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Privacy and anonymity are the primary benefits of cryptocurrency, but due to the transparent nature of blockchain technology, crypto transactions are not as anonymous as some may think. Rather, Bitcoin (BTC) and other cryptocurrencies are pseudonyms, as every transaction on a blockchain network is transparent, allowing wallet addresses to be traced back to their source.
For example, cryptocurrency intelligence firm CipherTrace is able to track several hundred cryptocurrency transactions by analyzing wallet addresses, exchanging information and smart contracts. John Jefferies, CipherTrace’s chief financial analyst, told Cointelegraph that the company is currently able to trace over 800 cryptocurrencies to support criminal investigations. This is hugely relevant, as recent findings show that cryptocurrency-related crimes during the first half of this year have already accounted for $ 1.4 billion in theft, hacks and fraud.
Can Monero now be tracked?
While Bitcoin has been ranked as the number one cryptographic choice among criminals, many transactions on darknet markets are conducted using the Monero (XMR) privacy coin. For this reason, law enforcement has been extremely interested in finding a way to track down Monero. Although there was previously no tool capable of tracking Monero transactions, Dave Jevans, CEO of CipherTrace, said the company developed the first tool to track Monero transactions.
According to Jevans, the tool, which has been in development for over a year, will be used by the U.S. Department of Homeland Security to track Monero transactions. He noted that CipherTrace’s recent contract with the DHS Science & Technology Directorate led to the development of forensic tools for law enforcement and government agencies to track Monero transaction flows for criminal investigations:
“The tools include search, exploration and transaction visualization tools for Monero transaction flows that have been integrated with CipherTrace’s Inspector Financial Investigation Product.”
A turning point for the fight against crimes using Monero
Specifically, Jefferies of CipherTrace explained that the tools allow you to track down stolen Monero or those used for illegal transactions. While the product is not yet suitable for anti-money laundering purposes, Jefferies said ransomware cases involving Monero can be traced back to sources. This is remarkable, as ransomware criminals have been said to be switching from Bitcoin to Monero to better protect their identities.
According to Jefferies, the tool will allow law enforcement to restrict ransomware cases to a couple of different cryptographic addresses. Although Jefferies failed to reveal the exact number of transactions being tracked, he shared that the tool was indeed validated across a large number of Monero transactions:
“The tool shows transaction flows. Like all CipherTrace products, it protects user privacy by not tracking individual user identities. This is what law enforcement does, based on our analysis and legitimate court orders. “.
Jefferies also pointed out that the tools help ensure cryptocurrency exchanges, OTC trading desks, and investment funds that don’t accept Monero from illicit sources. This could very well be a game changer for Monero, which was recently removed from a string of exchanges due to poor compliance standards and a general lack of transparency compared to other cryptocurrencies.
Crypto community speaks out
Although CipherTrace’s new tool will help crack down on crimes related to Monero, members of the crypto community remain skeptical. Justin Ehrenhofer, organizer of the Monero Community Working Group and regulatory compliance analyst at DV Chain – a cryptocurrency organization – told Cointelegraph that while he is not surprised by CipherTrace’s tool for monitoring Monero, he has not yet received any specific information. on what the team has achieved:
“We assume that CipherTrace has developed a new method for tracking Monero transactions, but I’m not quite sure what they can do, so it’s hard to interpret the legitimacy of their claims. Saying that you have a method for examining Monero transactions does not mean that it is now as transparent as Bitcoin transactions. “
Ehrenhofer further commented that it is extremely unlikely that CipherTrace will be able to track Monero to the extent that they can track other cryptocurrencies. “Without specific information, any speculation is just that – speculation,” he added. Additionally, he noted that research will continue to improve Monero’s privacy features regardless of actions taken by CipherTrace or other companies attempting the same techniques.
While there are a number of privacy coins out there, XMR remains the largest and one of the most unique thanks to its advanced security features. Ehrenhofer explained that the main technology behind Monero is RingCT, a system that combines ring signatures and encryption of confidential transactions. “This means that I can look at a blockchain network on my computer and make it appear that it is spending other people’s funds without their actual participation,” he said. Ultimately, Monero allows you to hide all parts of a transaction, including sender, recipient, and amount details.
With this in mind, Ehrenhofer said Monero was specifically designed to withstand scrutiny from governments and others attempting to oversee it. Therefore, he remains confident in using Monero: “Since we have no reason to believe that there are new ways to try and trace Monero transactions, nor any indication of their effectiveness, Monero users can continue to transact safely.” . Jefferies, however, asks to be different, noting that the tools CipherTrace developed for DHS have laid the foundation for future and more advanced investigative tools, which law enforcement officials will leverage for Monero transactions.
Skepticism aside, some cryptocurrency enthusiasts believe that financial surveillance tools, such as those developed by CipherTrace, violate human privacy rights. Alex Gladstein, the chief strategy officer of the Human Rights Foundation – a non-profit organization – recently argued The Blockchain Debate podcasts that blockchain analytics companies are downright bad for Bitcoin and other cryptocurrencies.
Gladstein, who was joined on the show by Jevans, explained that providing government officials with information about cryptocurrency transactions also allows governments to spy on people’s financial transaction data. He said “financial surveillance” firms, such as CipherTrace, might even decide to work with dictatorships, allowing these governments to have greater control over citizens:
“I realize we have the Bank Secrecy Act, but transactions under $ 10,000 should remain private. This shouldn’t be given to the government, but if Jevan’s company manages to pull it off, it gets wiped out and even small microtransactions become fair game for the US government or even worse dictatorships.
While this is an extreme example, there are some practical benefits to consider. Ryan Taylor, CEO of Dash – another privacy-oriented cryptocurrency – told Cointelegraph that there is a big difference between Monero transactions that track DHS and personal transactions:
“Not wanting your spouse to find out that you bought jewelry for your anniversary is very different from stopping the government from following your illegal drug empire. Most people just look for “good enough” privacy and I don’t think professional tracking abilities affect most people in any meaningful way. “
