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The quest for Monero deanonymisation - potential impacts on darknet markets

Published on 02 Dec 2020 by Louise

Monero, often hailed by darknet users as the most private cryptocurrency available, has recently been the subject of efforts by security researchers to deanonymise and trace its transactions. How will Monero's potential traceability affect the illicit trade that occurs on darknet markets?

The cryptocurrency Monero, created in 2014, has been lauded for its focus on financial privacy and decentralisation. Though not as popular or valuable as Bitcoin, Monero's advantage stems from the fact that account balances and payments cannot be viewed. This is unlike most cryptocurrencies, which whilst providing a certain level of anonymity still allow transactions to be visible on their public ledgers. Furthermore, Monero enforces its privacy features on all transactions as procedure, whereas many cryptocurrencies provide them as opt-in features. The standard of privacy provided by Monero has made it the second-most popular cryptocurrency of choice for those wishing to trade illegal goods and services on darknet markets only accessible via the Tor network.

However, many security researchers have taken Monero's claims as a challenge to test its traceability. The most high-profile example of this is activity by blockchain forensics firm CipherTrace, who recently filed two patents related to Monero tracing techniques. The patents, filed in September and November 2020, regard a set of "Monero tracing tools" which have allegedly already been shared with law enforcement to trace transactions associated with criminal activity. CipherTrace claims the tools have been in development since 2019, and comprise methods for exploring Monero transaction flows, clustering likely owners, and gaining intelligence on the Monero network. Though largely based on statistical and probabilistic methods, the patented techniques are claimed to have paved the way for future efforts at wallet identification and exchange attribution. This all culminates in potentially providing law enforcement far greater ability to investigate Monero transactions and addresses suspected of criminality. CipherTrace's efforts are not the only attempt to break Monero's privacy; in early November 2020 it was reported that the cryptocurrency's network sustained an albeit ineffective Sybil attack aimed at breaching its privacy mechanisms.

Despite these bold statements, reaction to the news among darknet users has been relatively subdued. A post on darknet forum Dread on November 23 detailing CipherTrace's announcement provoked a range of responses, the majority of which were doubting the legitimacy of their claims due to lack of proof of work; though this would obviously compromise the utility and confidentiality of CipherTrace's methods. However, some users warned that the patents serve as a reminder that darknet users should take multiple measures to obscure their identity, beyond just their choice of cryptocurrency. Currently, Monero is supported as a payment option on up to 45% of darknet markets online, with little sign of market administrators rescinding this option due to any privacy concerns. However, as these tracing methods continue to develop and begin to be implemented by law enforcement, users trading illegal goods and services on the darknet may switch to a coin which they perceive to be less scrutinized.

Screenshot showing user reaction on Dread to news of potential Monero traceability

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