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On Cryptocurrency Tracing Companies and Privacy on the Blockchain

I would like to address the issue of the privacy of cryptocurrency transactions, and the role of cryptocurrency tracing companies in helping the world of crypto become safer, more widespread, and more legitimate, while still preserving the privacy of individuals.

There have been opinions expressed on Twitter and Reddit that cryptocurrency tracing companies are violating human rights on privacy. This is nonsense. CipherTrace does not identify individual users, nor do we know their identities or expose their transactions. Remember, all transactions on public blockchains are available for the world to see.

CipherTrace has always been an advocate of user privacy. We do not identify the individual identities of cryptocurrency users, nor can we. We do, however, identify the Virtual Asset Service Providers (VASPs) that are commercial companies operating cryptocurrency businesses. We also endeavor to identify criminal addresses and wallets pertaining to the theft of cryptocurrencies, wide-spread fraud against consumers, ransomware, extortion, child exploitation and other crimes against people of the world. This visibility helps prevent people from sending their cryptocurrency funds to criminal enterprises. It also provides the ability for legal due process through court orders, subpoenas and legal trials to potentially recover stolen funds for victims.

At CipherTrace, we believe that having a private, cash-like cryptocurrency transactional environment is crucial to the functioning of democratic societies. However, there are laws, regulations and practicalities that mean that consumers, businesses and government agencies must be able to detect where funds are sent when their origins are criminal or terrorist in nature.

There is no fundamental human right to be able to anonymously transfer large amounts of wealth between countries. It’s not written into any constitution and has been against the law in many countries for 50 years. Recall the period after World War II, when criminals and fascist governments were moving the stolen funds of millions of people and trying to hide these funds from families who were devastated or murdered. This has evolved into sophisticated money laundering schemes that persist to this very day.

Before I co-founded CipherTrace, I was involved in the CypherPunk movement in 1999. This movement centered on how privacy is necessary for an open society in the electronic age. We would have dinners the first Tuesday of every month in Palo Alto, California, at a Chinese restaurant and try to figure out how to build a global digital cash system with anonymity properties. I attended the Financial Cryptography conference in 2000 on the island of Anguilla where I met with Zero Knowledge Systems (the precursor to the Zero Knowledge proofs that are used in Zcash), E-gold (before they were indicted for money laundering), Mondex, Digicash and others. I met with the inventors of smart contracts years before Ethereum was developed. I was hooked on cryptocurrencies well before Bitcoin was invented—and I understood the importance of privacy.

Every day, CipherTrace receives dire requests for assistance from people who have had their cryptocurrencies stolen or lost in scams. Sometimes, they are cryptocurrency businesses that have lost tens of millions of dollars or more and are about to go bankrupt and destroy the finances of thousands of customers. Don’t they have the right to have these incidents investigated and the chance to recover their funds through legal due process? These are people who are losing their entire savings, their educational funds, and their investments.

CipherTrace believes that person-to-person payments can and should remain private. But when companies are involved who are either facilitating crime, or are victims themselves, blockchain tracing of those companies is a critical capability to keep cryptocurrency safe, secure and viable for future growth.

Dave Jevans
CEO, CipherTrace
May 11, 2020

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