What are ‘privacy tokens’?

MiCA refers to ‘inbuilt anonymisation functions’ in Article 76 of MiCA, however, it is the sole instance where the legislator mentioned crypto-assets using such functions within the entire text of MiCA. The term refers to technologies that enhance privacy, and protect user identities and transaction history. From a more technical perspective, the term usually refers to functionalities implemented within crypto-assets or their DLT that automatically anonymise transactions and/or user data. The text of Article 76 calls for several observations.

Firstly, the wording “the operating rules of the trading platform for crypto-assets shall prevent the admission to trading of crypto-assets that have an in-built anonymisation function …” in Article 76 implies a prohibition. It must be emphasised that this prohibition does not apply to all CASPs, but only to those operating a trading platform. This means that other CASPs are not prohibited from offering crypto-asset services, such as the custody and transfer of crypto-assets on behalf of clients, in relation to crypto-assets that have an inbuilt anonymisation function. More arguably, MiCA also does not prohibit the execution of orders or the reception and transmission of orders in relation to these crypto-assets.

Secondly, in the Consultation Paper titled ‘Technical Standards specifying certain requirements of MiCA – second consultation paper’, the European Securities and Markets Authority (ESMA) proposed a list of records to be kept by CASPs, depending on the nature of their service and activities. Under the regulators’ guidelines, CASPs operating a trading platform for crypto-assets must keep records of cases where crypto-assets have an in-built anonymisation function.