RAND Corporation Zcash report addresses common misconceptions about the criminal use of cryptocurrencies

The RAND Corporation published a report this month finding no “credible evidence pointing to large-scale use of Zcash for money laundering, terrorism financing or the trade in illicit goods and services.” Policymakers in the United States and around the world have focused on cryptocurrencies’ potential to facilitate illegal and illicit activity, and the report offers a clear overview of how criminals do and do not use cryptocurrencies.

Zcash is a digital currency that operates in an opt-in “privacy construct where funds are either transparent or shielded, and the user can choose between the two options… The aim for privacy coins such as Zcash is to provide better privacy protections intended to benefit legitimate users who do not want their financial details made public.”

Zcash aims to be digital cash that can replicate online the private and straightforward settlement of physical cash transactions. For example, say you agree to sell a sandwich to a complete stranger for $10 in cash. Without knowing anything about one another — identity, assets, etc. — the transaction can be instantly settled to both parties’ satisfaction as soon as the stranger produces a $10 bill. No additional information is required by either party to complete the transaction beyond the physical exchange of the sandwich for the bill.

While the report states the criminals do not use Zcash widely, it found that criminals do favor using bitcoin, which offers fewer privacy protections, to facilitate their illegal activities. However, it is critical to understand the scale of illicit transactions in bitcoin versus the U.S. dollar; as of July 2019, for each dollar in bitcoin spent on the darknet, at least 800 U.S. dollars were laundered. Nevertheless, the U.S. government itself continues to print and issue U.S. dollars because physical cash serves an important, well-established function across society.

The private settlement of financial transactions is critical to individuals’ financial privacy and sovereignty, but at the same time, malicious actors can exploit privacy protections to facilitate illegal activities. This statement holds true for both cryptocurrencies like Zcash and physical cash, and policymakers have long recognized the importance of balancing two conflicting policy priorities: protecting citizens’ right to financial privacy and preventing illegal activity. Complete privacy and anonymity would hobble law enforcements’ capabilities while a financial panopticon would infringe on legitimate users’ right to privacy. Indeed, the debate over where to strike the balance between protecting citizens’ privacy rights and sufficiently empowering the U.S. government to enforce the nation’s laws and provide for the common defense is as old as the country itself.

As crypto-based products and services continue to develop, the Blockchain Association and its members pledge to continue engaging with the policymaking and law enforcement communities to develop policies that prevent illicit activity facilitated by cryptocurrencies while protecting citizens’ right to financial privacy.