Compilation of the original text: Hu Tao, Chain Catcher

Original title: "What Happened to the Dream of Private Cryptocurrency?》

Compilation of the original text: Hu Tao, Chain Catcher

Wars and protests should be big moments for cryptocurrency as it builds on the removal of traditional authority. So far, cryptocurrencies have played a vital role in crowdfunding aid efforts for Ukraine, with the government using nearly $100 million in crypto donations to buy military and humanitarian equipment, while both Ukrainians and Russians buy crypto stablecoins to avoid currency fluctuations.

But so far, cryptocurrency’s contrarian attitude has been conflated with the sanctions that its gatekeepers, the exchanges, must comply with.

Some observers, including Senator Elizabeth Warren, have speculated that Russia could turn to blockchain to evade sanctions, although analysis by U.S. officials suggests otherwise. In fact, cryptocurrencies have not escaped U.S. sanctions so far. On March 7, Coinbase revealed that over time it had blocked over 25,000 Russian addresses identified as being involved in illegal activity, which the exchange reportedly flagged through its own “active investigation.” , and shared with the U.S. government to "further support sanctions enforcement."

Major cryptocurrency exchanges have so far rejected Ukrainian government requests to ban all Russian users, which would go beyond current sanctions, however, Kraken CEO Jesse Powell said on Twitter that if exchanges are required by law to do so , it will do so.

One counter to the argument that crypto can be used to evade sanctions is that Bitcoin and Ethereum are too transparent. Injecting large amounts of money into the blockchain can be easily observed through blockchain explorers, and in most cases, they can even be linked to individuals by using the right tools. This has led some commentators to say that encryption needs to be more private if it is to live up to its original promise, for better or for worse.

Enter so-called "privacy coins." Bitcoin, the world's largest cryptocurrency that is highly liquid and easier to cash out, was once associated with the online drug trade as dealers on the dark web embraced the emerging digital payment option with the promise of anonymity. But as bitcoin has become embraced by wider social groups, and anonymous transactions have begun to be linked to the individuals behind them, the proportion of illicit activity has decreased, giving way to privacy coins such as Monero and Zcash.

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What are Privacy Coins?

The heart of the matter is that cryptocurrencies typically allow anyone to view their transaction records through a blockchain explorer such as Ethereum’s Etherscan; finding the activity of pussyriot.eth on the Ethereum network is easy.This transparency also means that financial institutions and government agencies can flag cryptocurrencies used for crime, making it impossible for holders to cash out the proceeds of crime without being detected.

In response to the inherent transparency of the blockchain, there has been a wave of tokens deploying some of the most innovative encryption technologies in the crypto industry.

The first is Monero, which has been around since 2014 and uses three encryption techniques to keep all transactions private: stealth addresses (a one-time address is automatically generated for the recipient in each transaction), ring signatures (a set of signatures involving at least one real person, this time to protect the identity of the sender) and ringCT (an improved version of ring signatures).

Another privacy coin is Zcash, which relies on a cryptographic technique known as zk-SNARKs, or Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge. Zero-knowledge proofs communicate that something is true without revealing the data that proves it — such as verifying that you are over 21 without revealing your age or birthday. In this way, it "shields" the sender, receiver and transaction content. But Zcash's privacy features are optional, not default like Monero.

Launched in 2016, Zcash was developed by Electric Coin Co., whose head of growth marketing Chris Tomeo told Motherboard they are betting on the future of privacy coins because “consumer data continues to be misused and exploited, as lawmakers and policymakers follow along. As more is learned about how cryptocurrencies work, people are starting to see how important privacy is to personal safety, business safety, and national security."

Dash, known as Darkcoin before changing its name due to dark web associations, is another privacy coin launched in 2014. To make transactions private (and optionally, like Zcash), Dash deploys a hybrid encryption technique called CoinJoin to obscure transaction details. It has some traction in inflation-hit Venezuela, after Dash ran a sweeping marketing campaign that included billboards and handing out phones with pre-installed crypto wallets, and it was picked up by major real estate agency Re/Max as well as fast food accepted.

So far, Monero is the clear winner in terms of uptake.

"When people say 'privacy coin' they almost certainly mean Monero. Monero has more private transactions than all other cryptocurrencies combined.In February 2022, Monero has more than 100 times as many transactions as Zcash with hidden sender, receiver, and amount.Vikrant Sharma, CEO and founder of CakeWallet, told Vice. According to platform data, Cake Wallet has more than 250,000 users, and users exchange hundreds of millions of dollars in Monero within the app every year.

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Can privacy coins be used to evade sanctions?

Now you might be wondering: could Russians — or other sanctioned countries — use privacy coins to evade sanctions?

“No amount of privacy will protect Russia from the damaging effects of sanctions that have isolated them from Western economies no matter what currency they are trying to use,” said Jake Chervinsky, policy director at the Blockchain Association, a cryptocurrency industry lobby group. Come on."

Chervinsky said that the Russian cryptocurrency market does not have enough liquidity to facilitate large-scale sanctions evasion, “let alone a segment of the asset market with strong privacy features. If Russia tried to buy a large amount of these assets, the world would see this immediately ,"He said.

While transactions in privacy coins are cryptographically shielded from curious observers (hence there is no Monero equivalent to Ethereum's Etherscan), it is still possible to track the total volume of all transactions.Monero has recorded just $112.5 million in trading volume in the past 24 hours, according to CoinGecko, and its liquidity — or cash available for conversion — isn’t even large enough to hold the assets of a Russian oligarch.

“While some illicit actors, including ransomware groups, use privacy coins in an attempt to obfuscate their transactions, they have not been adopted as much as one might expect. One reason is that they are not as robust as Bitcoin and other cryptocurrencies. Liquidity. Especially now that many exchanges have delisted privacy coins under regulatory guidance, and they are becoming increasingly impractical, said Gurvais Grigg, global public sector chief technology officer at blockchain analytics firm Chainalysis.

“Cryptocurrencies are only useful if you can buy and sell goods and services or cash out into fiat currency, which is much harder with privacy coins,” he added.

Despite limited acceptance and legitimate use by privacy-conscious individuals, Monero is particularly popular for ransomware and criminal transactions on the dark web. This angered U.S. regulators, leading the government agency to spend $8.5 million on a contract with blockchain analytics firm CipherTrace (recently acquired by MasterCard) in an attempt to decipher the privacy coin and its blockchain transaction records.

“Groups like CipherTrace exist because transparent cryptocurrencies have a fatal privacy flaw,” said anonymous Monero community organizer Seth for Privacy. “They have shown a clear ability to track transparent cryptocurrencies like Bitcoin and cryptocurrencies that only offer opt-in privacy like Zcash, very easily and effectively.” However, when it comes to Monero, Seth said Doubt the company's tracking capabilities are as strong as they claim.

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Can other cryptocurrencies be more private?

However, despite their inherently transparent design, privacy is not a failure of major cryptocurrencies.

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Image: Dune Analytics

But those deals risk being unraveled by persistent analytics firms with the money and technical capacity to do so, as recently did journalist Laura Shin in a blockbuster investigation that uncovered the backside of one of Crypto's biggest suspenseful events. The highly private Wasabi bitcoin wallet is an example of a possible culprit.

CakeWallet's Sharma explained that crypto privacy projects like Secret Network, Thorchain, and others have begun integrating with Monero to use the asset on their platforms. Outside of Monero, some projects are also slowly moving in the direction of privacy. Litecoin, which launched in 2011 and is now the 21st largest cryptocurrency by market capitalization, plans to add an optional feature called MWEB to better hide some transaction data, while Zcash is making it easier to automatically send funds to Shielded pool - optionally private chain.

While both the U.S. government and cryptocurrency experts have stated that privacy coins (or cryptocurrencies of any kind) cannot practically be used to evade sanctions, the idea that privacy coins could be used in Russia resonated with the privacy coin community, who see them as similar to other privacy coins Protection technologies such as Tor or Signal,They help "good" people and "bad" people equally, because if they're going to work, they have to。

“While cryptocurrencies like Monero can be used to protect wealth, flee authoritarian regimes, or fund political dissent in oppressive countries, they can also be used to evade sanctions or violate existing laws,” Seth said in a speech, though He added that he believes these views are widely shared by the Monero community.

"This is the harsh reality of technology, and it also applies to smartphones, internet access and cash, all of which are more commonly used for 'evil' things than cryptocurrencies are today,"he added.