Japan, the second biggest cryptocurrency exchange market behind the US, has started to crackdown on anonymous cryptocurrencies such as Monero, Dash, and Zcash. The Financial Services Agency (FSA) of Japan asked cryptocurrency exchanges to remove the three cryptocurrencies, expressing its concerns in regards to the usage of anonymous cryptocurrency in criminal activities.
High Risk in Money Laundering
In January, formerly Japan’s biggest cryptocurrency exchange Coincheck, which recorded a quarterly profit of $150 million prior to the hack that placed the company’s valuation at $4 billion, experienced the largest theft in the history of the cryptocurrency industry.
Nearly $523 million worth of NEM, the native token of China-based smart contracts platform NEO, were stolen by hackers from the hot wallets of the Coincheck trading platform. In the cryptocurrency sector, hot wallets describe any wallet that is connected to the internet and cold wallets are referred to wallets that are stored or maintained offline.
Almost immediately after the hack, the Coincheck reached out to the NEM development team to discuss ways to prevent the stolen funds from being cashed in to exchanges or potentially to Japanese yen. In response, the NEM development team acted in a swift manner, creating a tag that prevents cryptocurrency exchanges from accepting stolen NEM.
All of the $523 million of stolen funds have been tagged with “coincheck_stolen_funds_do_not_accept_trades : owner_of_this_account_is_hacker,” essentially disallowing exchanges to accept any funds from the 11 addresses owned by the hackers.
Despite the efforts of the NEM team, the stolen funds can still be cashed in or converted to fiat money if the hackers successfully convert NEM to anonymous cryptocurrencies like Monero (XMR) or utilize tumbler or mixing services to launder $523 million. Already, businesses and online platforms like ShapeShift have blacklisted the 12 addresses to ensure the hackers cannot convert NEM to Monero.
However, through the usage of mixers, peer-to-peer services, and over-the-counter (OTC) markets, it could be possible for the hackers to convert NEM to Monero, which would make the funds entirely impossible to trace.
The potential use case of Monero and other anonymous cryptocurrencies in money laundering led the Japanese government to crackdown on private digital currencies.
The Real Problem
The real issue with the Japanese government’s crackdown on anonymous cryptocurrencies is that other major regions like South Korea could soon follow the lead of Japan to prevent exchanges from dealing with Zcash, Monero, and Dash.
Previously, the South Korean government stated that it will follow existing regulatory frameworks established by leading markets such as Japan and the US to ensure the South Korean cryptocurrency exchange market remains compliant with global policies.
The South Korean government also has expressed its concerns towards anonymous cryptocurrencies and the possible usage of cryptocurrencies in money laundering. In the mid to long-term, it would be entirely likely for other countries to follow the regulatory roadmap of Japan and crackdown on anonymous cryptocurrency, which could impose a negative impact on their price, volume, and overall adoption.