With the introduction of the Mimblewimble Extension Blocks (MWEB) Litecoin update, the cryptocurrency gets more privacy. While most cryptocurrency investors and users are happy to hear that, centralized and regulated cryptocurrency exchanges in countries like South Korea started the delisting process due to potential legal issues.

The MimbleWimble upgrade was first mentioned more than two years ago as part of the Litecoin Improvement Proposal. Then the network started planning to enhance anonymity between senders and receivers of a transaction on its network. On May 2nd 2022, Litecoin achieved the 75% network consensus level required for activation of MWEB. It was activated at block height 2257920.

This update opened up the possibility of sending “confidential” transactions on a chain that hides the amount sent. Essentially, it makes tracking a sent sum impossible and consequently non-taxable by authorities. While decentralised exchanges are welcoming new functions that make Litecoin trading more secure and decentralised, Litecoin’s place on large centralised exchanges is questionable.

This update does not comply with South Korea’s strict coin privacy laws, so the two major crypto-exchanges had to stop supporting LTC. The two said they would delist Litecoin due to these new features as the update conflicts with anti-money laundering regulations.

Upbit stated that “the upgrade was found to involve the selection of option that enables users to not expose transaction information”. The exchange asked the Litecoin Foundation to provide an explanation for its technology and made a review of their reply. As a result, they decided to end market support for LiteCoin (LTC) saying that the new options correspond to “anonymous transmission technology”. Market support for Litecoin using Upbit will be shutting down on June 20 and users will be given a month after that to withdraw their funds from the exchange by July 20.

Bithumb reacted quickly. In its delisting notice, the exchange emphasized its responsibility to “protect users and to construct a transparent digital asset market”. It stopped depositing Litecoin on June 8 and gave users time until July 25 to fully withdraw their Litecoin funds. In their notice Bithumb said that it “decides to terminate transaction support for virtual assets in accordance with the revised Act on Reporting and Use of Specific Financial Transaction Information, in compliance with regulations on virtual assets with high anonymity”.

According to 8BTC other smaller exchanges have also notified users of removing Litecoin:

Anonymous nature of transactions can be a tool to launder criminal funds. The most widely used privacy coins with similar functions are Zcash and Monero, which are largely regulated in Europe and Asia and are banned by the most centralised cryptocurrency exchanges.

It should be also mentioned that there’s more to the MWEB than just the privacy features. The MWEB also brings key improvements to activities on the blockchain: for example, it helps reduce excess transaction data from the blocks and increases the network’s throughput and transaction processing speed.

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