Even Privacy Coins Can Reveal Your Crypto Secrets

Technology under development as governments are closing in

Robert Hoogendoorn
Dec 13, 2019 · 4 min read

Despite the fact that we refer to them as privacy coins, these private cryptocurrencies can still reveal personal details about your transactions. Nonetheless, privacy coins are getting more attention in recent months.

First and foremost because people are discovering that Bitcoin isn’t that private after all, and secondly because governments and law enforcement are snooping around on the blockchain. As a result, there has been a lot of talk about privacy coins, but these digital currencies aren’t always as private as one might think.

Bitcoin lost its privacy

The FBI, Homeland Security, and national police forces have been investing millions of dollars in tracking people behind bitcoin transactions. As a result, they’ve been able to arrest drug dealers and other illegal business on the dark web. In October South Korean law enforcement dismantled an online network of pedophiles, thanks to the traceability of bitcoin.

So, let’s just be clear that the ability to trace transactions isn’t always a bad thing. However, we don’t need Uncle Sam to track every transaction we do. Even if they say they don’t, they still can. That’s the type of privacy-invasive sh*t that makes people embrace privacy coins.

Embracing your privacy

Quite frankly it’s not much different when you talk about cryptocurrencies. Making a transaction in bitcoin could connect that transaction to a certain business or individual. It requires more research, but it can be done. However, privacy coins have been created to camouflage the origin of a transaction. It’s no wonder that privacy coins are increasingly popular on the dark web.

Crypto privacy is flawed

The technology is already in use by privacy coins Grin and Beam. When the Litecoin Foundation announced its plans to adopt MimbleWimble, researchers put the technology under a magnifying glass. MW puts all transactions in a block into one pile, but this doesn’t happen immediately. As a result, privacy researcher Ivan Bogaty showed that it was possible to trace 96 percent of all transactions.

Charlie Lee from the Litecoin Foundation said he was aware of the limitations of MimbleWimble, while Grin and Beam developers said similar things. The Beam team added that they are adding decoy transactions into their system as well, making tracing more difficult. Of course, this means that more activity on these blockchains would provide more anonymity, but it also means that privacy is not always guaranteed.

Even Monero and Zcash aren’t perfect

Nonetheless, South Korean exchanges removed Monero, Horizen, Dash, and Zcash, because these privacy coins aren’t complying to regulations. However, these exchanges do acquire consumer information. The problem probably is that transactions are camouflages by privacy technology.

Interestingly enough, Zcash claims to be fully compliant with anti-money laundering standards, including the recommendations of the Financial Action Task Force, the EU’s Fifth Money-Laundering Directive and U.S. Anti-Money Laundering regulations. Particularly Zcash refers to the ability to add a memo to a transaction, which allows for information about the originator and beneficiary.

Could it be that Bitcoin is giving the government too much information? The true Battle for Privacy has just begun. Governments are closing in on cryptocurrencies, and crypto development teams are adding new features to their coins to stay ahead. Even Bitcoin is considering adding privacy functionalities. At the same time governments and banks are unlikely to give up on their control easily, and therefore we can expect this conversation to be one of the biggest talking points in years to come.

Originally published at NEDEROB.

The Capital

The Capital (former Altcoin Magazine) is a social financial news aggregator powered by Bitcoin

Robert Hoogendoorn

Written by

Content Optimization Expert & Copywriter. Learning about blockchain every day, sharing my knowledge and my passion with you.

The Capital

The Capital (former Altcoin Magazine) is a social financial news aggregator powered by Bitcoin

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