Chainalysis has added Dash and Zcash coins to its Chainalysis Reactor monitoring service, allowing investigators and compliance professionals to investigate illicit activity involving the privacy coins. The news that two supposed privacy coins can have their activity traced will be bad new for those who thought they were conducting their transactions in private, and shows that no coin is 100% immune.
— Chainalysis (@chainalysis) June 8, 2020
Chainalysis Unmixes Dash’s Mixing
Chainalysis lets private companies and regulatory bodies utilize its tracking facilities to detect and trace illicit use of cryptocurrencies, and for years it was thought that privacy coins were exempt from such tracking due to their design. However, Chainalysis explains in a blog post outlining the development that there are elements within the designs of both coins that “leave room” for tracking their usage, despite the fact that Dash and Zcash are billed as being privacy coins.
Dash transactions are by default not private, with users having to use the wallet’s PrivateSend feature to enable this privacy layer. Dash uses a branded version of the CoinJoin mixer, splitting and mixing transactions so as to obscure the history of the coins. Chainalysis claims that it is “very easy” to spot mixing transactions on the Dash blockchain, and that the same techniques used to track Bitcoin transactions through CoinJoin can be used on Dash.
Even those who do use PrivateSend could be in for a shock, with Chainalysis stating that “while PrivateSend does increase privacy for its users, successful investigations can still be performed.”
Zcash Shielding Not 100% Effective
Regarding Zcash, Chainalysis says that only 0.9% of Zcash transactions are completely shielded, meaning that the sender, recipient, and transaction amount are hidden. This leads to Chainalysis being able to uncover at least partial details of 99.1% of Zcash transactions.
Zcash also uses ‘shielded pools’, with the idea that address balances are also hidden. However, only 5% of the total supply of ZEC is currently held within these shielded pools, and while shielding itself is stronger in privacy terms than mixing transactions, it is not “bulletproof” and has been cracked by researchers at University College London.
Chainalysis acknowledges the recent RAND report commissioned by Zcash which found that less than 0.2% of dark web wallet activity involves Dash and Zcash, adding that “we can make sure that these coins keep being used by legitimate, law-abiding people and businesses.”
Privacy Coins a Natural Area of Interest
Overall, the addition of two well known privacy coins to their tracking systems will create even more dislike of Chainalysis that already exists among privacy advocates, with with privacy coins a natural port of call for illicit activity it is no surprise to see Chainalysis upping their game and increasing the value of their product.
The founder of Chainalysis (a company that spies on citizen financial behavior in exchange for cash from govts + corporations) says working w/ Turkish dictatorship would be a “tough call” + that they “could work” with the Saudis.
This is all you need to know about these people. https://t.co/M2oW0McMQ9
— Alex Gladstein (@gladstein) April 12, 2020