Privacy coins have been the lasting concern of the governments and financial authorities. Their enhanced anonymity features allow to use the coins for illegal purposes such as tax evasion, money-laundering, terrorism financing, drug trading, cryptojacking, etc.
Due to the anonymity and security of privacy coins, criminals have been preferring to use Monero (XMR) rather than other cryptocurrencies including Bitcoin on darknet shadow markets. It allows for a greater camouflage and secrecy.
Unlike cryptocurrencies like Bitcoin, privacy coins such as Monero have got unmatched privacy features, are less volatile, and cheaper. These features help users to hide the origin of transactions being conducted. For instance, XMR encrypts the source, size, locations and other data of the transactions, and this makes it safe for users to conduct illicit activities all in the name of digital secrecy.
Ransomware developers and cryptojacking malware such as Lucifer, have been taking advantage of XMR to get paid their ransom money, in fear of being tracked down by the cybersecurity police and financial regulators.
Because of headache privacy coins have been causing problems to the side of the regulators, there have been a series of concerns and attempts to delist and de-anonymize them. Due to their criminal reputation, different cryptocurrency exchanges including OKEK (based in South Korea), Coincheck (Japan),Upbit, BitBay (Estonia), etc., decided to delist privacy coins. Coinbase also raised concerns of dropping XMR from its trading platform citing the lack of regulatory uncertainty in the USA on privacy coins.
Cracking privacy coins to prevent criminality
As per the report by CoinIdol, a world blockchain news outlet, the USA tax service, Internal Revenue Service (IRS), set a price for whoever cracks Monero. More than $625k is to be given to any company or individual who succeeds in compromising the privacy layers of XMR and other privacy coins. Actually the IRS is collaborating with other contractors including CI Cyber Crimes unit, and Cyber Special Agents members, to crack the privacy of Monero.
The Russian intelligence agency in charge of preventing money laundering and terrorism funding, also invented an artificial intelligence based system to track and de-anonymize cryptoasset transactions. And it seems that another tool to track Monero transactions can actually appear. CipherTrace has been inventing an instrument to help in investigating XMR transactions and all related addresses used in criminal activity.
Now, the firm has filed two XMR cryptoasset tracing patents. The first patent was called “Systems and Methods for Investigating Monero” and the second one is titled “Techniques and Probabilistic Methods for Tracing Monero,” and they cover things like; Monero decoy reduction, and many others.
The tracing capabilities will help cryptocurrency exchanges (VASPs) to find when inbound Monero or any other privacy coin may have criminal sources, and this will enable them to sufficiently risk rate user transactions in line with any required or set regulations.
Monero developer fight back
On the other hand, Monero developers are trying to protect the privacy of their coin. They are adding more features in the Monero blockchain to stop the hackers and other parties from breaking the privacy walls of their privacy coin and de-anonymize it.
The team released an update dubbed ‘Oxygen Orion’ last month, that enables to preserve and improve the XMR’s privacy feature. The software also maintains anonymity and increases on the size and the speed of the transactions.
Does this mean that it’s the end of privacy coins if the transactions are de-anonymized? Will the new tool actually put an end to Monero privacy? Or maybe the developers will issue another update to keep their coin anonymous?