About 90% of the projects I have researched are related to Privacy, but the question I ask the most is: Why does privacy always provoke such strong reactions from regulators?
And this is my personal perspective.
It's not because they hate technology, but because they cannot see it. They dislike unclear and vague things.
In 2023, the U.S. Department of Justice prosecuted related to Tornado Cash. Approximately 1 billion USD is alleged to be money laundering. The reaction is not about the number but about the fact that they cannot trace the flow of money. Code is punished like humans.
@MidnightNetwork touches that sensitive point.
Not fully hidden like Monero. Not absolutely mixed like Tornado. It allows proof without revealing data. Sounds like the way the Financial Action Task Force wants the world to operate. Just enough information to audit.
But that's the problem.
According to Chainalysis, in 2024 only 0.34% of crypto volume is related to illicit activity. Small. But enough to shape policy. Regulators always look at the worst-case scenario. If users choose when to disclose, compliance becomes optional.
Midnight lies in between, and the middle ground is often the most dangerous. If it allows both compliant flow and non-compliant flow to coexist, regulators will assess based on the higher risk portion. No need for a majority, just a sufficiently large minority. An interesting point. Input Output Global designed Midnight with auditability in the whitepaper. They understand the rules of the game but cannot control how users play.
If Midnight can encode policy into proof, allowing only transactions valid under AML rules, it could become something regulators like. But then, it is no longer privacy in the sense that crypto once believed.
It's not about hiding or revealing, but who decides when to be seen.