Trezor Steps Back from Coinjoin: What’s Next for Crypto Privacy?

In a move that has sent ripples through the crypto privacy community, hardware wallet giant Trezor has announced it will discontinue its Coinjoin feature within Trezor Suite. This decision, effective June, marks a significant shift for users who rely on Trezor for enhanced Bitcoin transaction privacy. Let’s dive into what this means, why it’s happening, and what the broader implications are for crypto privacy.

What’s Happening with Trezor and Coinjoin?

Trezor, known for being a pioneer in hardware wallet security and features, partnered with zkSNACKs, the team behind Wasabi Wallet, to bring Coinjoin functionality to its users. Coinjoin is a powerful privacy tool that allows Bitcoin users to mix their transactions with others, effectively obscuring the transaction trail and making it significantly harder to trace the origin and destination of funds. Think of it like shuffling a deck of cards – it breaks the direct link between inputs and outputs, enhancing your financial privacy.

Trezor integrated Coinjoin into its Model T in April 2023 and later expanded it to the Model One in August. This made Trezor the first hardware wallet to directly support this privacy-enhancing feature. However, this journey is coming to an end. Trezor’s announcement confirms that by June, the Coinjoin feature in Trezor Suite will be discontinued.

Why is Trezor Ending Coinjoin? Blame it on Regulatory Uncertainty

The decision isn’t solely Trezor’s. zkSNACKs, Trezor’s partner and the coordinator of the Coinjoin service, has decided to shut down its coordination service. In a blog post, zkSNACKs expressed that this decision was made with a “heavy heart” and due to the need for “legal clarity.” This points towards the increasingly complex and often murky regulatory landscape facing crypto privacy tools.

Here’s a breakdown of the key reasons behind this decision:

• Regulatory Pressure: zkSNACKs’ decision comes shortly after they blocked US citizens and residents from accessing their services, including Wasabi Wallet. This move was a direct response to growing regulatory scrutiny in the United States.
• Legal Uncertainty: The lack of clear regulations around non-custodial crypto services and privacy-enhancing tools is a major factor. zkSNACKs’ call for “legal clarity” suggests they are seeking a more defined legal framework to operate within, which is currently lacking.
• Broader Industry Trend: This isn’t an isolated incident. Phoenix Wallet recently halted services for US users, and there’s increasing pressure on other non-custodial wallet providers like MetaMask and Samourai Wallet.

See Also: Phoenix Wallet Halts Services For US Users

What Happens to Your Funds?

Despite the shutdown of the Coinjoin feature, Trezor assures users that funds within Coinjoin accounts will remain safe and accessible. You will still have full control over your Bitcoin. The change only affects the ability to use the Coinjoin feature directly within Trezor Suite.

Privacy Isn’t Dead: Wasabi Wallet Continues, Minus Coinjoin Coordination

While zkSNACKs is discontinuing its Coinjoin coordination service, Wasabi Wallet itself isn’t shutting down. They emphasize that Wasabi Wallet will continue to offer other robust privacy features, such as:

• Client-Side Filtering: This helps users filter out unwanted transaction history.
• Tor Integration: Routing traffic through Tor helps to mask your IP address and location, adding another layer of privacy.

However, the absence of the coordinated Coinjoin service is a significant change for Wasabi Wallet users and the broader Bitcoin privacy ecosystem.

The Bigger Picture: Regulatory Storm Clouds Over Crypto Privacy

The Trezor Coinjoin shutdown and zkSNACKs’ actions are not happening in a vacuum. They are part of a larger trend of increasing regulatory pressure on non-custodial crypto services, particularly in the United States. Let’s look at some recent developments:

Non-Custodial Crypto Service Providers Face Legal Showdown

• Phoenix Wallet Exits US: As mentioned, Phoenix Wallet, another privacy-focused wallet, has already announced its departure from the US market, citing regulatory uncertainties.
• SEC Crackdown on Samourai Wallet: The SEC’s recent actions against Samourai Wallet, another privacy-focused Bitcoin wallet, signal a clear intent to regulate these types of services more stringently.
• MetaMask Under Scrutiny: MetaMask’s parent company, Consensys, reportedly received a Wells Notice from the SEC, indicating potential legal action. This is significant because MetaMask is one of the most widely used non-custodial wallets.
• Consensys Fights Back: Instead of waiting for the SEC to act, Consensys has proactively filed a lawsuit against the SEC, choosing to challenge the regulatory approach head-on.
• Uniswap Labs’ Wells Notice: Uniswap Labs, behind the decentralized exchange Uniswap, also received a Wells Notice, further demonstrating the broad regulatory sweep.

Acinq, the company behind Phoenix Wallet, succinctly summarized the situation: “Recent announcements from U.S. authorities cast a doubt on whether self-custodial wallet providers, Lightning service providers, or even Lightning nodes could be considered Money Services Businesses and be regulated as such.”

What Does This Mean for Crypto Users and Privacy?

The end of Coinjoin in Trezor Suite is a setback for users who prioritized privacy and used hardware wallets for this purpose. It reflects a growing tension between the ethos of crypto privacy and increasing regulatory demands, particularly in the US.

Here are some key takeaways:

• Privacy Tools Under Pressure: Regulatory pressure is mounting on privacy-enhancing tools and services in the crypto space.
• Non-Custodial Services at Risk: The definition and regulation of non-custodial services are becoming a major battleground.
• Users Need to Adapt: Crypto users who value privacy may need to explore alternative privacy solutions and stay informed about the evolving regulatory landscape.
• Innovation vs. Regulation: The crypto industry faces the challenge of balancing innovation with regulatory compliance. The outcome of these legal battles will significantly shape the future of crypto privacy and user autonomy.

Conclusion: A Step Back for Privacy, But the Fight Continues

Trezor ending its Coinjoin feature is undoubtedly a step back for privacy within the hardware wallet ecosystem. It underscores the growing challenges faced by crypto companies in navigating the complex and often unclear regulatory environment. While this specific feature is being discontinued, the broader conversation around crypto privacy is far from over. The legal battles being fought by companies like Consensys could set crucial precedents, and the demand for privacy-enhancing tools will likely persist. As the regulatory landscape evolves, the crypto community will need to continue innovating and advocating for solutions that uphold both user privacy and responsible innovation.

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