DOJ Along With US Attorney General Take Hard Stance On Privacy Coins, US, Foreign Crypto Firms And Crypto Laws
The US government says they have broad extraterritorial jurisdiction over crypto-related businesses. DOJ Along With US Attorney General Take Hard Stance On Privacy Coins, US, Foreign Crypto Firms And Crypto Laws
The Cryptocurrency Enforcement Framework issued by the U.S. Department of Justice stipulates a number of cases where it will exert its authority over foreign actors: “where virtual asset transactions touch financial, data storage, or other computer systems within the United States”, if they use cryptocurrency to import illegal products into the U.S. and if they “provide illicit services to defraud or steal from U.S. residents”.
This also applies to foreign entities that engage in money transmission in the country even if they are incorporated abroad.
Additionally, the Department claims to have the authority to prosecute any foreign actors who use cryptocurrency to support terrorist activities:
“Finally, it bears emphasizing that if conduct involving virtual currency were to violate the U.S. statutes regarding material support of terrorism, the U.S. government could appropriately assert jurisdiction over such offenses anywhere in the world, consistent with due process, under the principle of protective jurisdiction.”
The report also cites Zcash, Monero, and DASH usage as “indicative of possible criminal behavior.”
As a motivation for the framework, the report purports that “rogue states’ like Russia, Iran and North Korea may use cryptocurrency to fund cyberattacks intended to undermine the U.S. national security. In addition, it alleges that “certain terrorist groups have solicited cryptocurrency donations running into the millions of dollars via online social media campaigns.”
US Attorney General Releases Guidelines For Enforcing Crypto Laws
Regulation and guidance continue to come in hot from the land of the free.
William Barr, the attorney general for the U.S., published official guidelines for keeping crypto markets accountable.
The lead U.S. attorney’s Cyber-Digital Task Force put together the guidelines, officially calling them: Cryptocurrency: An Enforcement Framework, according to an Oct. 8 statement from the U.S. Department of Justice.
The Statement Explained:
“The Framework provides a comprehensive overview of the emerging threats and enforcement challenges associated with the increasing prevalence and use of cryptocurrency; details the important relationships that the Department of Justice has built with regulatory and enforcement partners both within the United States government and around the world; and outlines the Department’s response strategies.”
The new guidelines come after the DoJ and the U.S. Commodity Futures Trading Commission went after crypto derivatives exchange BitMEX, citing multiple illegal activities.
“Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society,” Barr said in the statement. “Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.”
The statement also conveyed various comments from other authorities, noting both the technology’s potential for innovation, as well as its use in nefarious dealings.
The lengthy report itself included 83 pages of content on crypto, its “legitimate uses,” its “illicit uses,” applicable regulating bodies, and a game plan going forward.
Among the mentioned categories within the crypto space, the report pointed out privacy assets. The Department of Justice specifically name-checks Zcash, Monero and DASH usage as “indicative of possible criminal behavior.”
The report continued by asserting U.S. jurisdiction over individuals whose crypto transactions interact with U.S.-based servers.
The burgeoning crypto and blockchain space is a complicated one, as the report also noted while pointing out criminal activities such as pump and dumps — an age-old illegal tactic from the stock market, modernized through crypto.
Among its listed legitimate crypto use cases, the framework included payments for goods and services, void of third parties.
“Proponents of cryptocurrency contend that, by eliminating the need for financial intermediaries to validate and facilitate transactions, cryptocurrency has the potential to minimize transaction costs and to reduce corruption and fraud,” the document explained, while subsequently pointing toward the asset class as an inflation hedge.
In contrast to the above-board use cases it mentioned, the report also detailed activities it claimed as illicit, such as drug transactions. I posited illegal digital asset activities commonly occur under three separate wings: funding illegal substances, product sales or activities, money laundering and tax evasion, and crypto-specific hacking or fraud.
In its conclusion, the report called for collaboration with other governing bodies and participants across the U.S. and the globe.
“To promote public safety and protect national security, all stakeholders — from private industry to regulators, elected officials, and individual cryptocurrency users—will need to take steps to ensure cryptocurrency is not used as a platform for illegality. Indeed, for cryptocurrency to realize its truly transformative potential, it is imperative that these risks be addressed.”
DOJ Says Use Of Privacy Coins Is ‘Indicative Of Possible Criminal Conduct’
Privacy coins are getting more attention than ever from the U.S. government.
A new report from the U.S. Department of Justice alleges that crypto traders dealing with coins like Monero, Dash, and Zcash are engaging in “high-risk activities.”
According to the report by the U.S. Attorney General’s Cyber Digital Task Force called Cryptocurrency: An Enforcement Framework released on Oct. 8, anonymity enhanced cryptocurrencies (AECs) can undermine existing anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations put in place by businesses engaged in virtual asset activities. The task force cited coins including Monero (XMR), Dash (DASH), and Zcash (ZEC).
“The Department considers the use of AECs to be a high-risk activity that is indicative of possible criminal conduct,” the report stated. “AECs are often exchanged for other virtual assets like Bitcoin, which may indicate a cross-virtual-asset layering technique for users attempting to conceal criminal behavior.”
According to the report, privacy coin holders can obfuscate the origin of their tokens using mixers, tumblers and chain hopping, undermining AML and CFT.
Chain hopping, which the DOJ claims is “frequently used by individuals who are laundering proceeds of virtual currency thefts,” involves swapping one’s crypto holdings for others operating on a different blockchain like Bitcoin (BTC) and Ethereum (ETH).
Mixers and tumblers make it difficult for investigators to trace funds by mixing crypto holdings from multiple traders before they’re sent to the appropriate wallet. The report cited a privacy tool called Helix, whose alleged administrator was arrested in February for laundering more than $311 million worth of Bitcoin.
“Operators of these services can be criminally liable for money laundering because these mixers and tumblers are designed specifically to ‘conceal or disguise the nature, the location, the source, the ownership, or the control’ of a financial transaction.”
Released today, the DOJ report itself is 83 pages of official guidelines for keeping crypto markets accountable in the United States. Among the more noteworthy assertions in the report is the department claiming jurisdiction over individuals whose crypto transactions interact with U.S.-based servers.
Community Reacts To New DoJ Crypto Enforcement Guidelines
The DoJ’s guidance around cryptocurrency enforcement, that cites “crime” and “criminals” 168 times, has been poorly received.
The new cryptocurrency enforcement guidelines by the Department of Justice (DoJ) have received a negative response from segments of the crypto community.
Published earlier today by the attorney general for the U.S. William Barr, the DOJ report aims to address the “uniquely dangerous threats to public safety” cryptocurrency poses.
Citing the words “crime” or “criminal” 168 times in the 83-page document, many in the community have interpreted the DoJ’s position as a direct attack on crypto that labels the entire sector as an avenue for crime.
Coinshares’ CSO Meltem Demirors described the policy document as “a commercial reel of every financial crime known in crypto,” asserting that the DoJ’s over-emphasis on providing examples of criminal use-cases for crypto fails to address the myriad of legitimate utilities for crypto assets.
This sentiment was echoed by many on Twitter, with fairly typical response coming from ‘CryptoPennyCO25’ who believes the DoJ report is simply trying to paint crypto in a bad light:
Justice Department with more negative spin on how cryptocurrency is a tool of terrorists, rogue regimes, criminals, etc. and the importance of enforcing the laws against such activity. ♂️ https://t.co/fSrgs4lo5b
— CryptoPennyCO ♂️ 2025 (@CryptoPennyCO) October 8, 2020
Some in the Ripple (XRP) community took umbrage at a line in the report that states: “Ripple Labs willfully violated several requirements of the [Bank Secrecy Act] BSA.”
Ripple CEO Brad Garlinghouse suggested the report, and the overall U.S. approach, fell a long way short from providing clear guidance:
“An 70+ page contradictory report is not regulatory clarity — many responsible private players are trying to follow the rules, but that becomes increasingly hard when there’s no single arbiter of the law.”
Agreement echoed throughout the XRP Army with Twitter user Massimo saying that the report is another spin on the, “non-sensical merry go round that doesn’t address what we really need here for the space to mature and progress in an organic, safe and meaningful way.”
Earlier this week, Ripple co-founder Chris Larsen said the firm is considering moving to the U.K., Switzerland, Singapore, or Japan due to the government’s lack of regulatory clarity.
This new framework by the DoJ might fast-track Ripple’s decision — and Garlinghouse suggested other companies may follow suit. He added that unless clearer guidelines are provided, “companies will move their investment (or whole company) overseas.”
However not everyone in the crypto community was against the new framework. General counsel for Compound Jake Chervinsky identified it as a positive development:
“Guidance like this doesn’t come often & is very helpful for understanding the government’s regulatory & law enforcement priorities. We should all read this closely.”
DOJ’s Crypto Framework Is ‘A Complete Disaster’ For Digital Privacy Rights
The U.S. Department of Justice’s (DOJ) recent crypto enforcement framework is a threat to digital privacy rights, according to an attorney for the Electronic Frontier Foundation (EFF).
“It was a complete disaster for privacy and anonymity and civil liberties in the cryptocurrency space,” said Marta Belcher, special counsel to the digital rights advocacy group.
The framework, released earlier this month, details the U.S. government’s approach to crimes committed using cryptocurrencies, but also appears to define some broad policy positions on crypto and crypto exchanges more generally.
Belcher, who is an attorney with Ropes and Gray and an outside counsel to Protocol Labs, said the framework released earlier this month raises many concerns about privacy rights, pointing to language on peer-to-peer exchanges, mixers/tumblers and “anonymity enhanced cryptocurrencies” (privacy coins).
In Belcher’s view, there are a number of legal concerns with the crypto enforcement framework as laid out by the DOJ’s Cyber Digital Task Force. Language in the framework would appear to have implications for individuals sending cryptocurrencies to one another, as well as exchangers offering transactions as a service.
The enforcement framework even had a section on mixers and tumblers, noting that entities qualifying as money services businesses are subject to the BSA or “similar international regulations.”
The DOJ’s arguments against cryptocurrencies are similar to those made against encryption, another law enforcement boogeyman. The DOJ, alongside other members of the “Five Eyes” intelligence alliance plus India and Japan published a statement calling for backdoor access to encrypted messaging services and other systems last weekend.
The statement reflects law enforcement agencies’ “fundamental discomfort” with any technology that could allow for private interactions, said Jake Chervinsky, general counsel at Compound Finance.
The enforcement framework is “making exactly the same argument you’ve seen being made for decades about encryption,” Belcher told CoinDesk. “These are the exact same arguments that are against encryption and they’re coming from the exact same place as the fight against encryption.”
The intelligence agencies claim backdoors in encrypted protocols and systems would make it easier to identify and prosecute crimes committed using privacy-protecting tools (including cryptocurrencies).
This statement ignores the technical realities of building strong encryption, he noted.
“The Five Eyes [coalition continues] to overlook a few basic points about encryption: first, that strong encryption itself enhances public safety and prevents crime by protecting people and their data; second, that it’s impossible to build backdoors into encrypted systems without creating extraordinary new cybersecurity risks; and third, that cryptography tools are increasingly open-source and can’t be easily cabined or controlled at their request,” he said.
Many cryptocurrency companies and developers, for example, wouldn’t be able to comply with the backdoor requests because of this open sourcing, he said.
According to the DOJ’s crypto framework, a P2P exchanger is considered a money services business, which means it is required to abide by recordkeeping and reporting requirements as defined by the Bank Secrecy Act (BSA) and other regulations if they buy or sell convertible virtual currencies.
The framework defines individual exchangers as individuals who provide crypto transaction services to others, but Belcher believes it could be used to apply to two individuals who just transact between each other – not just individuals acting as service providers.
“Individual exchangers – as well as platforms and websites – that fail to collect and maintain customer or transactional data or maintain an effective AML/CFT program may be subject to civil and criminal penalties,” the framework said, referring to anti-money laundering/combating the financing of terrorism regulations.
The distinction is between “software providers” and “service providers,” Chervinsky said. Software providers, which compose a large part of the crypto industry, deploy decentralized protocols and publish open-source projects that the writers cannot control or modify. Service providers, on the other hand, offer “permissioned, proprietary platforms” that the operators can control.
In Belcher’s view, the crypto framework puts both individuals who write code for peer-to-peer transactions as well as those who use this code at risk for enforcement actions.
“There’s liability on people using these exchanges in order to exchange cryptocurrencies anonymously with others,” she said. “To say I can’t send you cryptocurrency using a script, you and I can’t transact with each other directly in a peer-to-peer way without that data being collected somewhere by a third party is a complete affront to privacy and civil liberty.”
Individuals can easily conduct similar transactions using cash, she said. “No one questions that I can hand you money without there needing to be a written record of that.”
The framework also took aim at privacy coins and other tools to obfuscate transactions, like mixers and tumblers. Belcher said it is wrong to focus on whether privacy coins can be compliant with the BSA and other laws.
Cryptocurrencies could potentially transfer the privacy protections that come from cash transactions and shift them online, she said.
“The thing that is so important for me is that you can transact anonymously and you can take the protections of cash and you can transfer that to the online world,” she said.
“The idea that merely by exercising your right to transact anonymously is indicative of you committing a crime is wrong in my view.”
The U.S. government followed the framework with its first enforcement action against a bitcoin mixer just 11 days later, when the Financial Crimes Enforcement Network (FinCEN) fined Larry Dean Harmon, the alleged operator of a mixer, $60 million for his operations.
However, that particular case doesn’t have major implications for mixing software more generally, said Carlton Fields attorney Andrew Hinkes on Twitter.
“The facts here are egregious and ghastly. A service provider that profits from software that provides money transmission services must comply, must keep records, and must report. Plain as day, and should be obvious by now,” he wrote, pointing to various facts in the case, including the operator’s boasting of transaction privacy for customers, transactions conducted for Iran-affiliated accounts and payments facilitated for at least one child exploitation site.
Chervinsky agreed, noting that Harmon was treated like a service provider, not a software provider.
It’s possible the DOJ’s framework can help contribute to financial censorship, an ongoing issue within the U.S., Belcher said.
Traditional payments giants surveil and censor a number of transactions, including innocuous ones that might upset certain sensibilities.
“There are all these examples of a kinky bookstore or a nonprofit that supports LGBT fiction getting their accounts shut down by Visa and Mastercard, and also famously things like WikiLeaks that then turn to cryptocurrency when they can’t be served by the financial intermediaries that are censoring that,” she said.
These transactions aren’t illegal, Belcher noted.
A cashless society is effectively a surveillance society in this respect, she said.
Actual crimes committed using cryptocurrencies should be prosecuted, and it’s a benefit to the crypto community when they are, she said.
The DOJ report included dozens of examples of crimes that were committed using or at some point touching on cryptocurrencies, including several recent high-profile cases.
However, blaming cryptocurrencies for their use in crimes does not make sense, she said.
“I think they’re missing that cash has always been used to facilitate illegal activity,” she said. “We don’t blame Ford when one of its cars is used as a getaway vehicle in a bank robbery.”
US AML Watchdog Wants Info On All International Crypto Transactions Over $250
The proposed change would cut down FinCEN’s longstanding $3,000 threshold.
The Financial Crimes Enforcement Network (FinCEN) and Federal Reserve are looking to get more information on smaller transactions than ever before.
According to a notice of proposed rulemaking published on Friday, the agencies want to lower the $3,000 threshold established in 1995 to $250 for international transactions, meaning that financial institutions would need to exchange client information alongside all transactions greater than $250 that begin or end outside of the United States. Which is to say, the Travel Rule, as it is known, would apply to quite small amounts of money changing hands.
The proposed change specifically calls out “convertible virtual currencies,” saying that they would also fall into the category of money for the purposes of this rule.
The information that financial institutions need to exchange under the travel rule is:
“(a) name and address of the originator or transmittor; (b) the amount of the payment or transmittal order; (c) the execution date of the payment or transmittal order; (d) any payment instructions received from the originator or transmittor with the payment or transmittal order; and (e) the identity of the beneficiary’s bank or recipient’s financial institution.”
Which is to say, quite a lot of personal information that a crypto exchange would then need to store alongside a user’s account, posing a major data security threat. Moreover, implicit in this change is a mandate that financial institutions know the geographic origin of every transaction over the $250 threshold.
The Financial Action Task Force is working to apply a similar rule all around the globe, which has proven highly controversial within the crypto world. The mandate to collect and exchange customer information seems diametrically opposed to the “peer-to-peer electronic cash system” that the whitepaper for Bitcoin presented.
For now, the update to the Travel Rule remains just a proposal. FinCEN and the Fed are inviting public comment from all concerned over the next 30 days.
Declaring A Crackdown? What To Make Of The DoJ Crypto Framework Release
The U.S. Department of Justice has articulated its digital enforcement strategy, putting the crypto community on notice.
The United States Attorney General’s Cyber-Digital Task Force recently unveiled the result of its months-long effort to evaluate emerging cryptocurrency-related threats and articulate law enforcement strategies for countering them.
The resulting guidance leaves the reader with an impression that its authors have a sound understanding of how the focal asset class works as well as a certain fixation on the ways it can be misused, as some observers contend.
In the highly charged atmosphere of the final weeks before the presidential election, with high-profile enforcement actions against the people behind crypto derivatives exchange BitMEX and the U.S. government’s sweeping anti-monopoly push against Silicon Valley looming in the background, the Cryptocurrency Enforcement Framework seems like part of some larger political and regulatory dynamic. How does the release of the document fit into the grand scheme of things, and what message is it meant to convey?
Timing And Context
One reason why even a modest uptick in enforcement activity in the digital asset space can feel like a full-blown clampdown is that U.S. government agencies have so far been rather selective when deciding whether or not to go after unscrupulous crypto actors.
The lack of specific regulations, as well as the infamous confusion as to which regulatory body is taking point, has left a general strategy of stepping in only to prosecute the most egregious cases, as opposed to blanket enforcement. The DoJ’s introduction of the Crypto Enforcement Framework could suggest that the tide is turning.
Andrew Hinkes, co-founder of consultancy Athena Blockchain and an attorney at law firm Carlton Fields, sees the report as mainly a recap of law enforcement efforts in the blockchain space over the past six years, however, one that indicates a clear upward trend:
“Different federal agencies mentioned in the report, such as the SEC, CFTC, and FinCEN, have all been steadily increasing their regulatory and enforcement activity in the cryptocurrency space as that space has grown. Much of the report collects and describes the different agencies’ actions over the past few years.”
Barry Boss, co-chair of the commercial litigation department at law firm Cozen O’Connor, noted that the DoJ has so far been treading “fairly lightly” in terms of enforcing everyday regulatory requirements, perhaps taking its time to understand the market as it develops.
It seems unlikely that the release of the present enforcement guidelines has been timed to any particular developments in the cryptocurrency market, as the comprehensive 83-page report has been many months in the making.
Speaking about the general political moment, Arlo Devlin-Brown, partner at Covington & Burling in white-collar law and investigations, observed that cryptocurrency enforcement is far from being among the hot-button issues of the 2020 presidential election:
“I suspect that this task force, like other DOJ task forces, is seeking to complete outstanding reports prior to a potential change of administration in January. That said, I don’t think this issue is particularly relevant to electoral politics, and I don’t foresee significant changes in cryptocurrency enforcement priorities at the DOJ should Biden win the Presidential election.”
The guidance document details the DoJ’s priorities and strategies with regard to the maturing cryptocurrency industry, aiming to inform the law enforcement community, market participants and the general public both at home and abroad. Apart from this, parts of the report can be read as a signal of what certain subsets of crypto stakeholders can expect for the future.
Boss told Cointelegraph that the new guidelines hint at the DoJ’s willingness to ramp up enforcement. In his opinion, the report serves to “put the cryptocurrency community on notice.” This time, it won’t be just for the most brazen criminals:
“There have been several studies that have shown that significant volumes of terrorist financing, money laundering, and other illicit proceeds are funneled through major, established exchanges. DOJ made clear in its framework that it is aware of this problem and that enforcement of federal criminal laws, including KYC and AML requirements, is part of its framework for addressing it.”
Hinkes of Athena Blockchain called the report a message “to persuadable participants in the cryptocurrency marketplace and industry” to remind them that “they should stay on the right side of the regulatory line because the federal government is committing substantial resources to combating criminal activity associated with, facilitated by, or targeted against cryptocurrencies.”
Generally, most experts who spoke to Cointelegraph on this matter agree that the framework’s publication illustrates the government’s resolve to significantly boost its enforcement efforts on the digital assets front.
While this could spell more regulatory certainty and safer adoption for the crypto industry at large, certain sectors such as blockchain analytics, which specializes in transaction tracing and works closely with law enforcement, will be benefited directly.
Amanda Wick, chief of legal affairs at blockchain analytics firm Chainalysis, spoke enthusiastically about the U.S. government’s commitment to lowering financial risks for crypto users. She reiterated that blockchain intelligence has already won law enforcement some important battles:
“With the help of blockchain analysis, DOJ has successfully investigated and prosecuted cases involving cryptocurrency, including charges of money laundering, drug trafficking, fraud, and more.”
Wick is convinced that the urgency of crypto-related threats will prompt authorities to allocate additional resources in order to address them.
Above all else, the Department of Justice has laid out a comprehensive vision of response strategies for noncompliance and general illicit crypto-asset activity, notes Liat Shetret, senior advisor for crypto policy and regulation at crypto analytics and compliance firm Elliptic. He added:
“The key message boils down to the ‘how.’ How will the DoJ accomplish this? In that regard the plan is specific and clear-cut.”
Shetret then laid out the five prongs of the new law enforcement strategy: coordinating parallel enforcement actions and interagency partnerships, promoting law enforcement awareness and expertise, cooperation between federal and state authorities, increased international cooperation, and private-sector education and outreach.
Some experts also think that the DoJ’s framework can inform lawmakers’ thinking on how to go about certain novel challenges.
Dean Steinbeck, chief operating officer at blockchain company Horizen Labs, commented to Cointelegraph:
“The report will clearly be used by US policy makers when enacting laws involving cryptocurrency. In particular, the report spends a lot of time examining privacy coins, or what it calls ‘Anonymity Enhanced Cryptocurrencies’ or ‘AECs.’ I wouldn’t be surprised to see Congress quoting this report in laws aimed at curtailing the use of AECs.”
Clarifying how exactly existing laws should be applied in practice, enforcement guidance normally follows legislation, but it seems that in the bizarre world of crypto, the opposite can be the case as well. At any rate, it would be a good idea for privacy coins and the crypto industry at large to start bracing themselves for both more pointed legislation and tighter enforcement in the near future.
Wrapped Monero Launches As Exchanges Crack Down On Privacy Coins
A wrapped version of the XMR privacy coin has launched on the Ethereum network.
Crypto custodian BTSE has launched an ERC-20 token that represents Monero (XMR) on the Ethereum blockchain, giving investors new exposure to the privacy-centric coin.
Represented by the ticker symbol WXMR, Wrapped Monero is intended to bring greater liquidity to the DeFi ecosystem. The new asset is fully backed by Monero at a ratio of one-to-one and is secured by BTSE.
In a press release that was shared with Cointelegraph, BTSE said WXMR “gives holders of Monero more flexibility to utilize their tokens without having to sell it for Ethereum or stablecoins, in order to access the many exciting opportunities in the DeFi space.”
Monero represents one of crypto’s most compelling use cases and its proponents view XMR as fulfilling one of the core tenants of decentralized networks: privacy guarantees.
Although governments have been steadily embracing digital assets like Bitcoin (BTC) and Ethereum (ETH), they’ve been much more critical of privacy coins like XMR and Zcash. Weary of Know Your Customer and Anti-Money Laundering regulations, exchanges have been delisting privacy coins to ensure they don’t run afoul of the law.
Recently, Bittrex became the latest high-profile exchange to delist privacy coins, including XMR.
In this sense, BTSE says Monero’s greatest strength — strong privacy features — is sometimes viewed as a disadvantage. By holding Wrapped Monero, users can provide the transparency needed to satisfy KYC/AML requirements that are becoming increasingly ubiquitous in crypto trading.
If the wrapped version of Bitcoin is any indication, Monero could get a boost from WXMR. Wrapped Bitcoin, or WBTC allows people to use BTC as collateral on the Ethereum blockchain, a move that has fueled the DeFi boom.
In the case of WBTC, there has been more flow-through from DeFi to Bitcoin’s price, according to Sam Bankman-Fried of Alameda Research. It remains to be seen whether a similar flow-through will benefit XMR’s value.
Newly Found Monero Bug May Impact Transaction Privacy, Developers Warn
Monero developers are working on a software fix for a newly identified bug that may expose the occurrence of an output transaction made right away after receiving funds.
Developers of privacy-oriented cryptocurrency Monero (XMR) have identified a bug that could potentially impact users’ transaction privacy.
On Monday, the official Monero Twitter account warned users of a “rather significant bug” that has been spotted in Monero’s decoy selection algorithm, a system designed to hide real output transactions among 10 decoys in a ring.
First identified by software developer Justin Berman, the bug causes a sufficient probability that users’ output transactions can be identified as the true spend among decoys if users spend funds immediately following lock time in the first two blocks, or 20 minutes after receiving funds.
The developers emphasized that the bug does not pose a risk to any information about addresses or transaction amount but rather only allows to trace the occurrence of an XMR transaction. “Funds are never at risk of being stolen. This bug persists in the official wallet code today,” Monero developers noted.
According to an XMR contributor on Reddit, the newly discovered bug impacts transactions that are from the past. To mitigate the potential privacy risks, Monero developers recommended waiting one hour or longer before spending newly received XMR until the community rolls out a fix in a future wallet software update to mitigate the potential privacy risks. A full network upgrade, or a hard fork, is not required to address this issue, the developers noted.
Launched in 2014, XMR is a major privacy-focused cryptocurrency designed to support secure, private and untraceable transactions, using a special type of cryptography to ensure that all its transactions remain 100% untrackable and unlinkable. Monero is the 29th largest cryptocurrency by market capitalization and is the biggest privacy-centric digital currency by value. At the time of writing, XMR is trading at $222, down 3.8% over the past 24 hours, according to data from CoinGecko.
As previously reported by Cointelegraph, multiple global financial regulators have attempted to crack Monero’s privacy. Last year, the United States Internal Revenue Service offered a bounty of up to $625,000 to anyone who can trace Monero transactions.
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