One of cryptocurrency’s biggest selling points is that it is mostly beyond the reach of world governments, providing a universal option through which to avoid banks and fiat currencies entirely. This is not entirely true for all forms of crypto, however, and one of the most privacy-focused may have just been opened up to prying eyes. The intelligence firm CipherTrace is claiming that it has developed a tool that can trace Monero cryptocurrency transactions, and that it will be provided exclusively to the U.S. Department of Homeland Security.
While cryptocurrency transactions are often thought of as anonymous and untraceable by laymen, this has never been entirely true. Security researchers have always had at least some ability to follow tracks given that blockchain transactions must be transparent for the system to function. Investigators can trace wallet addresses listed in these transactions, sometimes unmasking the owner when they make a mistake such as using a personal email address to register an account linked to the wallet on a cryptocurrency exchange. Wallet balances are also public, and the amounts in them can sometimes be telling.
Monero is an exception in the world of cryptocurrency transactions. It was designed specifically as a non-transparent intermediary step to allow cryptocurrency holders to exchange one type for another and essentially break any trail of investigation that is based on tracing the wallet address. Not surprisingly, it has been heavily taken up by cybercriminals and those looking to purchase products and services on the dark web.
Without technical details available, the cryptocurrency community has been generally skeptical about the tool’s capabilities. Justin Ehrenhofer, organizer of the Monero community workgroup, believes that the tracking capability will still be more limited than it is with other types of crypto such as Bitcoin.
It would appear that this will not deter cybercriminals who are decoupling their identities entirely from their cryptocurrency transactions; there appears to be no shortage of these given that Bitcoin is still more frequently used for cybercrime purposes than Monero is. These criminals often operate from countries that do not have extradition treaties with the United States or from a country that simply does not extradite its own citizens. The primary use for law enforcement would appear to be in cases where criminals are afforded an extra automated layer of anonymity by using Monero but are otherwise making mistakes and leaving trails by which they can be followed.