The Rise of Monero - and the Problem Privacy Coins Pose for the Authorities

The increasing popularity of monero as the cryptocurrency of choice for those looking to commit crime has to be viewed as more than one asset class becoming more fashionable than the others. The reasons for its rise need to be examined – and acted upon – by law enforcement agencies.

In the US, there has at least been some action in response to the use of monero in crime. The authorities there, have recognised its appeal and have set about trying to tackle its usefulness to criminals.

So why is it so appealing to them? The answer lies in its ability – or at least its perceived ability – to launder the proceeds of crime without leaving any trail for the authorities to follow. Bitcoin has been the crypto asset that the criminal world has tended to turn to for laundering. Yet those who use it to spirit away their illegal gains have come to realise that as bitcoin leaves a visible transaction trail, its use comes with a degree of risk - the risk that they could be identified and / or have those gains taken from them. Monero, however, is a “privacy coin’’, designed to prevent identification of the sender, the receiver and even the amount being exchanged.

Ransomware

The value of such an asset to those looking to move their gains from lucrative cybercrime activities such as ransomware or investment fraud is obvious – as is the headache it can give those who have the task of trying to trace and recover the proceeds of such crime. Ransomware groups seem particularly drawn to monero, which is little surprise as such people are looking to move large amounts swiftly and anonymously. This has been reflected in an increasing number of ransoms being demanded in monero. 

Some commentators have estimated that less than a fifth of ransomware pay-outs were being made in monero at the start of 2020. Yet this is expected to rise to 50% by the end of 2021. Monero is now worth five times as much as it was at the start of 2020. Meanwhile, there have been reports of ransomware victims being made to pay between 10 to 20% more if the ransom is paid in bitcoin, due to the risks the criminals have recognised are associated with it.

When launched seven years ago, those behind monero made it clear that the traceability of bitcoin was its major fault, as electronic cash’s main feature needs to be privacy and anonymity. Monero’s market capitalisation is, for now at least, less than 1% of bitcoin’s. But this may be set to change as the privacy it offers attracts more users. What remains to be seen, however, is whether the appeal of its anonymity to criminals acts as a deterrent to others, who may be put off by the undesirable element of its user base. 

Anonymity

There is little doubt that the anonymity of privacy coins is a concern to the authorities, who view it as making their investigations more difficult. It is also an issue for a number of crypto exchanges who do not want to list such coins due to the increasing regulatory requirements that they face.

Monero developers are reportedly being contacted by ransomware negotiators, who are trying to find out just how it works, and Europol made it clear in a report last year that such “privacy coins’’ are making crypto investigations more challenging. The US Internal Revenue Service went as far as to offer six-figure sums to those who can develop the tools that will make tracing monero a possibility. The IRS has since issued two contracts to the successful applicants – and other US agencies are believed to be building similar relationships with those who could crack the riddle of monero.

For now at least, monero (and other privacy coins) are posing a major problem for law enforcement agencies, who are faced with the need to conduct asset tracing exercises while having little or no information with which to work. In the US, the authorities appear to have recognised the challenge they face and have set about trying to tackle it. Law enforcement in the UK needs to take heed and adopt a similar approach.