Anonymous cryptocurrencies and crypto mixers: ethics and legality

3 May 2024

Conflicting interests of states and individuals

With the rapid development of cryptocurrencies and increased government financial oversight of them and traditional money, the demand for privacy is being transformed. Personal and other sensitive data is constantly at risk, so individuals and corporations are looking for ways to protect their financial transactions from prying eyes. The first cryptocurrencies, despite the principles behind them, quickly became non-anonymous due to the specifics of exchanges and exchanges. Crypto mixers and specialized anonymous cryptocurrencies were invented to solve the problems of privacy and confidentiality.

Cryptocurrency mixers (crypto mixers) are standalone services that are used to increase the anonymity of transactions in traditional weakly anonymized cryptocurrencies such as Bitcoin. These services mix cryptocurrencies from different users and make transactions less transparent and traceable. This makes it harder for outside observers to see transaction details such as the result, source, recipient, or amount.

Specialized anonymous cryptocurrencies, such as Monero (XMR) or ZCash (ZEC), have also gained some popularity. These cryptocurrencies incorporate technologies largely designed to provide anonymity and confidentiality of transactions without the need for external crypto mixers.

At the same time, government and regulatory bodies are trying to eliminate or at least reduce any anonymity in both the traditional banking sector and the cryptocurrency world because of the risks of the underground economy, money laundering, crime financing and the like. Let’s take a brief overview of these issues from a technical, legal and ethical perspective.

Privacy of anonymous cryptocurrencies

Monero coin

Understanding Monero

Monero is a specialized cryptocurrency known for its commitment to privacy and anonymity. Launched in 2014, Monero has gained popularity among users who seek to conceal their financial transactions.

One of the key features of Monero is the CryptoNote protocol, which ensures that transactions cannot be traced and linked. This protocol combines several mechanisms to hide the destination and origin of transactions:

  • Ring signatures. When a user initiates a transaction, their signature is combined with several others, making it impossible to determine the real sender.
  • Stealth addresses. These addresses are random and disposable. This ensures that the recipient’s privacy is preserved.
  • Confidential transactions. Achieved through cryptographic methods that encrypt the details of the transaction and make them visible only to the parties involved.

Monero is one of the best choices for users who seek financial privacy. This cryptocurrency is used by both individuals and businesses for various purposes. For example, some companies that provide sensitive services or goods accept Monero as a payment method to offer their customers increased privacy and anonymity. Ordinary users choose Monero when making purchases or transfers to protect their financial privacy. Monero is also used as an investment vehicle by individuals looking to diversify their cryptocurrency portfolios.

Unlike Bitcoin, which operates on a transparent blockchain where all transactions are publicly available, Monero provides a higher level of privacy and fungibility. While Bitcoin transactions can be traced back to the origin (mining) of each coin, Monero transactions are private by default, and offer users greater anonymity.

Beyond Monero: other privacy-oriented cryptocurrencies

cryptocurrencies

While Monero stands out as a leader among privacy-focused cryptocurrencies, several other digital assets also prioritize anonymity and privacy. These alternative cryptocurrencies offer unique features and approaches to privacy, giving users additional options for secure and private transactions:

  • Zcash. It is a cryptocurrency that offers both transparent and secure transactions, giving users a choice between privacy and transparency. Its unique feature, zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge), allows for selective disclosure of transaction details. Users can protect their transactions by ensuring that the sender, recipient, and transaction amount remain private.
  • Dash. The first anonymous cryptocurrency. Originally known as Darkcoin, this coin emphasizes privacy through its PrivateSend feature. This feature uses a decentralized mixing mechanism to hide the origin of funds, making it difficult to track transactions on the Dash blockchain. Users can mix their coins with others, enhancing privacy and interchangeability, while maintaining the ability to verify transactions through the transparent Dash blockchain.
  • Zcoin. Like Zcash, Zcoin uses zero-knowledge proofs to enable private transactions. Its privacy feature, called the Zerocoin protocol, allows users to mint new coins with no transaction history, providing complete anonymity. Zcoin’s goal is to provide users with financial privacy without sacrificing scalability and overall auditing of system correctness.
  • Verge. Focuses on privacy and anonymity, utilizing technologies such as Tor and I2P to hide IP addresses and transaction data. Verge offers users a choice between public and private accounts, allowing for secure transactions that cannot be traced. Verge aims to become a decentralized, privacy-focused cryptocurrency suitable for everyday use.
  • Grin and Beam. They are implementations of the Mimblewimble protocol, a privacy-enhancing and scalable technology. Mimblewimble aggregates incoming and outgoing transaction data, hiding transaction history and ensuring that only involved parties can verify transactions. Grin and Beam prioritize privacy, scalability and interchangeability, offering users a private, efficient cryptocurrency experience.

The boundary between the right to privacy and state control

court

The need for privacy

In recent years, personal information has become increasingly vulnerable to tracking, hacking, and leaks. Therefore, the need for privacy has become more critical than ever. Privacy is not just a luxury, it is a fundamental human right necessary to protect personal autonomy, dignity and freedom.

Privacy serves as a defense against intrusive surveillance and intruders. In an era of mass surveillance and data collection, individuals should have the right to control their personal information and protect it from unwarranted monitoring.

Privacy is essential to prevent identity theft and financial fraud. Personal data such as social security numbers, bank account details and passwords can be used by cybercriminals to commit identity theft and fraud.

Government oversight and regulation

Government oversight and regulation play a critical role in shaping the use of technology, including the regulation of privacy and security measures. While privacy is important for the protection of individual rights and freedoms, moderate government intervention is necessary to balance privacy interests with broader public interests such as national security and law enforcement. The key word is “moderate.”

In recent years, the trend of cracking down on crypto mixers and stigmatizing such services as potentially illegal or even just plain illegal activity has begun to grow around the world. A particularly striking recent example is the actions of the U.S. Financial Intelligence Agency (FinCEN), which intends to declare crypto mixers as “money laundering centers” because crypto mixers, in their view, pose a threat to U.S. national security.

In late March 2024, Dutch prosecutors requested a 64-month prison sentence for Russian citizen Alexey Pertsev, who was involved in the development of crypto mixer Tornado Cash. Pertsev was detained in August 2022 after the U.S. Treasury Department placed Tornado Cash on a sanctions list for facilitating cryptocurrency laundering.

The incident involving the founders of the anonymous bitcoin wallet Samourai Wallet has intensified the discussion on the issue. The US federal prosecutor’s office has charged the founders with facilitating the laundering of $100 million in criminal proceeds. This case not only brought attention to specific individuals, but also raised serious questions about the role of crypto mixers in the modern financial system.

On the other hand, supporters of crypto mixers have an opposing view. CryptoQuant CEO Ki Yoon Ju argues that the activities of crypto mixers are legitimate. After all, even law-abiding cryptocurrency exchanges use mixing digital assets to ensure privacy and protect users. He likened the claims against crypto mixer developers to “going after the inventor of the knife, not the person who uses it,” emphasizing the important role crypto mixers play in ensuring user privacy in digital finance.

The arrest of Samourai Wallet’s founders has raised serious concerns in the crypto community. Many members of this community fear that this could be part of a broader campaign by the US government to restrict freedom and regulate the cryptocurrency industry. This underscores the need to strike a balance between protecting user privacy and ensuring national security, a difficult task in today’s digital world.

Balancing personal and public security

scales

Balancing the right to privacy with public safety requires balanced approaches:

  • Utilizing ethics and standards;
  • leveraging market mechanisms and automating security provision;
  • improving education and awareness of law and security;
  • developing the integration of law and security technologies;
  • creating international standards and regulations.

Government regulation is necessary to prevent illegal activities facilitated by technology, such as cybercrime, money laundering and terrorist financing. Regulatory measures such as anti-money laundering (AML) and know-your-customer (KYC) requirements help detect and deter criminal activity while protecting the integrity of financial systems. However, these regulations must be carefully designed to avoid excessive intrusion into people’s privacy and ensure transparency and accountability.

Government oversight is essential to protect consumer privacy and ensure that businesses handle personal data responsibly. Data protection rules, such as the General Data Protection Regulation (GDPR) in the European Union, set guidelines for collecting, processing and storing personal data, protecting citizens’ privacy rights and giving them more control over personal data. Governments also play an important role in enforcing these rules and holding companies accountable for data breaches and violations of the right to privacy.

We are convinced that any conflict of interest, and financial anonymity is no exception, with a constructive balanced approach, should become a lullaby for the ethics and technologies of the future, rather than indiscriminate punitive measures that slow progress.

The legality and ethics of anonymous cryptocurrencies and crypto mixers

ethics

Legal landscape

Understanding the legal status of anonymous cryptocurrencies and crypto mixers is important for individuals and entities operating in the cryptocurrency space. The legal environment surrounding anonymous cryptocurrencies and crypto mixers is complex and varies significantly from jurisdiction to jurisdiction. While some countries have embraced these technologies, others have imposed strict regulations or outright bans in response to concerns about illegal activity and financial transparency.

The regulatory environment for anonymous cryptocurrencies and crypto mixers is constantly evolving, reflecting global regulatory trends and international cooperation efforts. Regulatory bodies such as the Financial Action Task Force (FATF) play an important role in shaping international standards and guidelines to combat money laundering and terrorist financing in the cryptocurrency sector. Countries often align their legal frameworks with FATF recommendations to ensure consistency and compliance with international standards.

The legal status of anonymous cryptocurrencies and crypto mixers has been, remains and will continue to be the subject of legal disputes and court cases in various jurisdictions. The legal status of anonymous cryptocurrencies and crypto mixers, which varies from jurisdiction to jurisdiction, leads to jurisdictional arbitrage and regulatory uncertainty for businesses operating in the cryptocurrency space.

Significant court cases and regulatory actions have shaped the current legal landscape, increased clarity regarding the legal underpinnings of cryptocurrencies, and set precedents for future litigation and regulatory action. These legal challenges emphasize the need for clear guidelines and regulatory certainty to address legal uncertainty and promote innovation in the cryptocurrency sector.

Ethical considerations

As the use of anonymous cryptocurrencies and crypto mixers becomes more widespread, it is crucial to examine the ethical background and implications of their adoption and use. Ethical considerations cover a wide range of issues, including privacy, transparency, accountability, and social responsibility. It is important for individuals, businesses, lawmakers, and policymakers to consider these ethical implications to ensure that technology is used responsibly and to protect the rights and interests of all stakeholders.

Anonymous cryptocurrencies and crypto mixes can pose challenges to transparency and accountability by making it difficult to track transactions and identify the parties involved. While privacy is important, transparency and accountability are also necessary to prevent illegal activities that are often unethical.

Another ethical consideration is the social responsibility of individuals and businesses that use anonymous cryptocurrencies and crypto mixes. It is important that users act responsibly and ethically when using these technologies, ensuring compliance with laws and regulations and not engaging in activities that may harm others.

To promote the ethical use of anonymous cryptocurrencies and crypto mixers, it is important to raise awareness of the ethical implications of their adoption and use. This includes informing users of the potential risks and liabilities associated with these technologies, as well as encouraging ethical behavior and compliance with laws and regulations.

Businesses, politicians and celebrities play a crucial role in promoting the ethical use of crypto-technologies, helping to protect human rights and prevent abuse.

Conclusion

mix

In summary, anonymous cryptocurrencies and crypto mixes play an important role in preserving the right to privacy. While they offer valuable solutions to address privacy concerns, they also pose challenges related to government oversight, regulation, and ethical considerations.

Our company carefully adheres to our own code of ethics, which includes the principles of transparency, fairness and respect for privacy. We recognize the importance of ethical use of technology and ensure that our services meet the highest standards of integrity and responsibility that protect the rights of individual users and companies, and do not contravene laws.

We encourage IT companies to actively participate in discussions about privacy, regulation and the ethical use of technology. By promoting transparency, accountability, and responsible innovation, we can create a safer digital environment that respects privacy for all.

One way to ensure security and privacy in cryptocurrency transactions is to audit smart contracts. This process identifies potential threats and vulnerabilities in contracts that could lead to the risk of leaking personal information or illegal activity. Specialists who conduct audits analyze the code of contracts, taking into account the possibility of unwanted tampering and insufficient security against unauthorized access. Audit results empower smart contract owners and administrators to make informed decisions to improve the security and privacy protection of their cryptocurrency transactions.

Given our principles, experience and data protection services, we are always open to cooperation and ready to respond to your requests.

Contact us for help! Our team of experts is ready to provide you with the necessary support and advice on these issues.

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