cex.io – cryptocurrency exchange. I’m working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.