Giacomo Zucco, ‘The DEA is imprecise on Bitcoin traceability’
Giacomo Zucco, ‘The DEA is imprecise on Bitcoin traceability’

Giacomo Zucco, ‘The DEA is imprecise on Bitcoin traceability’

By Fabio Lugano - 9 Aug 2018

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Bloomberg has recently published an article in which the DEA (Drug Enforcement Administration) deals with the use of cryptocurrencies in the criminal world, stating that if five years ago 90% of movements were directly or indirectly linked to illegal trade, now the proportion has reversed.

Yes, in absolute terms the value of money laundering has quadrupled but now only 10% of the transit is linked to crimes, while 90% is used for trading and speculation.

This is certainly relevant data, which also indicates how much the world of cryptocurrencies and blockchain technology has changed.  

Lilita Infante, an authoritative member of the Drug Enforcement Administration, clarifies: “Blockchain currently provides us with many tools for identifying people, which is also why we want them to continue using cryptocurrencies.

But that’s not all: according to Infante, cryptocurrencies most linked to privacy, such as Monero and Zcash, are not liquid enough to be used by criminals and are traceable, while with Bitcoin it is possible to follow the trade even when it occurs on the dark web.

Finally: the use of centralized exchanges facilitates the activity of the police.

These are statements that have not failed to cause a certain stir in the sector.

In a stream, several experts, including Giacomo Zucco, have questioned the alleged complete traceability of Bitcoin.

Zucco explains: “It is one thing to trace the privates who pay a ransomware or buy weed online, who probably don’t use any kind of precaution so they can be easily deanonymized, another thing it is to do the same thing to those who sell the illegal software or the drugs, they have a very specialised staff available. It becomes very complex to trace and deanonymize. Bitcoin’s further innovations, from Lightning Network and JoinMarket to decentralized exchanges, will make traceability even more difficult in general terms.”

According to these experts, including the entrepreneur Rodolfo Novak and analysts Leah Wald and Tone Vays, it is almost impossible for a government to distinguish a priori between the use made by legitimate entities in relation to money laundering if appropriate precautions are used. Often because the illegal activity is managed through apparently legal channels, including banks.

Furthermore, the experts are sceptical about the percentages provided by the DEA in the article, as they are unscientific and obtained without explaining either the method or the level of analysis of the network reached. But that’s not enough: Novak says that the claim that Monero and Zcash can be traced is “bullshit” defining the whole interview as a “PR stunt”.

According to Giacomo Zucco, Bitcoin has a low level of privacy when you follow a limited number of suspects (terrorists for example) with considerable resources and with the contribution of traditional techniques of investigation. But it is economically unfeasible to carry out a preventive and constant tracking of all technically “mature” users of Bitcoin, which remains the cryptocurrency that best protects privacy.  

Zucco disagrees with Novak and agrees with the article on one point: Monero and Zcash (the latter in particular) are projects that are still too small to ensure anonymity, a function for which they were created.

The expert also highlights how the category defined by the article as “speculation” actually hides two Bitcoin use cases totally different from each other: on the one hand short-term trading, usually performed by users  poorly prepared technically through centralized channels, and therefore very easy to track, and on the other often ignored but very widespread use for Bitcoin: a long-term store of value, especially in those countries, such as Venezuela, where hyperinflation has virtually destroyed the official currency.

Fabio Lugano
Fabio Lugano

Graduated with honors from Bocconi University, Fabio is a consultant for companies and wounded shareholders of the Banche Venete. He is also the author of "Scenari Economici", and lecturer and analyst of cryptocurrencies since 2016.

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