Crypto-exchange FTX has allegedly started blocking accounts of some users. What is the reason for this?
The day before, journalist Colin Wu tweeted about the alleged freezing of an FTX exchange customer due to its interaction with decentralised platform Aztec Network. The crypto exchange’s system flagged Aztec as a mixer and recommended that it avoid using the platform, so its users are now experiencing problems. Aztec representatives were quick enough to respond to the news and promised to take action to stop the service being used by the attackers. We’re going to take a closer look at what’s going on.
Aztec Network is a scalability solution for Etherium that executes transactions in the external blockchain or so-called layer two - that is, outside of the main altcoin blockchain or layer one. The platform supports the ZK-Rollup solution, which is a tool that aggregates transactions outside the blockchain and generates a zero-disclosure cryptographic proof-of-concept to ensure privacy. In essence, Aztec Network is a service to enhance transaction privacy within the realm of decentralised finance.
With that in mind, it’s fairly predictable that the platform’s users have found themselves at the centre of the problems.
Why are cryptocurrency exchanges blocking users?
Colin Wu posted information about the account freeze with the following quote on Twitter.
FTX recently froze the account of a user who was sending coins to the Zk.money protocol inside Aztec Network. According to FTX, the transfers to Aztec are identified as the use of cryptomixers, which is a high-risk activity prohibited under the terms of use of the crypto exchange.
In other words, cryptocurrency exchange representatives perceive such activity as a violation of the platform's terms of use. Again, this is another reminder that customers of centralised trading platforms do not essentially own their own digital assets: in this case, they belong to the exchange. And such withdrawal bans, along with account lock-outs, are a stark reminder of this.
The official Aztec Network Twitter account was quick enough to announce that the platform would begin taking enhanced measures to minimise incidents of its use with criminal intent. Here’s their rejoinder.
We are currently limiting transaction limits to 5 ETH or 10 thousand DAI with the zk.money protocol, our solution for accessing the private sphere of decentralised finance. In the coming days and weeks we’ll expand our efforts to include system-wide daily asset deposit limits, IP-specific deposit limits and single address deposit limits.
Aztec Network
Transaction limits are expected to help significantly reduce the activity of attackers who need to transfer large amounts of coins anonymously into the decentralised finance sector via Aztec Network. However, such measures are unlikely to be completely effective, and would alter the attitudes of most centralized venues towards Aztec.
On topic: Tornado Cash cryptomixer developer arrested in the Netherlands. How has the blockchain community reacted?
According to Decrypt’s sources, FTX’s harsh measures against its users involved in Aztec Network were introduced for a reason. As a reminder, the day before, the US Treasury Department imposed sanctions on cryptomixer Tornado Cash, blacklisting a huge number of addresses interacting with the platform. This event caused a wave of outrage in the cryptocurrency community, but also set a precedent for blocking exchange addresses, which now prefer not to cooperate with any privacy-oriented services at all.
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FTX CEO Sam Bankman-Fried posted the following tweet with an eye on what’s happening.
To be clear, it’s all getting a bit too confusing. We are constantly monitoring transactions to comply with anti-money laundering requirements and conducting enhanced scrutiny of certain transactions, but this does not mean that any accounts on FTX have been frozen.
In the end, Sam brings it all down to the topic of regulation which the trading platform is obliged to comply with. Since FTX is also active in the USA, some sort of sanctions against privacy instruments might be seen as a way of avoiding possible trouble with the authorities.
FTX CEO Sam Bankman-Fried
Meanwhile, Aztec has been quick to assure that even with the aforementioned new restrictions on the platform, it will not sacrifice the privacy of its users in any way. This principle remains key to the work of the Aztec Network team.
We believe that this trend in the cryptocurrency industry is hardly healthy. Obviously, the authorities are not happy with various privacy tools that everyone can use. And privacy is a right, not a privilege - especially in the case of digital assets. However, regulators are unlikely to be comfortable with such a viewpoint.
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