Why Claims From Ciphertrace to Detect and Identify Transactions Wont Hurt Monero
Its Not What You think !
Why Ciphertrace's Claims To Detect and Identify Transactions Wont Hurt Monero
On November 20th, a US based blockchain analysis company Ciphertrace announced that they have filed 2 patents claiming to trace Monero transactions which are by default private by design, meaning the addresses of senders & receivers along with the transaction amounts remain encrypted to a blockchain observer. This unique trait is what separated Monero ( ticker XMR) from the sea of blockchain projects out there where similar info is public.
Sources : Ciphertrace and Coindesk
This announcement probably comes as the result of work was requested by some of the US govt bodies like IRS who had put out a bounty for the same (Source: Forbes), also the said firm seems to have had previously done some work for the US Dept. of Homeland Security regarding blockchain monitoring.
So does this mean its OVER for Monero's value proposition ? Should we rush back to the good old grandpa Bitcoin ? Not so fast.
I'm gonna explain why am I not flinched one bit because of this announcement, neither the market sentiment has responded negatively as the USD price of XMR remains largely unaffected.
I will make my case in both aspects, one the company has genuinely cracked it and the other, they haven't in fact but this is just a FUD.
So what if Ciphertrace did indeed able to identify any illicit activity on Monero?
Well, contrary to what it sounds its actually a GOOD thing. Are you wondering why ? Let me break it down for you.
First of all, in my view anyone who does an 'illicit' activity should be held responsible by law, irrespective of whether they used Monero or any other means. People use Monero not to explicitly conduct illegal activites as open source blockchains are probably the worst choice for such things given that Paper Cash is still around.
Consider this scenario, lets say there's this average guy Jack who pays his rent in XMR, buys his groceries using XMR and books his vacation through an online portal like Travala which accepts XMR.
Now the reason why he does this so that his Balances are not seen by his landlord, the grocery store cashier or the travel agent. Its not much different from how normal people use their credit or debit cards so that the recipients of the payments don’t get to see what's left in the sender's accounts.
So IF Ciphertrace is able to detect illicit transactions done via Monero, then its great news for everyone else who use XMR simply to protect their financial privacy and not engage in nefarious activities. By extension, only the criminals would hence be Disincentivised to use XMR.
Given that Ciphertrace has filed for patents, it means they intend to monetize their newly gained proprietary knowledge to do this 'tracing' in the future by maybe working with regulators to identify possible criminals and money launderers. However, they have no worthwhile reason to publicly disclose something like Jack's transactions mentioned earlier as this could result in a mass exodus of normal users from Monero into other alternatives (?) thereby making their 'patents' not worth even a penny. Hence game theory comes into play and the average users like Jack can go on doing what they do with absolutely nothing to lose, as Ciphertrace needs Monero to remain valuable to serve their own best interests.
Now this brings us to the case what if the folks at Ciphertrace are just bluffing?
Obviously nothing changes. Everyone can just chill and get back onto their lives. FUD (stands for Fear, Uncertainty and Doubt) in crypto is a daily event and Monero is no exception.
There was already a Sybil attack on the Monero network in the second half of 2020, where some malicious nodes tried to replicate genuine Monero nodes and tried to spam and create confusion in the network consensus, however their attempts failed with a score of F and it gave an opportunity to the Monero developers to make the network even more resilient to such 'attacks' in the future. (Source: CryptoBriefing)
For all you know, a company like Ciphertrace could have paid one or more centralized exchanges to share XMR data of their users including withdrawal transaction details for a much deeper analysis. This is not hard to imagine as centralized exchange exist to profit and they wouldn’t lose out on a offer to earn some extra bucks. After collecting this data, they could have identified certain transactions from the blockchain based on existing information they had from a given anonymity set and hence would have been able to draw out some analytics and insights from it which they are using to make their case. Of course this is only a guess.
Irrespective of their ability to ‘decipher’ (pun unintended) certain Monero transactions, the average user who intends to use Monero to protect their financial privacy from prying eyes and prefers to have ownership of their funds has nothing to worry about. I believe the same was reflected in the broader markets.
Keep Calm and HODL On !!
Do share your comments and follow me on Twitter: @clarity_focus