Zooko Wilcox wants to dispel what he calls the “common myth” that privacy-focused cryptocurrencies like Zcash are incompatible with government regulations. In fact, he says, encryption technologies such as those baked into Zcash may one day be required by regulators as a way to protect consumers.
In Prague on Thursday morning, Wilcox took the stage at Devcon to share recent technical advances he and his team have made with Zcash and to clarify the regulatory prospects for the cryptocurrency he founded two years ago. “You have probably heard that law enforcement and regulators and governments fear privacy, or that privacy technology like Zcash is incompatible with regulation, and I’m here to say that’s totally wrong,” Wilcox said. “It’s not incompatible with regulation, and the actual regulators are not afraid of it and are not trying to prevent it.”
In May 2018, as Wilcox reminded his audience, the New York Department of Financial Services gave Gemini, the cryptocurrency exchange run by Cameron and Tyler Winklevoss, the go-ahead to offer Zcash trading to consumers. That was a watershed, said Wilcox, because it signaled that regulated U.S. exchanges “can comply with all of the requirements while supplying encrypted Zcash to [their] customers.”
Far from being enemies of cryptocurrency, regulators "share a lot of values" with crypto advocates and internet privacy activists, said Wilcox.
The NYDFS is seen as one of the most challenging gatekeepers for cryptocurrency businesses thanks to its creation and enforcement of the BitLicense, a controversial set of statewide requirements that pushed a number of crypto companies out of New York. Earlier this year, Wilcox and his colleagues had a meeting with the NYDFS about which, he said on Thursday, he had never spoken publicly before. The NYDFS president opened the meeting, according to Wilcox, with a rousing endorsement of privacy technology: “We all agree that we don’t want the pocketbooks of our families and the citizens of our communities to be exposed to everyone on the internet.”
Wilcox drew an analogy to SSL, the security technology that maintains the privacy of data passed between web servers and web browsers. When SSL was being invented, he said, “one small faction within the United States government”—including the FBI and the NSA—opposed it because it could have criminal uses. “That’s funny now, because 25 years later the U.S. government requires you to use SSL” to safeguard customers, he said.
The same attitude shift, he thinks, will play out with encryption on blockchains. Far from being enemies of cryptocurrency, regulators “share a lot of values” with crypto advocates and internet privacy activists, said Wilcox. “We want a safe and prosperous society, and we all want a society in which the citizens have meaningful political participation, and we want people to be protected from crime and fraud. Encryption tech is compatible with all of that.”
But the global outlook for Zcash isn’t all roses. In China and India, cryptocurrencies “are all effectively banned,” Wilcox admitted. In Japan, a self-regulatory organization called the Japan Virtual Currency Exchange Association has proposed that exchanges should be required not to offer Zcash.
Wilcox still holds out hope that Japan’s Financial Services Agency, which is responsible for approving cryptocurrency exchanges to operate in the country, might be persuaded to follow the NYDFS’s example. “Japan is gray on the map,” he said. “It’s an ongoing conversation right now. It’s not settled.”
Earlier this week, Zcash developers implemented a protocol upgrade called Sapling, making the network faster and more secure. Most Zcash transactions to date have not taken advantage of the cryptocurrency’s privacy features, because private transactions have been prohibitively slow and required too much computer memory, making them impossible on mobile devices.
With Sapling, the transaction time has been reduced by 90 percent and the memory requirements by 97 percent, the Zcash Company said in a blog post. “Privacy is really, really hard,” said Wilcox on Thursday, “and I wouldn’t want to pretend like we’ve solved it, but we’ve made a really substantial improvement that everyone can learn from.”
In a world plagued by surveillance, ransomware, and other security threats, encryption may become ever more necessary to protect people’s fundamental rights, Wilcox suggested.
The Zcash founder and his colleagues “care about what kind of world we’re building for our children and grandchildren to grow up in,” he said. “Privacy is a human right, and it’s necessary for political participation and intimacy and human relationships. It is not ok for our societies to continue careening [toward] a world where there’s pervasive and intimate violation of everyone’s privacy.”