Monero Has Shown Surprising Resilience at the Legal Level
The criminalization of Tornado Cash by the US OFAC today, was quite the Orwellian move. Unfortunately, this shouldn't be entirely unexpected. Over many years, we have increasingly seen the weakness of coin mixing - particularly, optional coin mixing - come to bear against the crypto market.
One of the more disconcerting aspects, is the requirement for users to actively participate with other entities in co-mingling their coins to a common pool. Often these entities are either nefarious, or personas non-grata.
By contrast, ring signatures in Monero require neither the co-mingling of funds, nor the active participation of other users in order to achieve transaction graph obfuscation. There has been debate on whether or not this distinction has practical legal implications; and today, the case for this distinction became much stronger.
Consider that: Here we have Monero since 2014; popular for years in darknet markets; larger and more prevalent that Tornado; and offering stronger default privacy/anonymity. Yet despite the outright criminalization of Tornado Cash today, Monero remains fully legal for individual use. Furthermore, XMR is available on exchanges in the majority of nations, apart from a few notable exceptions.
One might ask: how could that be? Why wouldn't they attack the more widely used protocol offering better anonymity?
The strong case to be made, is that Monero - as compared against coin mixing - offers better censorship resistance at the legal level. In fact it's possible, even likely, that Monero's default privacy, enforced at the network level, contributes to its legal resiliency.
In other words - Selectively and actively washing your coins in a pool commonly used by nefarious entities (even if executed by a decentralized contract); has substantial legal differences from an encrypted monetary network that always segregates user's funds.
The addresses and contracts in Tornado are clearly visible and attackable in both a legal and practical sense. The outputs (addresses) on Monero are essentially indistinguishable from one another. Outputs are never re-used, and encryption protects those outputs, from being associated with your public address, which can be safely shared with the world. Default application of these (and other) obfuscation techniques on all transactions, present large practical barriers to these kinds of selective prohibitions against Monero users.
Monero has shown great resiliency at the network and protocol level; and now with a few more years behind us, is showing surprising legal resiliency as well. It's far and away the best option for protecting your crypto asset financial data, while remaining well within the bounds of the law.