US Gov't Pursuing Ways to De-Anonymize Privacy Coins
A pre-solicitation document filed by the US Department of Homeland Security proposes new methods for tracking transactions in privacy coin blockchains.
Privacy coins have come under the eye of the US government in a move that had been widely anticipated by crypto enthusiasts. Coins like Zcash and Monero were mentioned by name in a pre-solicitation document written by the US Department of Homeland Security (DHS) with regard to setting a 2019 goal for the better forensic analysis of illegal fiscal transactions.
“This proposal calls for solutions that enable law enforcement investigations to perform forensic analysis on blockchain transactions. This analysis can be approached in any number of ways and may consider different data situation use cases depending on whether additional data from off-chain sources are available,” the DHS wrote.
“Newer currencies” like Zcash have presented a problem for authorities around the world, as attempts at analyzing their blockchains have hit significant roadblocks. In the same line of thought, an analysis by Cryptovest two months ago demonstrated that a significant proportion of black market transactions are moving from Bitcoin to Monero and other privacy coins.
Although Zcash is nowhere near as popular as Monero in these circles, it’s only a matter of time before some dark web marketplaces start using it.
The DHS’ plan comes in three phases. For the first one, the organization hopes to create an “analysis ecosystem” that could provide law enforcement with an edge for tracking criminal activities on privacy coin ecosystems.
The second and third phases of the plan involve integrating these systems into both public and private sector operations to help with the enforcement of KYC and AML regulations.
So far, the DHS has not demonstrated any sort of working models to justify its optimism in this plan. Broad statements are normal, however, in pre-solicitation sheets.
Although it’s nearly impossible to crack open the Zcash and Monero blockchains, it’s not extraordinarily difficult to use circumstantial data to assist in tracking down the financial movements of a particular person of interest, especially if people are overly-confident in the way that these two blockchains protect them and don’t take other precautionary measures in hiding themselves.
One example of the above would be correlating browser activity, known IPs and geolocation data, and then using those to conjure the wallet address of an individual. It’s extraordinarily difficult, but not impossible.
For those who simply use these coins for financial freedom, it doesn’t seem that they will be a priority for the DHS, considering how impossible an undertaking it would be at this time to build a correlative database of every single individual using privacy coins.