The German Ministry of Finance writes that the use of Monero (XMR) and Zcash (ZEC) by criminals is increasing. In a recent report, our neighbors in the East argue that privacycoins can take over the role of bitcoin on the dark web.
What are privacy coins?
Before we go any further, a short explanation about privacy coins. These are cryptocurrency that aim to give the user anonymity. Bitcoin does not fulfill that role now, transactions and recipient addresses may not be directly linked to you, but they can be viewed through the blockchain. We call this pseudo-anonymity.
Privacy coins ensure that transactions and recipient addresses are not visible. So you don’t know who sends what and how much someone has in his or her account. Examples are Monero and Zcash. You can also compare this with cash. If you buy something at the flea market then a third party does not know how much money is involved and how much you have in your wallet.
Money laundering and terrorism financing
Back to the German report, the differences between certain types of cryptocurrency are well emphasized. They write that investigators can link an individual to a bitcoin wallet via the blockchain. She cannot do that with privacy coins.
Incidentally good to know, the report bears the name Erste National Risk Analysis: Bekämpfung von Geldwäsche und Terrorismusfinanzierung 2018/2019. Or an analysis of how money is laundered and terrorism is funded. Fortunately, the report is not just about cryptocurrency.
The Ministry started assessing the existing and future risks that may contribute to the spread of such financial crimes in December 2017.
Difference between bitcoin and privacycoins
The analysis mentions the use of cryptocurrency as a potential risk factor for the future. However, it makes a clear distinction between pseudo-anonymous cryptos such as bitcoin and privacy-oriented currencies such as Monero and Zcash.
The German Ministry of Finance claims that the risk of anonymous cryptocurrency is greater than that of Bitcoin. The anonymous nature makes it much harder to monitor criminal acts, which is why criminals are more likely to use them more often.
However, the ministry also writes that the use of cryptocurrency to buy illegal things on the dark web or to finance terrorism is low.
Crypto is hardly used for illegal acts
The report states that there are not many indications that cryptocurrency is being used in connection with terrorist financing in Germany. Cryptocurrencys are used occasionally by extreme right-wing groups and religious extremists.
This is due to the volatility of the rate, making cryptocurrency less suitable as a means of payment in the criminal circuit. Logically, the report states that stablecoins is a potential option for fast international payments between criminal networks.
Cash remains king
It is mainly written about the potential of cryptocurrency for criminal activities. The Germans therefore do not conclude that cryptocurrency is now widely used for illegal acts. On the contrary, they conclude that a much better established and trusted payment method is used for this: cash euros.
“The use of cash, as opposed to the use of pseudo anonymous cryptocurrency, leaves no traceable footprint and is easy to handle. It is plausible that the transfer of terrorist financing resources alongside Hawala and money transfer service providers go mainly through couriers. “
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