DASH is a fork of Bitcoin that utilizes a two-tier masternode network that creates a scalable, on-chain, low fee P2P cryptocurrency payments network with the objective to compete with rival legacy payment and remittance services. At its core, DASH is not a privacy-oriented cryptocurrency, however it is frequently labeled as one of the main privacy coins by the media and regulators. Unlike Monero (XMR) or other privacy-oriented cryptocurrencies, DASH’s PrivateSend function does not obscure addresses or amounts. Instead, it uses CoinJoin for it’s optional privacy feature-set.
From a regulatory standpoint, DASH is identical to Bitcoin. CoinJoin is already used by Bitcoin since 2013 to make transactions more private. So, the reality is that this is nothing new and makes for no legally-definable difference. If there was one, it would equally apply to Bitcoin as it would to Dash.That is at least what Dash Core Group and several external reports have concluded. So one has to ask why there is regulatory confusion around DASH’s PrivateSend? Well, it turns out it’s not how the technology actually works, it’s because the name DASH has chosen for the technology ‘PrivateSend’ sounds scary and nefarious to regulators and that is what is causing problems and misunderstanding. It’s an educational issue not a technical one.
This is an exclusive interview with Dash Core Group’s CFO Glenn Austin to discuss the current regulation and compliance outlook for Dash. We discuss IRS, DOJ, SEC, FATF, Japan FSA, JVCEA and more.
Why is Dash persistently characterized as a privacy coin?
I believe it is a legacy issue. Dash’s founder announced an initial focus on enhancing the pseudonymity of Bitcoin shortly after the project’s launch in 2014 and rebranded the coin (then called Xcoin) to Darkcoin. This early decision branded Dash in a negative light and encouraged sensational press coverage. This history, combined with the PrivateSend brand name for Dash’s implementation of CoinJoin, set the stage for regulators to erroneously assume that Dash is a “privacy coin”, however one defines the term. Although we have changed the coin’s name to Dash to mean Digital Cash, far more aligned to our payments-focus, it has been difficult to shake this general misconception from the media. If you take the time to evaluate how our privacy function works, you will see it is no different than Bitcoin.
How is Dash different in terms of regulations and compliance to Bitcoin?
In terms of regulation and compliance, Dash is identical to Bitcoin. This statement is supported not only by our own analysis which can be found here, but also by leading industry experts.
For example, Chainalysis stated (link here) that “This means from a technical standpoint Dash’s privacy functionality is no greater than Bitcoin’s, making the label of “privacy coin” a misnomer for Dash. In fact, independent software wallets provide more advanced forms of CoinJoin that are being used with major cryptocurrencies not labeled as privacy coins, such as Bitcoin, Bitcoin Cash, and Litecoin”.
Additionally, Perkins Coie recently released a white paper (Perkins Coie) wherein they state “Dash is technically no more of a “privacy coin” than Bitcoin.”
Since mid-2018, we have been working hard with regulators and partners to raise awareness and make this point clear to everyone. Whenever we present to regulators and partners they immediately understand that Dash is not a privacy coin and the same mechanisms and services that are used to comply with Bitcoin, can be used for Dash.
What about the SEC, could Dash be considered a security?
Dash went through a rigorous process of developing a set of legal arguments and then presenting those to the SEC in 2018 and subsequent to that Dash was awarded a Crypto Rating Council rating of 1.0 which is the same as Bitcoin and actually a better score than Ethereum’s. It is the lowest and best score you can achieve on the Crypto Rating Council scale. It's very clear at this point that Dash is not a security. Dash never held an ICO. There is no centralized issuer. There really are no reasons one could point to that would argue that Dash is a security.
Should Dash’s PrivateSend function be treated differently to Bitcoin classification in relation to FATF’s Travel Rule?
There's been a lot of noise about the FATF Travel Rule and whether or not so called privacy coins can be compliant with that. The technology that Dash utilizes in our PrivateSend function is CoinJoin. We conducted exact duplicates of PrivateSend transactions on Bitcoins blockchain just to show that there is no functional difference between Dash and Bitcoin. There is no legally definable difference between the transactions; they are identical. If exchanges can be compliant with FATF Travel Rule for Bitcoin, they can use those exact same sets of tools for Dash. Dash can fully comply with the Financial Action Task Force (FATF) guidelines including the ‘Travel Rule’ as can be seen here.
Should Dash still be considered a privacy coin then?
Well, now that’s an interesting question. When someone refers to a privacy coin I typically ask for what the definition of a “privacy coin” is? Without a clear definition, how can one categorize properly categorize a coin? I contend that there is no such thing as a privacy coin.
When I look at the Bitcoin network I would say it falls somewhere in the middle of the privacy spectrum. While it’s true that it has certain elements that mitigate the privacy available to a user due to the fact that it’s a fully transparent blockchain where you can trace every single transaction that took place from the genesis block. It also has transparent input and output amounts and addresses which services like BlockChaInintel or Chainalysis can use to deanonymize users but running analysis on the chain. But Bitcoin also has certain privacy enhancing features such as coinjoin wallets, third party tumbling services and even lightning network which actually processes bitcoin transactions off-chain.
So that’s with Bitcoin in particular. Beyond that there are a number of cryptocurrencies that use even more privacy enhancing features. They achieve enhanced privacy by implementing techniques such as making a single blockchain block one large transaction instead of a combination of many transactions (such as mimblewimble) or by introducing stealth addresses or concealing transaction amounts. To oversimplify - anything that conceals or hides certain transaction parameters that are transparent on the Bitcoin network would tend to have more privacy.
What this means on a practical level is that when looking at individual blockchains you can’t just assign one to be a privacy coin. What I’m saying is you can’t set and forget this type of categorization. You really need to periodically look at the network and see what privacy enhancing techniques have been enabled on it and adjust your overall assessment of the network based on the updated features. As an example a couple of cryptocurrency networks are now looking at enabling mimblewimble on their networks which would definitely move them to the privacy-centric side of the spectrum.
Now circling back to your original question. Between various privacy features like off chain-transaction, shielding address/amounts, mimblewimble, tumbling/mixers and coinjoin - Dash only has Coinjoin enabled on its network. CoinJoin can literally be performed on any public blockchain.
So the evidence is conclusive that Dash is definitely not a privacy coin. Dash is a payments cryptocurrency, with a strong focus on usability, which includes speed, cost, ease of use, and user protection through the optional CoinJoin privacy feature.
Is Dash in any way more compliant than Bitcoin in terms of regulations?
As I mentioned, Bitcoin supports off-chain transactions via the Lightning Network. That is something Dash doesn't support as we plan to continue to scale on-chain. Additionally, Bitcoin supports Chaumian CoinJoin, a stronger privacy feature than the traditional CoinJoin process, which also doesn’t exist on the Dash network. Finally, the Dash network does not have third-party tumbling services - while Bitcoin does. So from a regulatory point of view that should place Dash in a more preferential position than Bitcoin. As mentioned, the Dash blockchain is public and completely transparent. Below compares Dash with Bitcoin and other “privacy” coins, you will see there is quite a spectrum with regards to privacy, and Dash is on the more transparent end of that spectrum in comparison.
Privacy features comparing Dash, Bitcoin, Zcash and Monero
Dash has been categorized as an “anonymity enhanced cryptocurrency” in a recent US DOJ report. What are the implications for this?
The US Department of Justice published a cryptocurrency framework over a month ago. I've read the report and I can confirm it completely miscategorizes Dash as both a private blockchain, as well as as an anonymity enhanced cryptocurrency. These statements are just simply factually inaccurate.
It's our top priority to get in front of the DOJ and to explain to them the fact that Dash's risk profile is actually lower than Bitcoin's, and that we're not a private blockchain. So far every single interaction we've had with regulators, where we were able to sit down with them and educate them on Dash, we've been able to successfully explain why they have gotten Dash wrong. I believe the regulators have come to the table with preset notions about Dash. I think part of it could be the legacy of being named DarkCoin in the past, and the name PrivateSend for our CoinJoin implementation does not help either. The other side is that there is quite a bit of misinformation online around Dash due to the sensationalism early in Dash’s history that I mentioned earlier.
We have reached out to the DOJ repeatedly but have yet to hear back from them.
What about Dash in Japan? Why was Dash removed from exchanges if there are no issues?
At some point the cryptocurrency exchanges in the Japanese market actually all delisted Dash due to the perceived fact that we were a privacy coin. People had not done primary research in looking at our privacy features and how Dash is no different from Bitcoin when it comes to blockchain transparency or transaction rule-set. It became clear that the decision to ban Dash was not based on any actual primary research into Dash but based on hear-say and the opinions of a couple of journalists who sensationalize news.
We have spent the last year and half educating the regulators on Dash. I believe that we are getting to the point where members of both the JFSA and the JVCEA now understand Dash and that it isn’t a “privacy coin”. We have also worked to partner with and educate exchanges and I foresee Dash getting relisted on Japanese exchanges next year.
The Financial Services Commission of South Korea (FSC) will reportedly prohibit all digital asset service providers from serving anonymous cryptocurrencies from March 2021. Will Dash be affected by this?
Great question. Again, it would be interesting to understand what feature set they consider to be “anonymous”. We have reached out to the Financial Services Commission of South Korea (FSC) as well in order to schedule a meeting with them. We would like to proactively speak to the FSC to ensure that they understand that Dash is not an “anonymous” cryptocurrency so that Dash can continue to be listed in South Korea.
However, this case is a great illustration of my point regarding sensationalization of Dash’s privacy. The morning that the FSC announced the new policy, we began receiving emails from concerned network members about Dash’s de-listing from the country. Every article we could find on the topic, gave the examples of Monero, ZCash, and Dash. It took us some time to translate the announcement on the FSC website and analyze it ourselves to realize that Dash is nowhere mentioned in the proposed policy or the announcement. One can only make the conclusion based on this information, that Dash’s mention in those articles is an erroneous assumption made by sensationalist press. Not to say that Dash will not be impacted by this law or that the Korean regulators do not view Dash as a privacy coin, because we currently don’t know that. This is to say that journalists made that leap in conclusion, not based on the facts of Dash, its optional CoinJoin feature or on anything stated by the South Korean FSC.
The IRS has recently put out a bounty to break Monero's privacy? Does that apply to or threaten Dash?
Dash Core Group has no position on the IRS’s offer. It doesn’t apply or threaten Dash in any way. Dash’s blockchain is public. Dash’s approach to privacy is probabilistic, not based on encryption.
If it’s not abundantly clear by now, Dash’s biggest pain point is having to time and again educate regulators about PrivateSend’s technology CoinJoin. Dash has the legal opinions, analysis and investigative reports from credible external sources that all conclude Dash’s position as posing no regulatory risk beyond Bitcoin. It really makes one wonder if Dash should consider taking a proactive approach instead of a reactive one by renaming PrivateSend functionality in Desktop wallet to just CoinJoin to prevent this from happening in the future as evidently from this interview it would resolve a lot of issues, saving both time and resources that is being spent on educating regulators all based on misunderstanding. Renaming the feature would be a marketing solution to a marketing problem, keeping everything else the same.Investment Disclaimer