Monero committee members have denied recent allegations based on a leaked Chainalysis presentation to the IRS that suggest the privacy-focused cryptocurrency is traceable.
Monero (XMR) is the world's most popular privacy coin, built specifically to hide people's addresses and transactions on the network.
Privacy coins are growing in popularity for use cases that require a high degree of anonymity. While there are many legal reasons for seeking financial anonymity, law enforcement agencies often associate privacy coins with ransomware payments, illicit transactions on the dark web, and money laundering.
As a result, privacy coins, which include Zcash (ZEC) and Dash (DASH), have been delisted from several major exchanges, and have been banned outright in countries including Japan, South Korea and parts of the UAE.
A video from blockchain analytics firm Chainalysis demonstrates how it is purportedly possible to trace transactions made using Monero back to 2021. However, Chainalysis has not publicly commented on the video.
However, Monero community leader Csilla Brimer said: Decryption The company said in a statement that it was only able to trace transactions using XMR because it set up its own Monero node and tracked all IPs connecting to it.
In 2022, Brimmer was appointed to the MAGIC Monero Foundation, the committee that determines Monero's future technical direction.
She called Chainalysis' nodes “essentially fake proxy nodes,” and explained how the company used metadata collected from the fake nodes for transaction tracking tools.
A Monero “node” is an internet-connected device that runs Monero software and participates in the Monero network and enforces its rules to secure transactions.
Nodes download the entire blockchain to determine which transactions have taken place, and XMR users can choose to use their own nodes hosted locally on their devices, or use external remote nodes, as was the case in the Chainalysis study.
Brimmer, who also works as a blockchain consultant, feels the incident shows that “Monero users should either run their own Monero nodes or use the privacy-focused web browser Tor.”
“Simply put, this strategy does not violate the on-chain privacy of users who avoid these fake nodes or use Tor,” Brimmer said. Decryption “Essentially, it's important to protect IP addresses because that's the main thing attackers have access to,” the statement said.
She added: “Without IP, they have nothing.”
The Monero Council member pointed to Monero's partnership with cloud provider Umbrella, which will allow users to set up their own Monero node on their own server or Raspberry Pi. Running a node will allow users to send and receive payments without using an external node.
This isn't the first time that the main selling point of privacy coins has been called into question in 2024.
Finnish publications MTV News The Finnish National Investigation Agency (KRP) claimed to have been able to trace transactions made using XMR.
However, Brimmer again denied the allegations, claiming that the Finnish Bureau of Investigation was tracking him down due to users’ lax security hygiene when converting Bitcoin to Monero.
At the time of writing, Monero remains the world's largest privacy coin with a market cap of $3.1 billion, but its market cap has fallen 3.1% in the past 24 hours, according to data from CoinGecko.
Editor's note: An earlier version of this article incorrectly stated that Zcash and Dash are banned in Australia. The currencies have been delisted from some exchanges, including OKX, but have not been banned by regulators.
Editor: Stacey Elliott.
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