Recent news that “Russia will buy $10 billion in Bitcoin and ditch the U.S. dollar” is backed by the flimsiest of evidence. Publications such as The TelegraphBitcoinist, and the Daily Hodl been duped?

The airwaves were abuzz when news that Russia would buy $10 billion in Bitcoin surfaced. Allegedly, that work was “underway” to transfer deposits in U.S. Treasuries to BTC. Multiple publications ran the story, Including the British newspaper The Daily Telegraph. Today, CCN raised questions as to whether the story was “fake news.”

However, the source of those claims, tweets form Vladislav Ginko, are questionable, at best:

😎
👍

Russia only major country could go equity based monetary system because of balance sheet. GATA’s work with $gold suppression via Western central banks reveals methods.

But US law better for entrepreneurs.

Talked about this with @maxkeiser in 2014. https://youtu.be/Fyr8l9TPcLw?t=710 …

YouTube ‎@YouTube

Vladislav Ginko@martik

Trace, I’m sitting here in Moscow, Russia and I see that there is a enormous work is underway to start investing huge amounts of central bank’s reserves into Bitcoin, at least $10 billion. Russia has to do it to save economy from collapsing after looming new US sanctions.53:41 PM – Jan 8, 2019Twitter Ads info and privacySee Vladislav Ginko’s other Tweets

Ginko asserts that he is a “Moscow based expert,” deriving his credibility from the Russian Presidential Academy of National Economy and Public Administration (RANEPA). RANEPA is the largest state-funded institution of higher education in Moscow. He then proceeds to say that Russia will invest $10 billion in Bitcoin:

🙏

I’m working with a few guys to host a meetup in San Diego on Wednesday night!

Want to join? DM me.

Vladislav Ginko@martik

I remember about our project to cast our conversation about Bitcoin as Russia is going to invest $10 billion of its reserves to avoid US sanctions.14:44 AM – Jan 8, 2019Twitter Ads info and privacySee Vladislav Ginko’s other Tweets

Meanwhile, his source for why the Russian government is investing is either circular, or refers back to his purported credentials working at the Kremlin-backed institute:

To what end will Russia invest part of their reserves in Bitcoin? Is it to mop it up the table for scarcity purpose or to drive a point that they believe in Bitcoin as the next big thing where they could make profits on it? IMO, Govt. doesn’t do things that will favor the masses

Vladislav Ginko@martik

There are several keyy factors why Russia gov is about to invest into Bitcoin. 1)As I know many officials’ families personally made investments in into BTC. 2)US sanctions may be mitigated only through Bitcoin use. 3)Pensions reforms need crypto pensions to be introduced.316:09 AM – Jan 7, 2019Twitter Ads info and privacy16 people are talking about this

This isn’t the first time Ginko has made claims that Russia is moving into crypto. He made the same claims of Russia moving billions from U.S. Treasuries to Bitcoin as early as August. He also made similar claims in July, saying that Russia would move to a “cryptorouble”

That said, there are credible people who speculate that such a move by Russia does make sense, from a socio-economic perspective.

Fernando Ulrich@fernandoulrich

“Russia plans to tackle US sanctions with Bitcoin investment”.

As I’ve argued before, it makes geopolitical sense.

Whether it will happen soon (or ever), one can’t predict. But it does make all the sense.

If a nation stockpiles gold, why not Bitcoin? https://www.telegraph.co.uk/technology/2019/01/14/russia-plans-tackle-us-sanctions-bitcoin-investment-says-kremlin/ …499:50 AM – Jan 15, 2019Twitter Ads info and privacyRussia plans to tackle US sanctions with Bitcoin investment, says Kremlin economistRussia is preparing an investment in Bitcoin to replace the US dollar as a reserve currency in a bid to tackle US sanctions, according to a Russian economist with close ties to the Kremlin.telegraph.co.ukSee Fernando Ulrich’s other Tweets

News Outlets Fooled?

Multiple publications published the story solely based on Ginko’s tweets. The Daily Hodl was the first to air the news. Once the views started pouring in, other publications followed suit to soak up clicks.

Google search results for “Russia will buy $10 billion in Bitcoin”

Questionable Statements

Journalists at CryptoSlate combed through thousands of Ginko’s tweets to verify his experience and credentials. Some of his actions on the social media platform call his expertise into question, including retweeting a common Bitcoin scam, making a prediction that BTC will rise to $2 millionat the end of 2019, asking for investment advice over Twitter, and posting dozens of peculiar tweets about dental care.

Earlier in 2018, Ginko revealed that not only does he work at RANEPA, he is also an investigative columnist who writes about crypto. A few of his titles: Why Doesn’t Washington Care About Its Former State Employees?Will Senator John McCain come to Russia to prolong his life?, and Answer to Nikolay Starikov: Let’s appreciate our achievements!.

In another (redacted) tweet, he calls himself a “Bitcoin guru.” Meanwhile, his writing prior to 2018 shows little mention of cryptocurrency. He also claims to have worked for Touro College in New York for three years (as a lecturer according to one of his articles). The contents of the article will be updated once CryptoSlate can verify whether he’s an official representative of these institutions.

Vladislav Ginko’s presence on Google is sparse. His LinkedIn is empty, and RANEPA and Touro College do not show any evidence of him in their directories. Based on this evidence, there is no way to reliably verify that Vladislav Ginko is who he says he is.

Takeaways from the Story

If Vladislav Ginko’s comments aren’t reputable, then the entire story around Russia’s alleged multi-billion dollar investment into Bitcoin is possibly fiction. Choose which publications to trust carefully. And regardless of the reputation of a news agency, always investigate the original source of a claim before giving it full confidence.

Jan. 15th, 02:50: Article substantially revised to reflect that CryptoSlate is still awaiting responses from multiple entities.
Jan 15th, 07:35: Decrypt Media was not one of the publications that listed Vladislav Ginko’s tweets as fact, and actually called the tweet into question.

This post credited to Cryptoslate. Image source: Cryptoslate

Russian Economic Development Minister Maksim Oreshkin has stated that while bitcoin has deflated like a “soap bubble,” it has impacted the world positively by boosting investment in new technologies. Speaking to the media on Wednesday at Russia Calling, an investment forum organised by VTB Capital, Oreshkin said that despite the woes of the crypto market, the conversation around it has successfully driven significant international interest in a vast number of projects in new fields, principally blockchain technology.

Giving his comments at the event, he said:

“You may recall what I said, for example, last year, when Bitcoin’s price jumped up to $20,000, and now it is lower than $4,000, we said very simple things. Bitcoin itself is a soap bubble, it deflated, that’s what happened. […] Unfortunately, many people were affected [because of their investments in cryptocurrency], but again, in terms of new technologies, new businesses, it gave a positive impetus.”

His line is in keeping with the general Russian state reaction to the growth of cryptocurrency. Until now, the legal status of crypto trading, ICOs, and mining has not been firmly established in the country, with Russian authorities doing little more than issuing vague disclaimers and investment advisories from time to time.

While a number of prominent voices have advocated blockchain adoption for reasons as varied as using a gold-linked cryptocurrency to protect its arms export industry to adopting DLT to eliminate customer abuse in the pension fund industry, this still remains far from happening. Thus far, the Russian state’s interest in bitcoin has been largely restricted to facilitating foreign missions in need of hard-to-trace cash.

In March, three draft bills aimed at correcting the regulatory gap were submitted of reading in Russia’s parliament, although the proposed laws included a clause that stipulated that Russia does not recognise digital financial assets as legal tender in the country. Despite this, it has been reported in the past that the country is examining the possibility of skirting US-imposed sanctions using cryptocurrency as a primary solution.

Speaking in June, President Vladimir Putin stated that while the state continues to look at the crypto “phenomenon” with great interest, it cannot at the moment issue or sanction the issue of such tokens since, by definition, they fall outside the regulatory scope of relevant government agencies. That notwithstanding, during this year’s FIFA World Cup which held in Russia, it was announced that hotels and selected hospitality spots would accept cryptocurrency as millions of fans from around the world arrived in Russia.

This post credited to ccn Featured image from Shutterstock

Huobi, the third-largest crypto exchange by trading volumes, is seeking to fill a void in Russia’s cryptocurrency community.

This month, the exchange opened an office in Moscow, the first major crypto trading platform to have a physical presence in the country, notably with a Russian-language call center. But Singapore-based Huobi’s ambitions go further, into lending and renting space for Russian miners, shaping the country’s regulations and training local blockchain talent.

The call center alone may be a significant differentiator, however. Even though leading crypto exchanges like Binance, OKEx and Bitfinex now have Russian-language interfaces, getting real-time support in case of tech problems have been a headache for many users in Russia who don’t speak English, Chinese or Korean.

“None of the big exchanges would answer your request in Russian,” a Russian trader named Anton, who didn’t want to disclose his full name, told CoinDesk.

For several years, the void was filled by the now-defunct exchange BTC-e, which had not only a Russian support staff but a network of local over-the-counter (OTC) dealers who had been facilitating the purchases of cryptocurrencies in absence of regulated fiat on-ramps in the country.

But BTC-e was shut down by the U.S. FBI in July 2017. Subsequently, a new platform named WEX picked up its job until July, when fiat and crypto withdrawals were frozen.

Since then, there has been no mainstream platform offering comprehensive support for users in Russia. So now Huobi is stepping in aggressively.

Concierge service

Huobi’s 30-person Moscow office opened November 12. In addition to the call center, this site provides back office support for OTC trading and listing, and personal managers for big clients, Andrew Grachev, the head of the Russian office, told CoinDesk.

“If someone wants to start trading with $1,000, he can come to the office and register with the help of a personal manager,” Grachev said.

To attract as many new users as possible, Huobi Russia is offering commissions lower than 0.1 percent for users who trade more than 50 bitcoin in two weeks during November, the company’s website says. Also, users will get a monthly “cash back” reward, Grachev said: 20 percent of trading fees users pay on the exchange will come back to their account in the form of Huobi tokens, which then can be used on the platform to pay for services, or cashed out.

Initially, Huobi’s plans were even more ambitious: the exchange wanted to enable deposits in Russian roubles, but the local experts said it’s a bad idea.

“They consulted with us a lot, and in the end, I think, we made them feel disappointed,” Vladimir Demin, head of the Center of Digital Transformations at the Russian government-owned development bank Vnesheconombank (VEB), told CoinDesk. “They were interested in providing fiat operations, but we told them it’s impossible.”

However, Russian users will be able to buy cryptocurrency for roubles using the exchange’s Huobi OTC service, and seamlessly transfer it to their trading accounts, Grachev told CoinDesk. The OTC platform is online, but it has too few users from Russia so far, so Huobi plans to lure local OTC traders with commission rates lower than on other OTC platforms, Grachev said.

Regulatory consulting

With three bills related to blockchain, cryptocurrencies and initial coin offerings (ICOs) currently stuck in the Russian parliament, the State Duma, the local regulatory environment is unclear and arguably unconducive to the industry’s growth.

However, government-backed institutions are watching the field closely and launching various local  blockchain pilots for government services, like distribution of government-sponsored prescription drugs or land registry.

“We started from projects on blockchain without using tokens or cryptocurrencies,” Demin said. “But we understand that using this technology only in a non-token way is like jumping half-way over the abyss.”

In August, Huobi signed up with the VEB’s Center of Digital Transformations and has been providing expertise that will be adapted for Russia by local experts and used in the development of future regulation in the country, Demin said.

“We were looking at this field and Huobi came out as the most suitable partner as they are already working with the governments of Australia, Singapore, China,” he said, adding:

“We are consulting the Bank of Russia and State Duma to add some practical elements to those bills.”

Further expansion

In addition to opening the Moscow office, Huobi will train blockchain entrepreneurs attending a special program for blockchain startups at Plekhanov University of Economics, one of the top Russian universities.

The university is in the process of finalizing a contract with Huobi, Nadezhda Surova, head of the University’s Department of Entrepreneurship and Logistics, told CoinDesk.

Initially, Huobi came to the university in search of tech professionals, she said, and later an expert committee within the Russian government’s Ministry of Digital Development approved the partnership.

Huobi’s further plans in Russia include offering loans for miners to buy specialized mining chips, or ASICs, and space for them to rent, Grachev said. According to him, these services might become available as soon as the first quarter of 2019.

Coming to Russia is a part of larger expansion plans by Huobi: in August, the exchange announced plans to open offices in the Philippines, Russia, Taiwan, Indonesia, and Canada, South China Morning Post reported.

According to CoinMarketCap, Huobi’s total 24-hour volume (excluding no-fee trades and transaction mining) is $595 million, making it No. 3 among exchanges after Binance and OKEx.

This post credited to coindesk Image via Shutterstock

Cryptocurrency exchange YoBit is going to perform a pump scheme on random coins, according to an Oct. 10 tweet. A pump and dump scheme is a form of fraud that attempts to artificially boost the price of an asset through misleading or false recommendations.

Yobit.Net@YobitExchange

YoBit Pump in 22 hrs: https://yobit.net/en/pump/timer/ 
We will buy one random coin for 1 btc every 1-2 mins 10 times (total buy amount – 10 btc).

In addition to announcing the pump scheme in a tweet, the exchange posted a countdown clock for a ‘YoBit pump’ on its website.

YoBit is a Russia-based digital currency exchange founded in 2015, which offers access to hundreds of digital currencies. The trading platform was in the headlines a number of times in multiple reports of suspicious activity and problems with users trying to withdraw funds from their wallets. At press time, YoBit’s daily trading volume is around $28 million, according to CoinMarketCap.

The community reacted quickly, with some users asking whether YoBit’s Twitteraccount had been hacked, and others accusing the company of fraudulent activity. User @Altcoinbuzzio wrote:

“…Looks like Yobit is serious about it, unbelievable… surprised to see an exchange do this.”

Another user @PsychedelicBart tagged the U.S. Securities and Exchange Commission (SEC) in one of his comments:

Yobit.Net@YobitExchange

YoBit Pump in 22 hrs: https://yobit.net/en/pump/timer/ 
We will buy one random coin for 1 btc every 1-2 mins 10 times (total buy amount – 10 btc).

In November 2017, a Business Insider investigation revealed that traders were conducting pump and dumps on YoBit via the messaging app Telegram. However, it remained unclear whether the exchange was aware of the pump and dump activity, as Yobit reportedly did not respond to a request for comment from Business Insider.

 

This post credited to cointelegraph Image source: Cointelegraph

Much noise has been made about the untraceable qualities of Bitcoin and other cryptocurrencies. Bitcoin “can be used to buy merchandise anonymously” said early primers on crypto, it offers users the kind of financial privacy that was previously available only from a “Swiss bank account,” say more recent commentators. And given its ability to provide people with a layer of anonymity and privacy, it has been smeared by politicians, experts and mainstream journalists alike as a hiding place for almost any hacker, drug dealer, gang member, terrorist or despot you could possibly name (even if cash is still the preferred financial medium of such personae non gratae).

It’s therefore no wonder that, for several years, governments have been feverishly trying to trace Bitcoin’s circulation, as well as that of other digital currencies. And despite the popular reputation of most cryptocurrencies as anonymous, they’ve been aided in this pursuit by the fact that most cryptos are not anonymous, but rather pseudonymous. In other words, by linking transactions to fixed wallet addresses, and by keeping a public record of every single transaction ever made on their chains, most popular cryptocurrencies provide national governments with an almost perfect means of keeping tabs on our financial activity.

However, while many governments have begun capitalizing on this very convenient affordance by building systems that compile transaction data and scraped private info into a single database, most have only just begun moving in this direction. And more importantly, there are a number of privacy coins – Monero being the most prominent  – that don’t offer a public record linking transactions to wallets, while there are also mixing tools for making the transactions of non-privacy coins private. As such, there are still ways to remain anonymous in crypto for those who want to keep a low profile, despite the best efforts of governments in the USRussiaJapan, and elsewhere.

Japan and Russia

Japan and Russia

As the most recent example of government crypto monitoring, the Japanese National Police Agency (NPA) announced plans to implement a system that can reportedly “track” cryptocurrency transactions within Japan. While specific technical details are scarce, the software is being developed by an unnamed private company and will cost the NPA around $315,000 next year to run. In particular, its main function will be to trace transactions reported to it as ‘suspicious’, linking them together into a visualization that will, in theory, enable it to pinpoint the sources and destinations of illicit money.

For the most part, it will receive its reports of suspicious activity from Japanese crypto-exchanges, which ever since the May introduction (by the Financial Services Agency) of anti-money laundering (AML) legislation have been sending it intelligence on potentially illegal transactions and the accounts associated with them. Indeed, this reporting is precisely what makes a ‘transaction-tracking system’ possible, rather than the invention of some novel cryptographic technology capable of breaking through the pseudonymity/anonymity of most cryptocurrencies. Simply, exchanges are being legally required to follow strict know-your-customer (KYC) policies, which enable them to link real-world identities to addresses and to transactions recorded on public blockchains. And given that they’re supplying this info to the NPA, all the NPA will really be doing with their system is feeding such info into a database and creating visualizations of the flow of crypto.

What this means is that such a system isn’t likely to have much direct application to anyone who circumvents (regulated) exchanges when receiving and sending crypto. That said, even if certain users stay away from Japanese exchanges they could still be linked to illicit crypto if said crypto has passed through an exchange and already raised suspicions. Either way, another area to which the system isn’t likely to have much direct application are privacy-enabling coins such as MoneroZcash and Dash, since rather than attempting to track such coins the Japanese authorities have merely decided to ban exchanges from carrying them.

A similar story is currently emerging in Russia, where the Federal Financial Monitoring Service (Rosfinmonitoring) has contracted for a system that will collate various sources of information regarding suspects in finance-related crimes. As reported by the BBC Russia service, the system will be used to create profiles for suspects, to which the authorities then add whatever relevant info they can gleam about him or her: phone numbers, bank card details, physical addresses, and crypto wallet addresses. Once again, the system hasn’t been designed specifically to compromise the cryptography of Bitcoin or any other crypto, but rather seeks to simply add wallet information – where available – to any other data Rosfinmonitoring has on a suspect.

By doing this, the Russian authorities clearly hope to prevent suspects from laundering any illicitly gained money via crypto, while they also assert that they intend to stop crypto being used directly for illegal purposes. “Because of their anonymity and the inability to trace them,” German Klimenko – an ex-advisor to Vladimir Putin on internet development (and head of the cryptocurrency group at the Russian Chamber of Commerce and Industry) – told the BBC. “Cryptocurrency is used in grey areas, in the dark web, for buying weapons, drugs, or violent videos. Lawmakers of many countries are wary of this phenomenon: this was confirmed by the analysis that we conducted under orders from the president [Putin].”

While Russia hasn’t introduced regulations requiring exchanges to uphold strict AML and KYC policies, the State Duma is in the process of negotiating a digital assets bill that would do just that. And once this bill has passed, Russian authorities will – like their Japanese counterparts – have access to info on the identities of wallet holders. As a result, the Rosfinmonitoring service will be able to enter this information in the soon-to-be-launched system (coming at the end of 2018), which will enable it to link transactions, wallets, and identities together.

But because this system will be tapping into crypto-exchange records rather than novel ‘crypto-hacking’ technology, it’s likely that it won’t apply to all cryptocurrencies and all cryptocurrency users. Some experts even believe that it will have a largely counterproductive effect, forcing many cryptocurrencies and their users to become more untraceable.

“If you look at the entire volume of laundered funds, the share that is laundered through cryptocurrency is very small,” Anton Merkurov – an advisor with US-based the Free Russia Foundation – said. “Let’s say the turnover of the local exchange is about one billion rubles [around $14.7 million] a week. This, in fact, is not very much. Instead of catching the proverbial Colonel Zakharchenko [a former anti-corruption officer who was caught with around $140 million in bribe money in 2016], authorities are trying to find a microbe under a microscope in a drop of water. This should not be a priority. And most importantly, start pressing there and opposition will begin, you will think up real tools for laundering.”

The United States

The United States

While the systems being rolled out by Japan and Russia largely depend on cooperation from crypto-exchanges and on piecing together disparate sources of information, there are indications that some governments at least have taken a more direct approach to identifying crypto users.

The US, to take the most notable – and disconcerting – example, has developed a covert piece of technology that can actually extract raw internet data from fiber-optic cables in order to identify the IP addresses and IDs of those sending and receiving Bitcoin. According to documents obtained by whistleblower Edward Snowden in 2013 and published by the Intercept in March 2018, the technology in question is a program developed by the National Security Agency (NSA) and known as OAKSTAR. Masquerading as a piece of virtual private network (VPN) and downloaded by some 16,000 users in such nations as China and Iran, the program instead siphons data from an “unspecified ‘foreign’ fiber cable site,” according to the Intercept.

Using this data, the NSA can then extract such information from Bitcoin users as their password information, their internet browsing activity, and their MAC address, while certain whistle-blown docs also discuss extracting users’ internet addresses, timestamps, and network ports. Effectively, OAKSTAR can be used to gather much more than the information necessary to identify someone and link them to specific Bitcoin addresses and transactions, and it can do so without having to rely on crypto-exchanges.

This is a big blow for Bitcoin privacy. As Cornell University professor Emin Gün Sirer told the Intercept:

“People who are privacy conscious will switch to privacy-oriented coins […] when the adversary model involves the NSA, the pseudonymity disappears. You should really lower your expectations of privacy on this network.”

Similarly, Matthew Green – an assistant prof. at Johns Hopkins University Information Security Institute (and a key Zcash developer) – explained to the Intercept that the NSA’s exploits are “bad news for privacy, because it means that in addition to the really hard problem of making [crypto] transactions private […] you also have to make sure all the network connections [are private].”

As alarming as OAKSTAR and the activity surrounding it are, no new information has emerged recently to indicate that the NSA has extended its Bitcoin-tracking endeavors to other cryptocurrencies. There’s also the fact that its ability to link certain people with Bitcoin wallets is predicated on these people unwittingly downloading a piece of software that secretly extracts their internet data (while purporting to provide some other service). As a result, if users stick to VPN packages (and other pieces of software) they know and trust, it’s likely they will avoid the NSA’s long claws.

This reassurance aside, there is still the predictable reality that the United States government has been seeking user data from cryptocurrency exchanges, and has been doing so for longer than either the Japanese or Russian governments. In November 2016, for instance, it filed a legal summons that required Coinbase to provide the Inland Revenue Service (IRS) with the identities of an unspecified number of individuals associated with a number of cryptocurrency wallets. As Cointelegraph reported at the time, this summons was significant not so much in itself, but because it indicated that the IRS had been able to track certain wallets to an extent sufficient to determine that they’d been involved in the violation of tax legislation. Similarly, it also indicated that the IRS had been able to determine that the wallets were attached to Coinbase.

While the IRS unsurprisingly hasn’t divulged how it was able to track these wallets, a 2015 document leaked to the Daily Beast in 2017 revealed that it awarded a contract to Chainalysis, a Switzerland-based “blockchain intelligence” provider that monitors cryptocurrencies such as Bitcoin for compliance reasons. As Cointelegraph reported at the time, Chainalysis uses “data scraped from public forums, leaked data sources including dark web, exchange deposits and withdrawals to tag and identify transactions.” It attempts to combine what’s made publicly available on blockchains with personal info unthinkingly/carelessly left by crypto users on the web. It runs, therefore, another system that is less about cryptographically penetrating blockchains and more about simply putting together all the disparate threads of info strewn across the Internet.

And even though the IRS hasn’t explicitly acknowledged its employment of Chainalysis or any other service, it’s also interesting to note that past instances where an agency of the federal US government has succeeded in tracking crypto users have potentially involved input from the NSA. In October 2013, Ross Ulbricht was arrested by FBI agents in San Francisco and then charged (almost a year later) with conspiracy to traffic narcotics, money laundering, and computer hacking. During his trial, he claimed his prosecution violated the fourth amendment (i.e. right to protection against unwarranted searches), since the only way the FBI could have identified him was through the illegal help of the NSA and its data-gathering trickery. Needless to say, this defense didn’t exactly work, yet the Intercept noted that the NSA’s OAKSTAR project got under way six months before Ulbricht was arrested. More interestingly, the website also published classified documents in November 2017 revealing that the NSA had secretly helped the FBI secure other convictions in the past.

Whatever the truth behind Ulbricht’s conviction, it’s clear that the NSA has had the ability to covertly identify Bitcoin users for over five years, while it’s also true that other US agencies have been tracking crypto transactions (using undisclosed means). As such, it’s a safe bet to say that American crypto users should probably think carefully before engaging in anything Uncle Sam wouldn’t condone.

China, India and beyond

China and India

It would appear that few nations can match the US in the reach and power of their crypto-tracking activities. However, this isn’t stopping many from trying. In China, reports emerged in March that the Public Information Network Security Supervision (PINSS) agency has been monitoring foreign crypto-exchanges that serve Chinese customers. Even though the government has banned domestic exchanges and trading on foreign alternatives, this hasn’t stopped every Chinese trader from seeking out crypto abroad. Because of this, PINSS has been ‘monitoring’ foreign exchanges so as to “prevent illegal money laundering, pyramid schemes [and] fraud,” according to Chinese news outlet Yicai.

While Yicai could confirm via sources at PINSS that such monitoring had been underways since September 2017, it couldn’t explain just what kind of monitoring was being pursued, or whether the Chinese government was actively trying to identify individuals trading in crypto. Still, whatever the extent of the surveillance involved, the knowledge that other nations are tracking crypto would indicate that Chinese traders should also add themselves to the growing list of ‘people who ought to be careful.’

So too should Indian traders, who in January may or may not have learned that their government was keeping tabs on them for tax purposes. Actually, chances are they would have learned about this, since the Indian tax department sent notices to “tens of thousands” of investors (according to Reuters), after having conducted national surveys and having obtained user data from nine Indian exchanges. This provided a clear signal that the government was indeed tracking cryptocurrency transactions, something which it had begun contemplating in July 2017, when India’s Supreme Court demanded information from it and the Reserve Bank of India on the steps being taken to ensure that crypto isn’t being used for illicit purposes.

As reported in July by Indian news website LiveMint, the system the government was considering, would involve cooperation between the central bank, the Securities and Exchange Board of India (SEBI), and India’s intelligence agencies. However, as the involvement of India’s crypto-exchanges in January’s tax notices reveals, it’s once again likely that the system currently rests on input from these exchanges, rather than on technology comparable to the NSA’s, for instance.

Other than the prominent examples of Japan, Russian, the US, China and India, there are few other cases of national governments going public with (or being known for) crypto-tracking systems. Nonetheless, even if there’s currently no public record of other governments investigating the potential for tracking systems, it’s highly probable that those governments with a significant interest in crypto have contemplated a tracking system in one form or another.

UK and EU

For example, the UK and EU governments jointly announced in December 2017 that they’re planning a “crackdown” on crypto-enabled money laundering and tax evasion. UK economic secretary to the Treasury Stephen Barclay said in last October:

“The UK government is currently negotiating amendments to the anti-money-laundering directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counter-terrorist financing regulation, which will result in these firms’ activities being overseen by national competent authorities for these areas.”

While this doesn’t confirm tracking, it would at least imply it, since the ability to enforce AML legislation entails that governmental bodies and departments should have some means of not only detecting when someone is earning crypto that needs to be taxed, but also determining just who that person is. Hence, UK and EU authorities need to have some kind of tracking system in place, otherwise their threats of ‘cracking down’ on money laundering and the like will equate to only so much hot air.

And in the future, it may become increasingly possible for them or any other government, regardless of technological development, to carry through with such threats. In April, a corporate giant none other than Amazon, received a patent for a “streaming data marketplace” that would permit the combining of multiple data sources, thereby enabling the real-time tracking of cryptocurrency transactions and the users involved. As the text of the patent makes clear, this technology could potentially be offered to governments, who would be able to link crypto addresses to official IDs:

“The electronic retailers may combine the shipping address with the bitcoin transaction data to create correlated data and republish the combined data as a combined data stream. A group of telecommunications providers may subscribe downstream to the combined data stream and be able to correlate the IP (Internet Protocol) addresses of the transactions to countries of origin. Government agencies may be able to subscribe downstream and correlate tax transaction data to help identify transaction participants.”

Given the arrival of such technology (and the current existence of such firms as Chainalysis), it’s only a matter of time before transactions involving Bitcoin, Ethereum or any other non-privacy cryptocurrency will be systematically de-anonymized. It will take some time, particularly given that Amazon’s patent requires its users (e.g. retailers and telecoms providers) to combine separate pieces of data in order to create correlations. Still, it’s becoming increasingly apparent that things are moving in only one direction when it comes to the privacy and anonymity of crypto.

Privacy coins

And in light of this direction, anyone wanting to keep their chances of being identified as low as possible is advised to migrate to one of the so-called privacy coins. Monero is the most well-known of these, having entered into 10 most valuable cryptocurrencies by market cap since its initial launch in April 2014. More than anything else, what distinguishes it from the likes of Bitcoin is its CryptoNight proof-of-work algorithm, which uses a mix of ring signatures and stealth addresses to not only bury the sender’s wallet address in those of multiple other users, but also to hide the precise amount being transferred.

It’s because of this that the cryptocurrency has proven popular with those who’ve needed to evade government power (for whatever reason), and such is Monero’s apparent ability in preserving anonymity that its price increased by around 2,883% between Jan. 1 and Dec. 31, 2017 (from $12.3 to $358). By contrast, Bitcoin’s 2017 growth rate was a slightly less impressive 1,357%.

2,883% may be impressive, but it pales in comparison to the 9,000% growth enjoyed in 2017 by Dash, another altcoin with certain privacy-enhancing qualities. The 13th most valuable cryptocurrency by total market cap, its PrivateSend feature mixes addresses so as to obscure the origins and destinations of transactions, in the process making it noticeably harder for any interested authority to put the pieces together.

This may be a part of the reason why the currency has took off so spectacularly in Venezuela, where the government cracked down on such cryptocurrencies, such as Bitcoin, in a big way last year (before showing favoritism towards its own oil-backed Petro coin). Venezuelans also turned increasingly to Zcash during this period, which has become the 21st biggest cryptocurrency since launching in October 2016. Building upon Bitcoin Core’s architecture and using zero-knowledge proofs, it keeps the sender and receiver’s pseudonyms private, while also doing the same for the quantity being transacted.

Therefore, a choice of privacy coins is available for anyone worried about the growing ability of governments to track crypto transactions. And even if a concerned crypto user holds no Monero, Dash, or Zcash, they can still take advantage of the various mixing services available for non-privacy coins. For example,there are anonymization protocols available that, much like the features available via Monero and Zcash, enables senders and receivers of Bitcoin to mix their transactions with those of other senders and receivers, making it very difficult to disentangle the multiple threads involved. Such protocols include the likes of CoinJoin, Dark Wallet, bestmixer.io, SharedCoin, and CoinSwap, all of which also provide holders of Bitcoin and other cryptos with the ability to anonymize their transactions.

So even though cryptocurrency tracking is increasing, crypto investors and holders needn’t be overly fearful of government surveillance. For one, most of the tracking systems in use or which are being developed rely on input from crypto-exchanges, while others (such as those provided by Chainalysis) depend on scavenging data that users may have left carelessly throughout the web. Meanwhile, more direct and intrusive methods being honed by the NSA also rely on crypto users unknowingly compromising their internet connections, something which couldn’t be counted on for monitoring all cryptocurrency transactions en masse. This is why, in addition to such privacy coins as Monero and Zcash, privacy-conscious crypto holders shouldn’t be too concerned, since there are ways of remaining anonymous for those who want it bad enough.

 

This post is credited to cointelegraph  Image source: Cointelegraph