Cryptocurrency exchange Gemini will support privacy shielded Zcash (ZEC) transactions with regulators’ approval—sort of.
According to a Sept. 29 announcement, New York-based, regulator-friendly Gemini now allows its customers to use the privacy coin’s user identity protections—for withdrawals only. The company, run by Tyler and Cameron Winklevoss, commented:
“This is an exciting moment for crypto, marking the first time shielded ZEC withdrawals are available on a regulated exchange.”
Gemini claims that this feature “demonstrates that with the right controls in place and the proper education, regulators can get comfortable with privacy-enabling cryptos.” Since the exchange only allows users to withdraw with shielded transactions, it still has access to data concerning fund provenance and where they are going. Access to this know-your-customer data is presumably the reason Gemini managed to enable Zcash shielded transactions while staying compliant with anti-money-laundering (AML) laws.
How private is private?
Zcash is a privacy-focused cryptocurrency which forked from Bitcoin’s (BTC) code. It offers two different address types. There are transparent addresses—which work like most normal crypto addresses—and shielded addresses that are not visible. Transactions between such addresses do not reveal either address.
Gemini stores Zcash in a transparent address, but if a user decides to withdraw to a shielded address the funds will be sent from an alternative shielded address managed by the firm.
Even then, the privacy protections offered by Zcash have been questioned. In June, a study by Carnegie Mellon University revealed that just 0.09% of Zcash transactions in a 30-day period were untraceable. The reason was simple: so few Zcash users “turn on” the privacy feature that the “shielded pool” of Zcash is miniscule, and even the shielded ZEC connects to “transparent” transactions.
Gemini seems to be investing in a rather aggressive expansion strategy to secure the biggest slice of the crypto trading and custody market it can. As Modern Consensus recently reported, the New-York based cryptocurrency exchange recently launched its trading platform in the United Kingdom after receiving regulatory approval to become a regulated Electronic Money Institution.
In an attempt to woo institutional investors, in January Gemini also launched a captive insurance firm, which will allow it to transfer some risk to reinsurance companies. The firm—dubbed Nakamoto—covers losses up to $200 million for customers of the firm’s Gemini Custody solution and is licensed by the Bermuda Monetary Authority.