Criminals have been using the anonymity allowed by cryptocurrency to engage in money laundering for years. Virtual currencies like Bitcoin, Ethereum, and even Dogecoin operate independently, without the watchful eyes of Central banks and strict regulations lingering upon them. This makes it extremely easy for anyone to trade with them.
Is Cryptocurrency really ‘anonymous’?
However, though Bitcoin is ‘anonymous’, that does not mean it isn’t traceable. All cryptocurrency transactions are indeed stored in the system and can be traced- however they cannot be linked to one’s real-world identity. To explain it in simple words, people can trade using Cryptocurrency under ‘fake’ names- similar to how some authors write under pen names. When a person opens a bank account, it is mandatory to submit all sorts of documents to prove one’s identity. Bank regulatory bodies like Central Banks dictate that proper KYC must be done for every customer. However, this is not necessary with cryptocurrency. A person can use a different ‘identity’ for each transaction. These transactions may not always be associated with their actual identity. A person may be able to use multiple identities for each currency, making it difficult to trace them back to them.
The role of Cryptocurrency in financial crime
However, this has provided criminals with a way to transfer illicit funds faster and with convenience. The privacy that cryptocurrency allows has made it one of the most common mediums for money laundering. Due to this, AML and KYC policies are cracking down on suspicious transactions, which has made it possible to link the transactions using specific Bitcoins back to their owners. This includes using the IP addresses used during transactions back to their owners. It is more accurate to say that cryptocurrency is not anonymous, but pseudonymous.
These regulators are cracking down on the more popular cryptocurrencies used in such dealings, like Bitcoin. Hence, the usage of Bitcoin on the darknet has gone down. Government agencies and Anti-money Laundering organizations have also become quite adept at tracking Bitcoin transactions. They usually target transactions using Bitcoin due to its reputation. This in turn reduces the level of anonymity.
Though cryptocurrency transactions cannot be frozen, seized, or reversed like with bank transactions, the fact that they can be tracked in some way defeats its purpose for many people. People craving more privacy are hence switching from Bitcoin to more anonymity-enhanced cryptocurrencies.
The growing popularity of Anonymity-enhanced Cryptocurrencies
Many people were unhappy with the loosening of privacy measures with popular cryptocurrencies. This opened the door for many other privacy-focused cryptos to make their debut. One of the more popular anonymity-enhanced cryptocurrencies is Monero, which makes its focus on privacy clear for users. The three core values of this virtual currency are privacy, security, and decentralization- offering much more leeway for criminal activities than Bitcoin. Decentralization of a currency usually makes it more difficult to track and control.
Anonymity-enhanced cryptocurrencies like Monero, ZCash, and Dash use measures like stealth addresses and advanced cryptographic tools to completely conceal their identities. This makes then the currency of choice to use on the Dark Net. Dark Web markets like ASAP and The Versus Project allow the use of such cryptocurrencies. Bitcoin is still the most-used currency here, though Monero and other currencies may bypass it in the long run. Many cryptocurrency exchanges have limited the trade of such coins in response.
With the use of anonymity-enhanced coins on the rise, many countries have pushed back. Countries like Japan, South Korea, and Australia, which have very strict laws regarding AML have delisted these currencies. Even in the US, the rules are lax, exchange platforms like Coinbase do not accept these currencies. However, Binance, the leading cryptocurrency platform does allow their trade.
Advantages of Anonymity-enhanced Cryptocurrency
It is however important to note that these coins still do not provide complete anonymity. They may be available to trade at much higher levels of privacy than normal cryptocurrencies, however, the transactions still do exist permanently on the net. They are not erasable, but simply hidden behind a wall of privacy.
Many cryptocurrency users have embraced the idea of anonymity-enhanced coins. In today’s world where information about people can be found almost instantly on the Internet, privacy regarding one’s monetary transactions is quite welcome.
Another reason that anonymity-enhanced cryptocurrencies are gaining popularity is that the added privacy adds fungibility to the coin. When two items are of the same type and have the same value i.e., can be interchanged, they can be classified as fungible. For example, two currency notes of the same value are fungible- which also applies to cryptocurrencies. In some instances, factors like government interference and differences in technology from country to country may cause fluctuation in its value. In these cases, the value of two Bitcoins may not be the same at a given time due to circumstances. Additional privacy helps to increase the fungibility of the tokens, making it a more reliable cryptocurrency to work with.
These reasons, both legal and illegal, have led to a boom in the popularity of anonymity-enhanced cryptocurrencies in recent years. They provide the best way to hide transactions, which makes them an ideal medium for illicit activities. However, the added level of privacy also appeals greatly to other users, who are contributing to its usage. Many coins even allow the option to turn privacy options on and off. However, with Montero, privacy is the default option.
Conclusion
Cryptocurrencies are regarded as the newly invented technology. It has drastically altered from a niche market to the global economy. So, we can say that cryptocurrencies being anonymous is a paradox. They do allow privacy, but at the same time do not provide complete anonymity. The use of virtual currencies is on the rise, both as an investment and as a way to conduct quick transactions.
The added level of privacy cryptocurrency provides is a boon for many users. However, it has also proven to be controversial due to its increased involvement in criminal activities. Too much privacy is also risky, as one can conduct all sorts of undesirable business with it. Hence, many government bodies have put down rules regarding transparency to some extent on these coins.
