Criminal Underground Disavowing Bitcoin for Other Cryptocurrencies
The criminal underworld is disavowing bitcoin in favor of a new breed of cryptocurrencies that can better conceal illicit activity, a phenomenon that can partly explain the rapid rise of altcoins over the past three months.
The Rise of Privacy Coins
So-called ‘privacy coins’ like Monero, which are designed to avoid tracking, have quickly climbed the cryptocurrency market’s ranks. According to Bloomberg, these crypto alternatives have gained prominence at a time when law enforcement is increasing its surveillance of bitcoin users. Analytics firms are also getting better at spotting illicit behavior and alerting crypto exchanges before funds are exchanged into fiat money.
Europol has flagged several privacy coins as being more conducive for the criminal black market. In a recently published report, the European Union’s law enforcement agency said “other cryptocurrencies such as Monero, Ethereum and Zcash are gaining popularity within the digital underground.”
An analyst interviewed by Bloomberg said Monero is one of the most popular coins for ransomware attacks. Monero’s popularity among cyber criminals stems from its advanced encryption techniques, which generate fake addresses to hide the real sender’s identity. This technique also obscures the transaction amount issued. Bitcoin, on the other hand, records all addresses and transactions on an immutable digital ledger.
Experts say Zcash offers even better privacy protection because it obscures the actual address of the sender rather than generate fake addresses. This method makes it impossible for surveillance technology to draw correlations in addresses used in multiple transactions.
Monero and Zcash have both grown to become multi-billion-dollar cryptocurrencies. By market cap alone, Monero is ranked 12th, with an overall value of $6.3 billion. Zcash is down at 29th with an overall market cap of $1.7 billion. Both cryptocurrencies have daily turnover well into the hundreds of millions.
The developers behind Monero said they specifically designed the cryptocurrency to safeguard privacy. Naturally, this would be of benefit to criminals looking to evade detection.
“As a community, we certainly don’t advocate for Monero’s use by criminals,” core developer Riccardo Spagni told Bloomberg. “At the same time if you have a decentralized currency, it’s not like you can prevent someone from using it. I imagine that Monero provides massive advantages for criminals over bitcoin, so they would use Monero.”
Governments Make a U-Turn on Cryptos
Although bitcoin catapulted into the mainstream last year as one of the world’s fastest-growing alternative assets, its history is tainted with criminal activity tied to money laundering and the dark web. This partly explains why so many governments were eager to disavow the cryptocurrency. Many policymakers quickly realized that prohibition is not the answer given the inherent benefits of blockchain technology.
Russia is one of the more notable examples of a government that quickly changed its tune on bitcoin. It was not even two years ago that Russia’s Finance Ministry was proposing seven-year jail sentences for bitcoin users and adopters. Last week, the government said it would take decisive steps to developing a national cryptocurrency backed by fiat money.
Today, the cryptocurrency market enjoys favorable conditions in many parts of the world, including Japan, South Korea and Switzerland. Buying and selling crypto assets is also supported across many Western nations. However, the evolving nature of the market has put authorities on high alert, with South Korea recently announcing it would take decisive steps to rein in speculation.
2018 is expected to be a pivotal year for crypto regulation, as legislators attempt to define the burgeoning market. Cryptocurrency exchanges, initial coin offerings and mining could all be subject to federal oversight in the near future.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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