Recently, the United
States Internal Revenue Service caused a stir in the crypto community
when it put a bounty on the head of anonymity-focused crypto-asset
Monero (XMR), offering $625,000 to anyone who could effectively track
the purportedly untraceable asset. As the crypto and blockchain
industry values anonymity and privacy, questions arise on the result of
the effort, not to mention its plausibility.

“As of the current
stage of cryptography science today, the Monero protocol is almost
impossible to break with necessary certainty,” Pawel Kuskowski, CEO of
Coinfirm — a blockchain analytics company — told Cointelegraph.
“However, it does not mean that Monero assets tracing is impossible in
an effective way,” he said, clarifying:

“Some initiatives
can be beneficial to investigating cryptocurrency crime for authorities
such as: running a large network of their own Monero nodes, analyzing
any data seized by shuttering non-compliant service providers that
involve Monero and utilizing spy software and wallets — the latter of
which is particularly useful for investigations.”

Monero serves as one of the crypto industry’s most well-known anonymity-focused assets. Cryptocurrencies such as Bitcoin (BTC) post all transactions to a public ledger visible to anyone online. Although BTC transaction addresses remain pseudonymous,
various tools and efforts can sometimes link transactions and addresses
back to personal identities. Since its inception in 2014, Monero has
had the ability to hide
transaction values and sender addresses. The asset’s blockchain also
conceals transactions and their sums from uninvolved third parties.

A firm alleges XMR-tracking powers

Blockchain analysis firm CipherTrace came forward on Aug. 31 touting supposed XMR-tracking technology,
reportedly the first of its kind. “We recently added monero tracing
capabilities to our investigative suite,” Dave Jevans, CEO of
CipherTrace, told Cointelegraph in a follow-up conversation, adding:

“Our
tools do not reveal the identities of the users sending or receiving
monero transactions. It is up to law enforcement to find that
information from mapping data from addresses, wallets, payment IDs,
etc.”

The IRS steps in

The motivation for
decoding XMR became more interesting on Sept. 11, however, when the
governing tax authority of the U.S., the IRS, publicized its search for
anyone capable of breaching Monero’s transaction-hiding technology,
offering $625,000 as a reward for such intel. In an industry valuing privacy, helping a government agency with this type of endeavor appears antithetical to the space, in some ways.

“The
IRS is offering this money for research and development, which is not
as controversial or surprising as many in the media are making it
sound,” Jevans explained, adding that the governing body is targeting
involvement from a number of entities for the endeavor, only budgeting
$1 million toward the effort. Therefore, the IRS publicized a $500,000
payment upfront, with a further performance-based $125,000 paid eight
months later. Jevans declined to comment on whether or not CipherTrace
plans to work with the IRS.

Kuskowski described the IRS reward as
predictable, given the timing of the bounty, which was announced
approximately five days after CipherTrace publicized its XMR-tracking
tool. Kuskowski, however, did not mention CipherTrace by name, only
hinting at the firm by noting the timing of events, as well as the
firm’s probabilistic approach, which he described as: “Totally useless
for investigations owing to authorities being unable to display clear
evidence. In cryptography something either is or isn’t, it is not
probable."

The IRS unveiled two Monero-cracking champions
on Sept. 30. Surprisingly, CipherTrace was not one of the two, although
the race to beat crypto privacy also involved the government agency’s
desire to defeat the privacy held within layer-two blockchain solutions,
such as Bitcoin’s Lightning Network. Chainalysis and Integra FEC stood
as the victors, beating 22 other applicants.

Doubt regarding Monero-tracking efforts

CipherTrace
claims it wields Monero-tracking power, and the IRS, apparently, saw
something promising from Chainalysis and Integra FEC, but the
effectiveness and depth of such tracking remains up for discussion. “I
am highly suspicious of any claims that corporations can trace Monero
transactions,” a representative from Monero Outreach told Cointelegraph.
As an independent workgroup, Monero Outreach teaches the public about
the privacy-focused asset.

“While it may be possible to learn
user information from network level metadata that is not concealed with
Tor or a similar privacy network layer, they likely cannot trace the
wallets or amounts for any transaction,” the representative explained. A
common software, Tor facilitates anonymous interactions online. The
representative added:

“If this were the case we would
have already found out from the handful of research teams who work
tirelessly studying Monero and looking for these type of
vulnerabilities.”

If the three firms did indeed uncover
methods for tracking Monero, the crypto space might actually benefit.
XMR boasts a large number of involved developers laboring toward the
code’s advancement while fixing any weaknesses that surface, according
to the representative. Therefore, the asset improves following any
uncovered weaknesses, the representative posited.

XMR loses value if cracked?

As of the time of publication, Monero is the 16th-largest cryptocurrency, based on CoinMarketCap data,
sitting at a price of $102.41 per coin — but what happens to the
asset’s value if it loses its privacy capabilities? Kuskowski opined:

“We
believe that XMR’s value is almost close to zero if its anonymity
aspect is removed as currently the majority of businesses that use it or
offer it to clients (with the exception of some derivatives products)
are on the edge of being legal.”

CipherTrace’s Jevans
holds a slightly alternate view. “Monero’s construction is quite
different from Bitcoin’s, so most likely, tracing Monero will always be
more predictive than completely deterministic; however, a big
break-through in reducing Monero’s anonymity would likely cause the
price to go down initially,” he said, adding that privacy-seeking owners
of the asset might quickly head for the exits, offloading the asset
onto the market.

Even if its privacy is cracked, however, Jevans
expects XMR will rebound in price once it sees listing on additional
crypto exchanges, labeling significantly higher trading volume as the
driver. “It’s also worth noting that bitcoin has never been anonymous
and it's always been valued more highly than monero,” he added.

Monero
already trades on a vast number of crypto exchanges, providing a
potential counterpoint to Jevan’s expectation. Additionally, Monero is
known for its privacy-focus, which becomes null if its privacy is
broken. In contrast though, delisting Monero has also become a recent
trend, decreasing available volume. A number of platforms have delisted
the asset for various reasons over the past two years, including Huobi and Bithumb.

Although
Chainalysis declined to weigh in on the IRS’ effort to break Monero,
the firm did offer up its perspective on XMR’s value if its privacy were
broken. Maddie Kennedy, senior communications director for Chainalysis,
told Cointelegraph:

“Cryptocurrency users, including bad
actors, often have to choose between using a cryptocurrency like Monero
for its enhanced privacy and Bitcoin for its convenience, availability
and liquidity. Bitcoin already usually wins, especially as exchanges
increasingly delist privacy coins in light of regulations.”

It’s also important to note that nefarious characters are not the only parties
who value privacy technologies such as Monero. The coin offers a way
for the everyday person to take back their privacy in an age filled with
digital snooping and data selling. Governments and people in power
treat privacy in digital spending as a foreign concept, when in reality,
government-printed cash is the most anonymous option available and is used daily for illegal activities.

source link :  https://cointelegraph.com/news/open-sesame-will-cracking-monero-reveal-treasure-or-fool-s-gold