I have to admit, the timing seems odd.  Earlier this year I published an article in response to the DEA sharing their findings on cryptocurrency titled "DEA Special Agent: 90% of crypto transactions used to be for illegal purposes - today that number is just 10%."

But even with illegal cryptocurrency usage at an all-time low, and more legitimate entities entering the market every week, the US Department Of Homeland Security sees the small number of bad apples as a priority.

Perhaps, just to 'get in front' of a problem, before it even becomes one.

A just-released document on the DHS website invites private businesses to contact them if they believe they can help when it comes to finding solutions to the problems they outline within.  One section of this document dedicated to blockchain is titled "Blockchain Applications for Homeland Security Forensic Analytics".

They begin by mentioning two of the top privacy coins by name:

"This proposal seeks applications of blockchain forensic analytics for newer cryptocurrencies, such as Zcash and Monero."

They explain their reasoning as:

"A key feature underlying these newer blockchain platforms that is frequently emphasized is the capability for anonymity and privacy protection. While these features are desirable, there is similarly a compelling interest in tracing and understanding transactions and actions on the blockchain of an illegal nature." 

If a person or company thinks they can do it - they'll need to explain how, build a prototype, and then show it in action.  Pull it off - and you'll land a valuable government contract.

Now the question is - how private are those privacy coins?  The motivation to find holes in their security just got a lot stronger.

Robert Novy, the Deputy Assistant Director of the Office of Investigations for the United States Secret Service gave prepared testimony to the United States House of Representatives Committee on Financial Services Subcommittee on Terrorism and Illicit Finance.

Those prepared statements, just posted to the US House Of Representatives website (link) show they are becoming increasingly concerned about the use of cryptocurrency in illicit acts, stating:

"In recent years, criminals have increasingly used digital currencies to facilitate illicit activities onthe Internet. Digital currencies provide an efficient means of transferring large values globally, for both legitimate and criminal purposes."

Novy then listed the following reasons why 'criminals prefer digital currencies' saying these ‘characteristics’ appeal to them:

1) Widespread adoption as a medium of exchange for intended criminal activities.
2) The greatest degree of anonymity.
3) Protection against theft, fraud, and lawful seizure.
4) Can be readily exchanged to and from their preferred currency.
5) The ability to quickly and confidently transfer value transnationally.

Up to this point there wasn't much we haven't heard before, same things we saw in news stories often back when the mainstream media was just learning about Bitcoin and couldn't write a report on it without mentioning the big 'Silk Road' bust - where the suspected owner of a large illegal online marketplace that used Bitcoin as it's currency was arrested.

The topic then switched to privacy coins specifically - something we haven't heard law enforcement weigh in on much before. That's when Novy took a more hardlined approach, saying:

"We should also consider additional legislative or regulatory actions to address potential challenges related to anonymity-enhanced cryptocurrencies, services intended to obscure transactions on blockchains (i.e. cryptocurrency tumblers or mixers) and cryptocurrency mining pools."

In my opinion - I've always found this an odd argument to make, because even with all this in mind - the most anonymous method of transferring funds has and always will be paper cash.  Even privacy coins leave behind a larger footprint than a person simply handing someone a suitcase full of cash and disappearing into the night.

Also, not every transaction someone wants to keep private is also illegal. Every day countless numbers people use cash when they're buying something that may simply be embarrassing to them - but legal nonetheless. 

Lastly - these days even credit card companies are providing a method for anonymous usage though pre-paid cards, which can be purchased in cash and readily available at gas stations and grocery stores.

It's important to remember these are simply some suggestions given to lawmakers, but this still presents possible future complications for those investing in coins like Monero or ZCash.

At least it wasn't all bad - to his credit, Assistant Director Novy does see the legitimate use cases and benefits to the public cryptocurrencies offer, adding:

"Digital currencies have the potential to support more efficient and transparent global commerce, and to enhance U.S. economic competitiveness."

Another interesting thing we learned in the testimony - since 2015 the Secret Service has sized $28 million in cryptocurrencies during criminal investigations, primarily Bitcoin.

16 people are under arrest in Japan - suspected to be behind an amateur online criminal organization which created both the malware to secretly use victims computers to mine Monero (which trades under XMR) and a variety of websites to lure the victims in and get them to unknowingly install the malicious software.

The arrests quietly began last month, with the final 3 suspects arrested this week. Local news outlet Asashi reports:

"The case against the 16 men aged between 18 and 48 was announced on June 14, although the first arrests were made in March. The suspects all operated their own websites, and they allegedly sent programs to the computers of site users without their consent.

The programs kicked into action on the users’ computers to conduct the often tedious and time-consuming task of mining to earn cryptocurrency."

If you're picturing a highly organized group of criminal geniuses I should also mention - they only made about $1000 total between the 16 of them.

What happened in October 2013 has tarnished Bitcoin's reputation ever since.  The infamous online marketplace "Silk Road" was shut down, and the news that followed was the first time many mainstream news outlets ever mentioned Bitcoin.

There couldn't have been a worse way to introduce Bitcoin to much of the public than articles about people using it to buy everything from drugs to guns.

For the most part, Bitcoin has moved well beyond that.  There's still occasional naysayers who will forever label Bitcoin has a rogue technology for criminals - but these people look more and more ridiculous every day as high profile investors, and Wall Street firms jump into the crypto space.

Rob Wainwright the director of Europol, the EU Agency for Law Enforcement Cooperation tweeted today:

"We’ll see a progressive shift in 2018 towards criminal use of cryptocurrencies other than Bitcoin, making it generally more challenging for law enforcement to counter."

Europol says alternative cryptocurrencies that provide more privacy like Monero and ZCash are on the rise. Just a couple weeks ago hackers hijacked over 200,000 WordPress sites, embedding a javascript based miner into them - to mine Monero.

The blockchain transparency that legitimate Bitcoin advocates love are downsides to criminals.  While there's no name attached to a Bitcoin wallet, the path a Bitcoin transaction travels is forever public - meaning eventually if it's going to be spent in the real world - law enforcement can see where.

Monero on the other hand uses encryption to encrypt the users address on its blockchain generating a fake addresses to hide the real one, as well as the transaction amount. Making it impossible to track.

“As a community, we certainly don’t advocate for monero’s use by criminals. At the same time if you have a decentralized currency, it’s not like you can prevent someone from using it. I imagine that monero provides massive advantages for criminals over bitcoin, so they would use monero.” monero core developer Riccardo Spagni told Bloomberg.

Monero went up in value by over 4x in the last quarter of 2017 alone.

-------