India has stepped up its oversight of the cryptocurrency sector, directing exchanges to restrict transactions involving privacy-focused digital tokens, as authorities seek to curb money laundering and illicit financial activity.
The move comes after the Financial Intelligence Unit – India (FIU-IND) issued updated guidance to crypto platforms, asking them to halt deposits, withdrawals, and trading of so-called anonymity-enhancing crypto tokens. These assets are designed to hide transaction details and user identities, making them difficult for regulators to track.
Privacy Coins Under Scrutiny
According to a report by ET, Privacy cryptocurrencies such as Monero, Zcash, and Dash were highlighted by industry participants as being affected by the restrictions. Regulators argue that the cryptographic features used by these tokens, including stealth addresses and transaction obfuscation, pose challenges for anti-money laundering compliance.
Under the FIU’s framework, exchanges are expected to treat dealings in such tokens as non-permissible within their risk-mitigation policies.
Global Regulatory Trend
India’s decision aligns with a broader international shift. Regulators in several jurisdictions have raised concerns about privacy coins due to their limited traceability. Some countries have already imposed bans or strict controls, arguing that transparency is essential for investor protection and financial system integrity.
Despite the restrictions, officials acknowledge enforcement challenges remain. Privacy tokens can still be acquired through unregulated platforms or swapped using peer-to-peer tools such as mixers and tumblers, which further obscure transaction trails once assets leave regulated exchanges.
Industry Reaction
Reacting to the move, Kishan Balaji, an independent node operator and consultant associated with the XDC Network, said blockchain systems must operate within the legal framework of each country.
“Blockchain networks have to be designed and used in compliance with the laws of the land,” Balaji said in an interview with Coinpedia. “Regulators and enterprise users have long pointed out design flaws in privacy coins. A clear decision brings more certainty to India’s financial ecosystem.”
Balaji added that enterprise-focused networks are increasingly building compliance features directly into their infrastructure, including know-your-customer checks, international messaging standards, and travel-rule compliance.
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