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DOJ says use of privacy coins is ‘indicative of possible criminal conduct’

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A new report from the U.S. Department of Justice alleges that crypto traders dealing with coins like Monero, Dash, and Zcash are inherently engaging in “high-risk activities.”

According to the “Report of the Attorney General’s Cyber Digital Task Force” released by the DOJ on Oct. 8, anonymity enhanced cryptocurrencies, or AECs, undermine and even facilitate existing anti-money laundering, or AML, and combating the financing of terrorism, or CFT, regulations put in place by businesses dealing in fiat. The task force cited coins including Monero (XMR), Dash (DASH), and Zcash (ZEC).

“The Department considers the use of AECs to be a high-risk activity that is indicative of possible criminal conduct,” the report stated. “AECs are often exchanged for other virtual assets like Bitcoin, which may indicate a cross-virtual-asset layering technique for users attempting to conceal criminal behavior.”

This is a developing story and will be updated.



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Dash should not be considered a privacy coin, Dash team says

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Once viewed as one of the crypto industry’s top privacy-focused assets, Dash (DASH) no longer operates under that classification, according to the Dash Core Group, the body overseeing the asset and its development. 

When asked if Dash should remain under the category of a privacy asset, Fernando Gutierrez, CMO for the Dash Core Group, told Cointelegraph: 

“No, Dash is a payments cryptocurrency, with a strong focus on usability, which includes speed, cost, ease of use, and user protection through optional privacy.”

Dash launched as a fork of Bitcoin in 2014. Originally called XCoin, before changing its name to Darkcoin, and then finally Dash, the asset positioned itself as a privacy-focused asset. “Dash is the first privacy-­centric cryptographic currency based on the work of Satoshi Nakamoto [Bitcoin’s pseudonymous creator],” the project’s white paper said.

In addition to Dash, two of the market’s other main anonymity-focused assets, Monero (XMR) and Zcash (ZEC), came to life in 2014 and 2016 respectively.  

Evident in Gutierrez’s comment, Dash no longer focuses mainly on privacy, although the asset does still have a feature called PrivateSend, giving users the option of greater anonymity. “The technology that Dash utilizes in our PrivateSend function is CoinJoin, which is a technique for complicating transactions to the point that they’re more difficult for analytics firms to analyze those,” he explained. 

The CoinJoin approach came on the scene in 2013, essentially letting Bitcoin users mix their transactions into a group to make tracking difficult. Dash essentially took this exact same approach and made it a more convenient built-in option for Dash senders, Gutierrez explained. 

In recent days, privacy assets have faced significant scrutiny from governing bodies, as seen by the IRS’ $625,000 bounty for cracking Monero. “Dash Core Group has no stance on the IRS’s offer,” Gutierrez said, adding:

“It doesn’t apply or threaten Dash in any way. Dash’s blockchain is public. There is nothing to break because Dash’s approach to privacy is probabilistic, not based on encryption. In that, it is not different from the Bitcoin blockchain.”

Two blockchain analytics companies, Chainalysis and Integra FEC, recently won the IRS bounty. 



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Will ‘cracking’ Monero reveal treasure or fool’s gold?

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Recently, the United States Internal Revenue Service caused a stir in the crypto community when it put a bounty on the head of anonymity-focused crypto-asset Monero (XMR), offering $625,000 to anyone who could effectively track the purportedly untraceable asset. As the crypto and blockchain industry values anonymity and privacy, questions arise on the result of the effort, not to mention its plausibility.

“As of the current stage of cryptography science today, the Monero protocol is almost impossible to break with necessary certainty,” Pawel Kuskowski, CEO of Coinfirm — a blockchain analytics company — told Cointelegraph. “However, it does not mean that Monero assets tracing is impossible in an effective way,” he said, clarifying:

“Some initiatives can be beneficial to investigating cryptocurrency crime for authorities such as: running a large network of their own Monero nodes, analyzing any data seized by shuttering non-compliant service providers that involve Monero and utilizing spy software and wallets — the latter of which is particularly useful for investigations.”

Monero serves as one of the crypto industry’s most well-known anonymity-focused assets. Cryptocurrencies such as Bitcoin (BTC) post all transactions to a public ledger visible to anyone online. Although BTC transaction addresses remain pseudonymous, various tools and efforts can sometimes link transactions and addresses back to personal identities. Since its inception in 2014, Monero has had the ability to hide transaction values and sender addresses. The asset’s blockchain also conceals transactions and their sums from uninvolved third parties.

A firm alleges XMR-tracking powers

Blockchain analysis firm CipherTrace came forward on Aug. 31 touting supposed XMR-tracking technology, reportedly the first of its kind. “We recently added monero tracing capabilities to our investigative suite,” Dave Jevans, CEO of CipherTrace, told Cointelegraph in a follow-up conversation, adding:

“Our tools do not reveal the identities of the users sending or receiving monero transactions. It is up to law enforcement to find that information from mapping data from addresses, wallets, payment IDs, etc.”

The IRS steps in

The motivation for decoding XMR became more interesting on Sept. 11, however, when the governing tax authority of the U.S., the IRS, publicized its search for anyone capable of breaching Monero’s transaction-hiding technology, offering $625,000 as a reward for such intel. In an industry valuing privacy, helping a government agency with this type of endeavor appears antithetical to the space, in some ways.

“The IRS is offering this money for research and development, which is not as controversial or surprising as many in the media are making it sound,” Jevans explained, adding that the governing body is targeting involvement from a number of entities for the endeavor, only budgeting $1 million toward the effort. Therefore, the IRS publicized a $500,000 payment upfront, with a further performance-based $125,000 paid eight months later. Jevans declined to comment on whether or not CipherTrace plans to work with the IRS.

Kuskowski described the IRS reward as predictable, given the timing of the bounty, which was announced approximately five days after CipherTrace publicized its XMR-tracking tool. Kuskowski, however, did not mention CipherTrace by name, only hinting at the firm by noting the timing of events, as well as the firm’s probabilistic approach, which he described as: “Totally useless for investigations owing to authorities being unable to display clear evidence. In cryptography something either is or isn’t, it is not probable.”

The IRS unveiled two Monero-cracking champions on Sept. 30. Surprisingly, CipherTrace was not one of the two, although the race to beat crypto privacy also involved the government agency’s desire to defeat the privacy held within layer-two blockchain solutions, such as Bitcoin’s Lightning Network. Chainalysis and Integra FEC stood as the victors, beating 22 other applicants.

Doubt regarding Monero-tracking efforts

CipherTrace claims it wields Monero-tracking power, and the IRS, apparently, saw something promising from Chainalysis and Integra FEC, but the effectiveness and depth of such tracking remains up for discussion. “I am highly suspicious of any claims that corporations can trace Monero transactions,” a representative from Monero Outreach told Cointelegraph. As an independent workgroup, Monero Outreach teaches the public about the privacy-focused asset.

“While it may be possible to learn user information from network level metadata that is not concealed with Tor or a similar privacy network layer, they likely cannot trace the wallets or amounts for any transaction,” the representative explained. A common software, Tor facilitates anonymous interactions online. The representative added:

“If this were the case we would have already found out from the handful of research teams who work tirelessly studying Monero and looking for these type of vulnerabilities.”

If the three firms did indeed uncover methods for tracking Monero, the crypto space might actually benefit. XMR boasts a large number of involved developers laboring toward the code’s advancement while fixing any weaknesses that surface, according to the representative. Therefore, the asset improves following any uncovered weaknesses, the representative posited.

XMR loses value if cracked?

As of the time of publication, Monero is the 16th-largest cryptocurrency, based on CoinMarketCap data, sitting at a price of $102.41 per coin — but what happens to the asset’s value if it loses its privacy capabilities? Kuskowski opined:

“We believe that XMR’s value is almost close to zero if its anonymity aspect is removed as currently the majority of businesses that use it or offer it to clients (with the exception of some derivatives products) are on the edge of being legal.”

CipherTrace’s Jevans holds a slightly alternate view. “Monero’s construction is quite different from Bitcoin’s, so most likely, tracing Monero will always be more predictive than completely deterministic; however, a big break-through in reducing Monero’s anonymity would likely cause the price to go down initially,” he said, adding that privacy-seeking owners of the asset might quickly head for the exits, offloading the asset onto the market.

Even if its privacy is cracked, however, Jevans expects XMR will rebound in price once it sees listing on additional crypto exchanges, labeling significantly higher trading volume as the driver. “It’s also worth noting that bitcoin has never been anonymous and it’s always been valued more highly than monero,” he added.

Monero already trades on a vast number of crypto exchanges, providing a potential counterpoint to Jevan’s expectation. Additionally, Monero is known for its privacy-focus, which becomes null if its privacy is broken. In contrast though, delisting Monero has also become a recent trend, decreasing available volume. A number of platforms have delisted the asset for various reasons over the past two years, including Huobi and Bithumb.

Although Chainalysis declined to weigh in on the IRS’ effort to break Monero, the firm did offer up its perspective on XMR’s value if its privacy were broken. Maddie Kennedy, senior communications director for Chainalysis, told Cointelegraph:

“Cryptocurrency users, including bad actors, often have to choose between using a cryptocurrency like Monero for its enhanced privacy and Bitcoin for its convenience, availability and liquidity. Bitcoin already usually wins, especially as exchanges increasingly delist privacy coins in light of regulations.”

It’s also important to note that nefarious characters are not the only parties who value privacy technologies such as Monero. The coin offers a way for the everyday person to take back their privacy in an age filled with digital snooping and data selling. Governments and people in power treat privacy in digital spending as a foreign concept, when in reality, government-printed cash is the most anonymous option available and is used daily for illegal activities.



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Cashless future ahead? Utopian digital dream with dystopian inequality

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In Sweden, cash in circulation represents only 1% of the country’s gross domestic product, and some experts predict the nation will go “totally cashless” by 2023. In China’s largest cities, over 90% of people use WeChat Pay and Alipay as their primary payment method, with cash a distant second. 

It may seem that the transition to a world without paper banknotes and metal coins is inevitable, but this week, a survey reminded us that reports of hard cash’s death may be greatly exaggerated. The study by Genesis Mining, titled “Perceptions and Understanding of Money 2020,” reports that 60% of Americans are opposed to the idea of paper money being replaced with digital-only money. “Americans are not psyched about parting with their paper money on a permanent basis,” commented Genesis CEO Marco Streng.

How does one account for this result if the march to a cashless global society (i.e., where cash is not a generally accepted means of payment) is inexorable, as some — including Jonas Hedman, a professor in the Department of Digitalization at Copenhagen Business School — have posited?

“There are several reasons for this,” Hedman told Cointelegraph, including “lack of trust in the central government and a poor payment infrastructure at the national level [in the U.S.]” Richard Holden, professor of economics at the University of New South Wales, told Cointelegraph: “The ‘greenback’ is iconic in a way that other currencies — perhaps with the exception of the British Pound — are not.”

Cash may stay around for a while

But maybe the United States is not just an outlier, and there are serious reasons why “cashlessness” might not burst forth overnight. A digital-only dollar could be perceived “as an incursion on privacy and individual freedoms,” Vinay Prabhakar, vice president of product marketing at Volante Technologies — a financial solutions provider — told Cointelegraph.

A cashless society may also discriminate against the poor, as Vlad Totia, a payments analyst at analytics and consulting firm GlobalData, told Cointelegraph: “A digital society requires people to at least have access to a device and an internet connection in order to manage their personal finances.” But many in the U.S. and other countries still don’t have this access, so eliminating cash risks further disenfranchising society’s least-well-off members — exacerbating income inequality.

There may be psychological barriers, too, Holden noted: “People have been using cash for a long time, and it has required a mindset shift to move fully away from cash. But many young people literally cannot imagine a world pre-iPhone.”

The world’s advanced economies would benefit significantly from going cashless, Holden continued. Digital payment schemes could curtail tax evasion and reduce illegal transactions that often take place using cash. Holden noted: “Cash is clumsy in many ways: it is slow during transactions, and handling cash is time-consuming and involves costly insurance for businesses.”

Usability of cash

Hedman has conducted research to show that Sweden is on course to become the world’s first cashless society by March 2023 — but that research was done before the coronavirus pandemic. Has his timeline changed? “Cashless will come much earlier,” Hedman told Cointelegraph. “Cash usage has dropped significantly during Corona.”

Totia agreed that COVID-19 has given a boost to the cashless trend. “Lockdowns, temporary closure of businesses, people not going out of their homes, ordering groceries at home. […] All of these aspects have pushed people into using online banking and payment methods more because quite simply you can’t use cash much in these times.”

There is a hygienic aspect too. A 2017 study in which researchers tested $1 bills that had been circulating in New York City concluded that “money could potentially mediate interpersonal transfer of microbes.” People don’t want to be touching bills that have circulated through many hands during a coronavirus pandemic, noted Totia, adding:

“However, the biggest bump in users have been people who were either too reluctant, comfortable, old or too used to paying by cash. These new have been basically forced to use a more convenient and easy method of paying […] and most will likely keep using these services after COVID-19 has passed.”

“Cash can be easily lost”

Prabhakar told Cointelegraph that digital payments are intrinsically more secure than cash, which can be lost and forged — and recovery is almost impossible: “Most digital transactions offer various levels of security and repudiability, e.g. the ability to dispute a credit card charge, which cash cannot compete with.”

There is also the matter of traceability: Mainstream cashless transactions carry essential information about the payment participants, including what was purchased and when the transaction occurred. “This makes money laundering and tax avoidance much harder,” Prabhakar added.

Digital payments are, possibly, more environmentally friendly. “Cash and metal coins use up precious natural resources, some of which are non-renewable and only recyclable up to a point: paper, copper, zinc, nickel, among others,” said Prabhakar. “In fact the cost of producing at two denominations — nickels and pennies — exceeds their face value. Digital transactions have in comparison zero environmental impact.”

Digital payment proponents also make the case that time is money, so faster payments should boost overall economic activity. According to Totia: “Cashless, mobile or QR code payments are a lot faster than paying by cash. For your average coffee shop or street food van, time is of essence at rush hour when serving long queues of customers. Saving even a couple of seconds for each customer results in more sales at the end of the day. Apply this to all small and medium businesses in a certain country and you have more economic activity.”

Hedman’s study of 750 Swedish retailers found that when cash transactions are less than 7% of the total payment transactions, the cost to manage cash is higher than any profit made on cash sales. “When this happens, an economically rational retail management should stop accepting cash.”

A circumstance “ripe for dystopian exploitation”?

But surely, there are disadvantages too. “Many of the drawbacks or dangers of cashless payments derive from the same source as their benefits,” Prabhakar noted. Traceability might make it more difficult for criminals to carry out their trade, but it might also be hurtful to honest citizens who have good reasons to keep transactions private, he said:

“By paying for certain types of medication — birth control [pills], say — with cash, the payer can be confident that while their pharmacy or doctor knows of the purchase, their credit card company or mobile phone provider does not. A centrally controlled digital currency would mean the government having access to every transaction made by everyone in the country, a situation ripe for dystopian exploitation.”

Also, while a digital money economy may reduce fraud in the aggregate, it could introduce new fraud risks in the short term that could cause widespread distress. “Until the bulk of people using a new technology learn the ropes of how it functions, fraudsters will target these points of least resistance that come with a new app or device,” said Totia. “Fraud will not necessarily be more common or less common, it will be different and in the short term.”

Will cashlessness really deter crime?

Many accept at face value the proposition that a cashless society would be a less crime-ridden one. Friedrich Schneider, a professor emeritus at Austria’s Johannes Kepler University, has conducted extensive research on this question. His findings have shown that anonymous cash makes tax evasion easier, especially for those who cannot afford to shift funds abroad, but it is not the main reason for tax evasion, and so, it is unlikely to eliminate it.

The same goes for crime and the shadow economy. By running simulations, Schneider found that if cash were completely eliminated, the shadow economy would only be reduced by 20.1% Regarding his research, Schneider told Cointelegraph: “The main scientific result is that cash is NOT the reason why people work in the shadow economy and/or commit crimes.”

Asked if going cashless could reduce crimes like money laundering, Bernardo Batiz-Lazo, professor of fintech history and global trade at Northumbria University, told Cointelegraph that it’s unlikely:

“As has been shown in India, it is naive to think corruption and money laundering will end through digital means. If anything libertarian-style crypto currencies such as Bitcoin are more amenable to these activities.”

Pummeling society’s most vulnerable?

Perhaps a more worrisome concern is that a cashless society might be a less equitable society. Martin Chorzempa, a research fellow at the Peterson Institute for International Economics, told Cointelegraph: “The elderly, undocumented, and other more vulnerable members of society would face immense challenges if paper money were entirely eliminated, as Sweden has discovered.” Meanwhile, Totia believes that the risk of lower classes being economically ostracized is “the only strong disadvantage I see” with eliminating cash.

Batiz-Lazo noted that “The COVID-19 pandemic might have increased the demand for cash by people in the lowest income strata and those living in rural areas,” and he sees danger in “attempts to rush the UK economy to rely solely on contactless and digital payments.” Prabhakar worries that a cashless society might exacerbate income inequality, hurting socioeconomically disadvantaged minorities, workers in service industries — who are often paid in cash — and others who “have neither the access to the banking system nor the technology tools to fully participate in a cashless economy.”

Will Sweden lead the march?

Still, the movement toward abolishing paper money appears to be accelerating, as has speculation about which country will achieve it first. Totia stated: “Sweden has a lot of political policies focused on moving the country to being cashless, and this might just make it the first.” However, he also noted that Finland has a chance as well, especially when considering it has a smaller population. Totia’s top three, in order, are Finland, Sweden and China:

“China is more complicated due to the fact that it has 1.4 billion people, However, QR code payments are extremely popular, even in more remote rural areas. Other strong candidates for going cashless within the next years are South Korea, Norway and maybe the UK.”

“China or Sweden seem the most likely alternatives to me,” opined Holden. “If Singapore wanted to do it I think they could pull it off very quickly given their advanced payments system, relatively small size, and strong central government.” Meanwhile, Prabhakar believes that: “In Asia, South Korea is a contender, with a smartphone penetration of 95% and the world’s fastest broadband facilitating adoption of digital payments.”

Government support may be needed

In sum, any global movement to abolish paper money is bound to be halting, with starts and stops. COVID-19 has accelerated the process, bringing on many new digital payment users. Still, some government intervention or support in the form of subsidies may be necessary to deal with the inequities that a cashless society might bring. “There is a big risk that people who are not tech-savvy or simply do not have the funds to buy and maintain a smartphone will essentially be kept outside of the active economy,” according to Totia.

Cointelegraph asked Hedman if he still believes global cashlessness is inevitable, as he declared before the pandemic began. “Yes over time it is inevitable,” he answered, “but in contexts where you don’t trust the government there will always be situations for decentralized solutions — cash. But fundamentally it will be a choice by consumers whether to pay with cash or not.”



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