Corruption in Cryptocurrency

Privacy Coins and Crime

Like all industries, there exists a seedy underbelly to the world of cryptocurrencies. This is not worth denying, because it is obvious that it exists. The question is to what extent, and what can be done about it?

Two things have prompted me to write about crime in the crypto space for this letter. The first is the arrest of an individual (named Riccardo Spagni). Riccardo was the core developer on a project called Monero, a privacy focused coin that totally obscures the identity of any of its users. The second is a conversation that I had with Larry Cameron, a friend of mine who works in the blockchain forensics industry.

Monero — A Privacy Coin

Monero is a cryptocurrency that works quite a bit differently than bitcoin does. The only thing that they have in common, is that they both work on a public ledger (everyone can see everyone else’s transactions). However, with Monero, everything about those transactions is hidden, or obscured from being useful to any onlookers. Transaction amounts, address balances, and transaction histories are all information that are kept private using a different form of cryptography than what bitcoin uses.

The implications of Monero are that anyone using Monero can easily hide their monetary transactions and the activity associated with them. To put it bluntly, it helps criminals get away with crimes such as human trafficking. At the very same time, it provides anonymous funding to those who may be in need. A good example being whistleblowers like Edward Snowden.

Hide What You’re Doing

“If someone is using a privacy coin, they’re trying to hide what they’re doing” — Unknown

There is nothing controversial about the above statement. What is missing here is the conversation about privacy and whether or not it is something that should be a fundamental right of the individual. There are perfectly legitimate reasons why an individual would want their privacy, simply on a matter of principle. I typically defer to Edward Snowden when seeking guidance on the philosophy of privacy.

“Ultimately, saying that you don't care about privacy because you have nothing to hide is no different from saying you don't care about freedom of speech because you have nothing to say.” ― Edward Snowden, Permanent Record

Edward Snowden himself stated that he has used Monero before. Someone like him may have used Bitcoin to anonymously acquire servers in order to to reliably get disclosure documents into the hands of journalists. He was rightfully worried about state intervention in thwarting his plans to tell the public about mass surveillance programs. Without the ability to hide his transaction activity, and his digital interactions, he may not have been able to tell the world that the NSA is spying on literally everyone.

Privacy is your Right

Privacy is one of those things that you’d rather not need, but have it; rather than need it and not have it. — Unknown

Privacy is not one of those things that is given to you. It’s something you have by default, and must voluntarily give away, or have it taken from you by force. So then what is the right balance between having the privacy, and being “protected” by data collection agencies?

I believe people can use the tools they see fit to protect themselves in whatever way they feel they need to be protected, so long as they are not bringing harm to others in the process.

Crime in Cryptocurrency

Our friend Larry regularly tracks and traces money on the internet when he is catching criminals. Cryptocurrencies are a very common medium of exchange in the transactions of criminals conducting heinous crimes against humanity. My stance on this is that money is simply a tool, and it does not carry with it the morality of good and evil. But I get hung up on my own opinions when contemplating privacy coins such as Monero and ZCash. Although they are still just tools, they do make it easier to conduct financial transactions in the dark.

Bitcoin is not ideal for crime

Contrary to what the public believes, bitcoin is not an excellent currency for conducting crime. The entire history of all bitcoin transactions are publicly available for anyone and everyone to see. If you supplement bitcoin transaction history with 3rd party KYC information gathered from exchanges, then you can glean a pretty detailed picture of who owns what, when they’re using it, and for what purpose. In other words, you can be “de-anonymized” pretty easily.

How much are privacy coins used for crime?

It is hard to know for sure. After all, they’re private. It is very difficult to attach real-world identities to Monero addresses for example. Even if you manage to do this, you are unable to see when that address makes a transaction, to who, and for how much.

At this point, it is simply conjecture to say that privacy coins are only used for crime. At the same time, we can’t really say that privacy coins are used for good either. We can’t say with confidence that they’re being used for anything at all. We can only see that they’re being used, as we know how may transactions are taking place on the network.

A Medium of Exchange of Last Resort

I hope there never comes a day when I need to use a privacy coin. Just like you hope there never comes a day when you need to cash in your life insurance. Or a day where you need to rely on your airbags in your car. I’ve come to conceptualize privacy coins as a medium of exchange of last resort. The truth is that bitcoin is not private enough to protect against an all out assault on our privacy. We would need something stronger in the event that a totalitarian regime should come into power.

I do believe there are places in this world, where this sort of currency is already needed such as by the citizens of North Korea. At the same time, the Kim dynasty of North Korea could be using Monero to escape US sanctions and maintain their power.

I don’t think there is a good answer here, just facts.

• Monero and ZCash exist now, and will continue to exist in the future

• They’re built on decentralized technology that is very difficult to shut down completely

• People will use neutral tools as means to accomplish their own ends

• That which has been invented, cannot be uninvented

What are your thoughts on privacy coins? Comment below, or hit reply and send me your thoughts.

Regards,

Keegan