CipherTrace develops Monero-tracing tool to aid US DHS investigations

Cryptocurrency intelligence firm CipherTrace claims a new tool can trace Monero transactions, but skepticism remains.

Privacy and anonymity are the primary benefits of cryptocurrency, yet 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 pseudonymous, as each transaction on a blockchain network is transparent, making it possible to trace wallet addresses back to their source.

For example, cryptocurrency intelligence company CipherTrace is capable of tracing several hundred cryptocurrency transactions by analyzing wallet addresses, exchange information and smart contracts. John Jefferies, the chief financial analyst at CipherTrace, told Cointelegraph that the firm is currently capable of tracing over 800 cryptocurrencies to support investigations of crimes. This is extremely relevant, as recent findings show that cryptocurrency-related crimes during the first half of this year have already accounted for $1.4 billion worth in thefts, hack and fraud.

Monero can now be traced?

While Bitcoin has been ranked as the number one crypto choice among criminals, a great deal of darknet markets transactions are conducted using the privacy coin Monero (XMR). Due to this, law enforcement has been extremely interested in finding a way to trace Monero. While there hasn’t previously been a tool capable of tracing Monero transactions, Dave Jevans, the CEO of CipherTrace, mentioned that the firm has developed the first tool for tracking 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 trace Monero transactions. He noted that CipherTrace’s recent contract with DHS Science & Technology Directorate resulted in the development of forensic tools for law enforcement and government agencies to trace Monero transaction flows for criminal investigations:

“The tools include transaction search, exploration and visualization tools for Monero transaction flows that have been integrated with CipherTrace’s inspector financial investigations product.”

A game-changer for combating Monero-using crimes

Specifically speaking, Jefferies from CipherTrace explained that the tools make it possible to track stolen Monero or those used for illegal transactions. While the product is not suitable for Anti-Money Laundering purposes just yet, Jefferies mentioned that ransomware cases involving Monero can be traced back to sources. This is notable, as it’s been mentioned that ransomware criminals are switching from Bitcoin to Monero to better protect their identities.

According to Jefferies, the tool will allow law enforcement officials to narrow ransomware cases down to a couple of different crypto addresses. Although Jefferies couldn’t reveal the exact number of transactions traced, he shared that the tool has indeed been validated across a large number of Monero transactions:

“The tool shows transaction flows. Like all CipherTrace products, it protects user privacy by not tracing individual user identities. That’s what law enforcement does, based on our analysis and legitimate court orders.”

Jefferies further pointed out that the tools help to assure cryptocurrency exchanges, OTC trading desks and investment funds that they are not accepting Monero from illicit sources. This could very well be a game-changer for Monero, which has recently been delisted from a number of exchanges due to poor compliance standards and an overall lack of transparency compared with other cryptocurrencies.

Crypto community speaks out

Although CipherTrace’s new tool will help crackdown on Monero-related crimes, members of the crypto community remain skeptical. Justin Ehrenhofer, organizer of the Monero community workgroup and a regulatory compliance analyst at DV Chain — a crypto trading organization — told Cointelegraph that while he isn’t surprised by CipherTrace’s tool to track Monero, he has yet to receive any specific information on what the team has accomplished:

“We assume that CipherTrace has developed a novel method to trace Monero transactions, but I am not quite sure of what they can do, so it’s hard to interpret the legitimacy of their claims. Saying you have a method to look at Monero transactions doesn’t mean this is now as transparent as Bitcoin transactions.”

Ehrenhofer further commented that it’s extremely unlikely that CipherTrace can trace Monero to the extent that they can trace other cryptocurrencies. “Without specific information, any speculation is just that — speculation,” he added. Moreover, he noted that research will continue to advance 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 due to advanced security features. Ehrenhofer explained that the main technology behind Monero is RingCT, which is a system combining ring signatures and Confidential Transactions cryptography. “This means I can look at a blockchain network on my computer and make it appear like I’m spending other people’s funds without their actual participation,” he said. Ultimately, Monero makes it possible to hide all parts of a transaction, including the sender, receiver and amount details.

With this in mind, Ehrenhofer mentioned that Monero has been specifically designed to withstand analysis from governments and others who attempt to surveil it. Therefore, he remains confident in Monero’s use: “Since we have no reason to believe that there are new ways of trying to trace Monero transactions, nor any indication of their effectiveness, Monero users can continue to transact in confidence.” Jefferies, however, begs to differ, noting that the tools CipherTrace has developed for the DHS have laid the groundwork for future, more advanced investigative tools, which law enforcement officials will leverage for Monero transactions.

Skepticism aside, some crypto enthusiasts believe that financial surveillance tools, such as the ones being developed by CipherTrace, violate human privacy rights. Alex Gladstein, the chief strategy officer at the Human Rights Foundation — a nonprofit organization — recently argued on The Blockchain Debate podcast that blockchain analysis companies are downright bad for Bitcoin and other cryptocurrencies.

Gladstein, who was joined on the show by Jevans, explained that providing government officials with cryptocurrency transaction information further allows governments to spy on individuals’ financial transaction data. He stated that “financial surveillance” companies, like CipherTrace, may even decide to work with dictatorships, allowing these governments to have more control over citizens:

“I realize we have the Bank Secrecy Act, but transactions under $10,000 should remain private. This isn’t supposed to be given to the government, but if Jevan’s company gets its way, this gets washed away, and even little microtransactions become fair game for the U.S. government or even worse, dictatorships.”

While this is an extreme example, there are some practical benefits to consider. Ryan Taylor, the CEO of Dash — another privacy-oriented cryptocurrency — told Cointelegraph that there is a big difference between the DHS tracking Monero transactions versus personal transactions:

“Not wanting your spouse to find out you bought jewelry for your anniversary is very different from keeping the government from tracking your illegal drug empire. Most people are simply looking for ‘good enough’ privacy, and I don’t think professional tracing capabilities affect most people in any meaningful way.”

Publication date: 
08/31/2020 - 15:00
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