On Monday, Wasabi Wallet and the open-source bitcoin payment processor Btcpay announced a new plugin for the Btcpay server. The plugin implements Wasabi’s Wabisabi coinjoin coordination protocol, allowing merchants to benefit from privacy enhancement. By activating the newly launched plugin, all the funds that merchants receive and send will be coinjoined, or mixed together with […]
Ethereum Could Benefit From Stealth Addresses Implementation, Says Vitalik Buterin
Ethereum co-founder Vitalik Buterin published a research post that suggests using stealth addresses to enhance privacy-preserving transfers. Buterin detailed that stealth addresses can be implemented fairly quickly today on Ethereum and would significantly boost user privacy on the blockchain network. Buterin Suggests Stealth Addresses as a Solution to the Privacy Challenges in Ethereum Ecosystem Three […]
Blockchain could help anonymously document war crimes
Blockchain combined with decentralized storage could ensure data preservation and anonymity when reporting war crimes.
Human rights investigators appointed by the United Nations (UN) have confirmed war crimes have been committed by Russian forces in Ukraine. A report developed by the Independent International Commission of Inquiry on Ukraine was created in March 2022 to provide a framework for UN human rights investigators to report war crimes in the region.
Erik Møse, chair for the Independent International Commission of Inquiry on Ukraine, stated in the UN’s article that “investigators visited 27 towns and settlements and interviewed more than 150 victims and witnesses.” Møse also noted that “sites of destruction, graves, places of detention and torture, as well as remnants of weapons,” were inspected.
While the report developed by the commission has allowed UN investigators to document war crimes in Ukraine, tools and protocols are still needed to enable individuals to accurately and securely report these acts. Additionally, the need to preserve war crime evidence has become critical as the War in Ukraine enters its seventh month.
Given these challenges, industry experts believe that blockchain technology has the potential to solve many of the issues faced by individuals and organizations documenting war crimes. For example, Jaya Klara Brekke, chief strategy officer at Nym — a platform powered by the Cosmos blockchain that protects the privacy of various applications — told Cointelegraph that Nym is developing a tool known as AnonDrop that will allow users to securely and anonymously upload data. She said:
“The intention is for AnonDrop to become a tool that democratizes the gathering of evidence that can be used to pursue human rights cases. In the current climate in Ukraine, this would be particularly important for the purpose of securely documenting and sharing evidence of war crimes anonymously.”
“The core technology of Nym is a mixnet, which takes data from ordinary users and mixes it together using encryption to make everything look identical. It protects against people watching the network, along with metadata surveillance and IP tracing,” she elaborated. While Nym provides an anonymity layer to allow users to transmit data without revealing who they are, information then gets stored on the decentralized storage network, Filecoin.
Will Scott, a software engineer at Protocol Labs — a company working with Filecoin on its decentralized storage solution — told Cointelegraph that some of humanity’s most important information is stored on Filecoin to ensure that data remains publicly available.
Recent: Are decentralized digital identities the future or just a niche use case?
A blockchain network combined with decentralized storage could be a critical tool for documenting war crimes since it allows individuals in regions like Ukraine to anonymously report, share and retain data. A Wall Street Journal article published in May 2022 stated that “Prosecutors say that, with Russian forces having occupied so much of the country, it is impossible to process all of the evidence of every potential war crime.” Moreover, Ahmed Ghappour, Nym general counsel and associate professor of law at Boston University, told Cointelegraph that it’s becoming critical for witnesses of human rights violations to come forward without fear of retaliation. He said:
“In Ukraine, where witnesses of war crimes are facing a technologically sophisticated adversary, network level anonymity is the only way to guarantee the safety and security needed to provide evidence to prosecute perpetrators.”
A work in progress
Although the potential behind AnonDrop is evident, Klara Brekke noted that the solution is still in its early development stages. “We took part in the Kyiv Tech Summit Hackathon this year hoping to find individuals who could help us extend AnonDrop’s functionality. For instance, AnonDrop’s user interface is not fully up yet and we still need to find a way to verify the authenticity of images uploaded to the network,” she explained.
Ghappour elaborated that verification is the next critical requirement for making sure evidence uploaded to the Nym network can be used in court. “I think one of Russia’s greatest strengths in this war is the region’s ability to deny that any evidence is valid. Russia’s use of deepfakes and misinformation is another strength. We need to guard against these attacks.”
In order to combat this, Ghappour mentioned that image providence features must be implemented within AnonDrop to enable easy verification when documents are examined in a court of law. Even though such processes for image verification currently exist through tools like SecureDrop — a solution that allows individuals to upload photos anonymously for media outlets to use — Ghappour believes that these are limited to siloed organizations.
“We want to take image verification a step further by democratizing the process, ensuring this feature is available to users rather than just media outlets.”
Once image providence is implemented, verifying war crimes could become easier for court officials. Brittany Kaiser, a human rights legal expert, told Cointelegraph that she believes such a tool could help advance the human rights documentation space, where often individuals feel too at risk to submit findings themselves.
“Through images alone, it is possible to verify typical indicators of atrocity crime, including, but not limited to, mass graves, torture marks, binding of hands, executions and other violations of international human rights law that amount to war crimes or other atrocity classifications,” she remarked.
Given the potential for this use case, it shouldn’t come as a surprise that AnonDrop isn’t the only blockchain application focused on the preservation and verification of war crimes. Starling Labs — a Stanford-based research lab focused on data integrity using cryptography and decentralized web protocols — is also using blockchain technology to report war crimes. However, verifying the integrity of data remains the biggest challenge for both Nym and Starling Labs, even with image providence in place.
For instance, Scott pointed out that progress must be made in order to make sure images are legitimate and that verification works well. He further remarked that access to the internet in various regions of Ukraine is censored: “There are distribution questions that are important to consider here.”
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Challenges aside, it’s notable that organizations responsible for prosecuting war crimes are considering using technology to help advance traditional processes. For example, The International Criminal Court (ICC) in The Hague noted in its strategic plan for 2016 to 2018 that it could “support the identification, collection and presentation of evidence through technology.”
The report further noted that the ICC is interested in developing partnerships with non-governmental organizations and academic institutions to facilitate the use of technological advancements for war crime documentation. In the meantime, Ghappour emphasized that Nym will continue to push forward with enabling AnonDrop to be used in regions like Ukraine: “Russia has prolonged wars in the past, so we need to progress with this project no matter what.”
Australian state police sets up crypto division to trace transactions
The use of crypto in criminal activity has reportedly significantly increased since the AFP made its first crypto seizure in early 2018.
Law enforcement in Australia is working to boost cryptocurrency expertise and trace crypto transactions by setting up a dedicated police group.
The Australian Federal Police (AFP) has established a new cryptocurrency unit to focus on monitoring crypto-related transactions, The Australian Financial Review reported on Monday.
Stefan Jerga, the national manager of the AFP’s criminal asset confiscation command, said that the use of crypto in criminal activity had significantly increased since the AFP made its first crypto seizure in early 2018. In response , AFP decided to set up a dedicated crypto team in August, Jerga noted.
The increased focus on illicit crypto transactions comes amid AFP seizing a lot more criminal assets than the authority had originally expected. The AFP officially reported on Monday that it reached its goal of seizing $600 million from financial crimes two years ahead of schedule. The target was originally set by the AFP-led Criminal Assets Confiscation Taskforce and was expected to be reached by 2024.
Since February 2020, the AFP has seized $380 million in residential and commercial property, $200 million in cash and bank accounts, and $35 million in cars, boats, aircraft, artworks, luxury items and cryptocurrencies. Jerga noted that crypto seizures were small compared to “traditional” criminal assets like property and cash, but the additional focus is expected to provide more insights.
According to the AFP manager, the environment triggered the creation of a standalone team, opposed to a lot of officers “picking up some of this skill set as part of their overall role.” He added that the ability to trace crypto transactions across blockchains is “really, really important” alongside national security, child protection and others.
Earlier this year, an official at the Australian Transaction Reports and Analysis Centre (AUSTRAC) expressed skepticism about the transparency of cryptocurrencies. AUSTRAC deputy chief executive John Moss argued that cryptocurrencies could be used anonymously, quickly and across international borders, which made them “attractive for criminals,” including neo-Nazi groups.
Related: Law enforcement should give up trying to access everyone’s data, says legal expert
Contrary to popular belief, which supposes that Bitcoin (BTC) is anonymous, Bitcoin transactions are not anonymous. Instead, they are publicly trackable through blockchain explorers. While it’s technically possible to run an anonymous BTC wallet, it is becoming increasingly difficult to conduct BTC transactions anonymously as transactions are quite often associated with users’ Know Your Customer data.
Can the government track Bitcoin?
The law enforcers like the IRS and FBI track Bitcoin with blockchain data and collaborate with private companies in an attempt to trace criminals and taxes.
What happens with unreported cryptocurrency?
Not reporting Bitcoin despite the obligation to do so may have severe consequences for individuals’ lives and finances. The fine for making an incorrect declaration can be substantial and can even be considered a felony in certain circumstances.
Individuals may wonder whether centralized cryptocurrency exchanges actively report to the IRS. Centralized exchanges do issue tax forms to the IRS. Likewise, the IRS has issued so-called John Doe Summons to exchanges, including Coinbase, to request people’s information and catch those who try to cheat on their tax obligations.
But, such summonses are not the only law enforcement tool that the IRS uses on its quest to enforce Bitcoin taxes. Form 1040, for instance, specifically asks U.S. taxpayers whether they transacted with cryptocurrencies such as Bitcoin.
Some people may choose to avoid reporting their Bitcoin transactions, income and capital gains. When U.S. taxpayers do not report taxable cryptocurrency activity and face an IRS audit or investigative procedure, however, it may be considered tax evasion or fraud. Individuals may ultimately be obliged to pay penalties or even face criminal charges. Indeed, tax evasion is considered a felony. The penalty may extend to half a decade of prison and a fine of up to tens of thousands of dollars.
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How is Bitcoin taxed?
How to report Bitcoin on taxes and rules for Bitcoin taxation depend on the specific situation and someone’s country of fiscal residence. For instance, United States taxpayers must report cryptocurrency sales and other taxable events, and each of these transactions has different legal implications.
The fiat currency gained from cryptocurrency activities, also considered as realized gains, is taxed at different rates and can be considered capital or as income. Keep an eye out for the latest updates in terms of tax requirements and obligations.
Events may be taxable as capital gains when one sells Bitcoin for cash, when one converts BTC to another cryptocurrency or when one spends Bitcoin to purchase goods or services. According to the latest requirements, cryptocurrency capital gains in the US should be recorded by submitting Form 8949.
Bitcoin may also be taxed if it is considered income when someone receives a salary in BTC or receives Bitcoin for providing goods or services. Keep an eye on specific blockchain-related events because other incentives or rewards may also be taxable (for instance, staking rewards or obtaining new assets due to a hard fork or airdrop).
On the contrary, certain situations are not taxable, for instance, when one is simply holding Bitcoin passively or when BTC donations or gifts are transferred. Depending on the situation, there may still exist legal obligations or requirements to report such events to the IRS or an alternative qualified agency.
Do the authorities know when and where Bitcoin is bought?
Apart from data analysis done alone or in cooperation with private companies, authorities may request information from centralized exchanges. Due to regulation, centralized exchanges may also be obligated to share such information. However, not all cryptocurrency exchanges collaborate with authorities.
A centralized exchange is a cryptocurrency exchange that is run by a single entity, such as Coinbase. To become a licensed operator in a certain country or territory, centralized exchanges need to comply with regulations.
For instance, to decrease cryptocurrency anonymity and the illicit use of cryptocurrencies, most centralized exchanges have incorporated Know Your Customer (KYC) checks. KYC is meant to verify customers’ identities alongside helping authorities to analyze activity on the blockchain. In practice, individuals need to submit a range of documents and their data before they are allowed to trade, invest and transact.
After KYC has been conducted, exchanges may be requested or may be obligated to share that data with law enforcement agencies. Since the exchange has individuals’ personal data and transaction data, so may the government. By using information obtained from centralized exchanges, the IRS can identify unknown Bitcoin wallets using KYC checks and corresponding personal information.
Nonetheless, not all exchanges use KYC. For example, it is difficult to make decentralized exchanges (DEXs) comply with regulations because they lack a headquarter and are not run by a centralized company or a small group of individuals.
How does the government track Bitcoin?
Bitcoin’s blockchain technology is, in principle, anonymous but also traceable due to the transparency element. Bitcoin can thus be called “pseudo-anonymous.” Government agencies are hiring cryptocurrency experts to help them with BTCtracking and identity verification.
In practice, how can authorities like the police, the IRS or the FBI track Bitcoin? Since enforcers may not directly identify the parties involved in a Bitcoin transaction, they can try to observe the blockchain and analyze BTC movements and corresponding patterns. In this manner, they seek to profile, de-anonymize and identify those that are transacting.
So, why would governments do that and with whom do they collaborate? Importantly, most Bitcoin transactions are not associated with criminal activity. Yet, enforcers like the police or the FBI still aim to catch people or organizations that use cryptocurrencies such as Bitcoin for illicit purposes, such as money laundering or fraud. Likewise, an agency like the IRS wants to track BTC owners, traders and investors in order to raise taxes from capital gains or income.
Companies like Chainalysis provide services for blockchain monitoring and analytics. These companies analyze if certain BTC moving between wallets are, in some way, associated with criminal activity and they may collaborate with the FBI in helping investigators track certain cryptocurrency funds internationally.
Does the government know who owns Bitcoin?
At the basis of cryptocurrencies like Bitcoin (BTC) stands blockchain technology. A fundamental characteristic of blockchain technology is transparency, meaning that anyone, including the government, can observe all cryptocurrency transactions conducted via that blockchain.
Bitcoin transactions are publicly accessible because of the transparent nature of blockchain technology. Besides, the history of Bitcoin transactions is permanently stored on the Bitcoin blockchain, implying that it is not hard to observe BTC transactions. The government, in the form of law enforcement authorities, may thus watch what happens on the Bitcoin blockchain.
So, can authorities like the police, the Federal Bureau of Investigation (FBI) and the Internal Revenue Service (IRS) trace Bitcoin ownership? And, do authorities know who owns which Bitcoin? The traceability of BTC transactions depends on whether someone’s transaction activity on the Bitcoin blockchain can be linked to their identity.
Anyone can observe all cryptocurrency transactions of any Bitcoin wallet address. To find out where the Bitcoin is coming from and where they are being sent, authorities can analyze the BTC addresses that are used for transacting. In this manner, authorities get insights into what is happening and when.
Many Bitcoin users reveal their identity at some point (for instance, on centralized exchanges or through interactions with known wallets). Thus, BTC transactions do not always remain 100% anonymous and the government can trace Bitcoin ownership whenever (a series of) Bitcoin transactions can be linked to one’s identity. With that new knowledge, governments can enforce duties such as Bitcoin or cryptocurrency tax liabilities or fight criminal conduct like money laundering.
Are Bitcoin transactions anonymous and traceable?
Bitcoin transactions are easily traceable through blockchain explorers but do not directly reveal the identities behind Bitcoin wallet addresses.
Should I share my Bitcoin address publicly?
It is not a problem to share public keys, but make sure the private key cannot be found by third parties. Transactions can be sent to the public key, which is completely secure.
It is safe to share your Bitcoin address publicly. This way, it is possible to safely complete donations or payments. No cryptocurrencies can be stolen through a public address. The only way by which stealing crypto is possible is if someone has managed to get hold of the private keys.
Bitcoin wallets always make a difference between public keys and private keys. A public key can be compared to your email address. Anyone can send emails to it, but only the owner of the email address can read them. With a cryptocurrency address, this is no different since others can use this address to send crypto, and the owner of the address is the only one who can use the digital asset.
The private key is the password to enter the wallet. It is important that this unique code is kept in an offline place where no one can access it. Sharing personal data, such as the private keys and the wallet password, with others can cause the wallet in question to be emptied. Therefore, only share the public key if necessary and keep the other codes in a safe place.
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Can you have an anonymous Bitcoin wallet?
Anonymous Bitcoin wallets exist, but be careful while handling them. You can reveal your identity, which defeats the purpose of the wallet.
It is certainly possible to have an anonymous Bitcoin wallet. However, a wallet alone is not enough to ensure this anonymity. When someone makes several transactions, an identity can be linked to a wallet where this information is known. Due to the tightened KYC rules for exchanges, it seems to be increasingly challenging to conduct transactions in a completely anonymous way.
Nevertheless, there are Bitcoin wallets that allow you to operate completely anonymously. The Electrum wallet is an example of this, which can also be integrated with a hardware wallet. Before making the choice to use an anonymous wallet, it is useful to first consider how Bitcoin will get on this wallet. When BTC is sent from an exchange with KYC, the anonymity is already gone.
What are the challenges in tracking a Bitcoin address?
It can be difficult to track Bitcoin transactions when people use various wallets and Bitcoin mixers. These factors disrupt the search process and take up a lot of time.
Despite the fact that it is challenging for users of a Bitcoin wallet to conduct transactions completely anonymously, there are several ways to get close to anonymity. For example, it is possible to use a cryptocurrency mixer.
In this case, it is a Bitcoin mixer, which ensures that it is more difficult to make Bitcoin traceable. This is done by mixing BTC transactions from different people together in a pool, then sending the transactions to the intended addresses.
In addition, wallets can also be very difficult to monitor. If someone does not want their activities on the Bitcoin network to be traceable, it is possible to create a sort of smoke screen. By creating many crypto wallets and carrying out various transactions between these wallets, it can be more difficult for anyone to trace transactions and wallets.
Both challenges are difficult on their own, but combining them can make tracking Bitcoin addresses a lot more difficult. Tracking transactions and wallets will take an enormous amount of time and energy.
Can you search for a Bitcoin wallet address?
It is possible to search for a Bitcoin wallet address through a Bitcoin explorer. However, finding a crypto address does not mean that you also know the identity behind it.
When you don’t have any identifying information that goes with the Bitcoin wallet, it’s hard to search. Through a blockchain explorer, it is easy to find transactions and addresses, but it can take a lot of time to find out the identity behind a wallet address.
Because someone’s wallet address does not have to be anonymous but can be hard to find, a Bitcoin wallet address is called a pseudonym, an alias, which is different from someone’s actual name. The data is not linked to an identity, but it is still possible to trace someone’s identity or a pseudonym.
How are Bitcoin transactions traced?
With increasing legislation and surveillance, governments can trace fraudulent BTC transactions more easily by finding the identity behind a Bitcoin wallet address.
In recent years, millions in cryptocurrencies have been seized by various governments worldwide. Criminals saw the opportunities that blockchain technology has to offer and tried to buy cryptocurrencies such as Bitcoin as anonymously as possible.
Ultimately, this did not work out well for many fraudsters and it can be stated that Bitcoin transactions are not fully anonymous. These events have helped to tighten legislation in this area and intensify the search for fraudulent transactions.
When trading from Bitcoin wallets whose identity is not known, transactions can be traced quickly, but it can take time to find out the identity. When someone wants to exchange their cryptocurrencies for United States dollars, it already becomes a lot easier to trace the identity of the wallet owner and trace back the transactions.
What makes Bitcoin traceable?
Bitcoin transactions are traceable because Bitcoin’s blockchain is completely transparent and every transaction is publicly stored on a distributed ledger.
Since 2013, various studies have been looking into tracking Bitcoin transactions and their associated identities. Although it is possible to create a certain form of anonymity with cryptocurrencies, it is difficult to send transactions completely anonymously via the Bitcoin blockchain. Blockchains remain fully open and accessible to everyone.
Thanks to the transparency of the blockchain, it is possible to easily track money flows. If the identity behind a wallet address is known, then the transactions made can be traced back and traced in the future. All these transactions can be viewed in detail. In this way, it is possible to see which amount was sent, but also on which date and to which wallet.
Can you trace a Bitcoin transaction?
Through blockchain explorers, one can easily track Bitcoin transactions, but it is becoming increasingly difficult to conduct Bitcoin transactions anonymously.
It is certainly possible to trace a Bitcoin (BTC) transaction. Bitcoin explorers allow you to map activity on the Bitcoin blockchain. Thanks to this transparency, transactions are traceable and you can think of the blockchain as a kind of open database full of Bitcoin transactions.
Other cryptocurrencies like Ether (ETH) and Solana (SOL) also have their own blockchain explorers called Etherscan and SolScan. In all these explorers, you can find information about the transactions on the blockchain, such as how much crypto was sent and which addresses were involved in the transaction. Despite the transparency of the blockchain, many people think that you can still make Bitcoin transactions anonymously.
However, more and more countries are implementing Know Your Customer (KYC) rules, which require you to reveal your identity on centralized trading platforms. By disclosing your identity, it becomes a lot easier for the government to discover what transactions you have carried out and to see what is in your Bitcoin wallet.
To be able to trade on a central exchange, personal data will have to be supplied to the exchange. Bitcoin addresses can therefore be linked to personal data. Since the data of previous Bitcoin transactions is not deleted, it is always possible to view past transactions.
Crypto Community Responds to Tornado Cash Sanctions, Privacy Advocates Say ‘There Are Many Legitimate Reasons to Seek Financial Anonymity’
The U.S. government banning the ethereum mixing service Tornado Cash and the enforcement that has followed has the crypto community in an uproar about the event. A large number of crypto and privacy advocates have spoken out against the actions the government has taken so far, and the nonprofit advocacy group Fight for the Future […]
Official explains why China CBDC should not be as anonymous as cash
While cash is associated with more anonymity, it’s still less mobile and easy to use in large amounts than a digital currency, China’s CBDC project lead Mu Changchun said.
China’s central bank digital currency (CBDC) should not be as anonymous as cash, the head of the People’s Bank of China (PBoC) digital currency institute declared.
Digital yuan project lead Mu Changchun spoke of China’s CBDC project at the 5th Digital China Construction Summit on July 24, local financial publication Sina Finance reported.
Since debuting the digital yuan in 2020, the Chinese central bank has never targeted complete anonymity for the project, Mu said at the event. Instead, PBoC has been working to enable only limited anonymity in compliance with global Anti-Money Laundering (AML) regulations, the official stated.
The Chinese authorities should be able to access CBDC data on people suspected of crimes, Mu noted. According to the official, partial anonymity is an important feature of the digital yuan project though, as it guarantees transaction privacy and personal information protection.
However, a completely anonymous CBDC would interfere with preventing crimes like money laundering, terrorism financing, tax evasion and others, he added.
While cash is associated with more anonymity, it’s less mobile and easy to use in large amounts than a digital currency, Mu emphasized. “The inconvenient nature of carrying cash increases friction for money laundering and terrorism financing. Therefore, the tolerance for the anonymity of cash is relatively low,” the official stated, adding:
“The central bank’s digital currency is more portable. If it provides the same anonymity as cash, it will greatly facilitate illegal transactions such as money laundering. Therefore, the central bank’s digital currency should not have the same anonymity as cash.”
Mu went on to say that regulators risk encountering “serious consequences” if they choose to only focus on privacy protection and ignore the risks associated with financial crimes. “Freedom without constraints is not true freedom,” he added.
Despite rejecting anonymous online financial transactions, PBoC has still been working to ensure the privacy of the digital yuan. According to PBoC governor Yi Gang, the digital yuan has ambitions to be more privacy-enhanced than payment apps.
Related: China’s BSN chair calls Bitcoin Ponzi, stablecoins ‘fine if regulated’
The problem of user privacy has emerged as one of the biggest issues associated with CBDC projects worldwide. Regulators became puzzled about how to preserve digital privacy while also tracking transactions to prevent illicit financial activity.
In May, the European Central Bank (ECB) suggested that “CBDC with anonymity” was preferable to traditional digital payments like bank deposits in another working paper related to the digital euro. The proposal came shortly after the ECB admitted that digital euro designs lacked privacy options.
Controversial mixer Tornado Cash open-sources UI code
The privacy-focused mixer has been at the center of several DeFi exploits over the past year as users attempted to obfuscate the trail of stolen funds.
Popular cryptocurrency mixer Tornado Cash has fully open-sourced its user interface (UI) code — a move its developers say fulfills their mandate of complete decentralization and transparency.
Tornado Cash Classic UI became fully open-sourced on Thursday, the protocol’s anonymous developers announced in a Medium blog post. Although the protocol’s UI has been decentralized since 2020, its open sourcing means anyone can analyze Toronado Cash’s UI pools and make pull requests to improve the project. In the software development world, a pull request is when a developer is ready to merge new code changes with the project's main repository.
Technically, Tornado Cash’s open-sourcing allows anyone to fork the repository and modify the code as they see fit.
“We personally grew fond of the black & green floating astronaut associated with the protocol," the developers said, referring to the current website interface. “However, you should know our credo by now: We will always lean towards more decentralization. As far as we are concerned, our DAO took a step further with this great progress.”
A DAO, or decentralized autonomous organization, is an internet-native organization collectively managed by its members with no central authority or leadership. Tornado Cash first announced its DAO in mid-2020.
Tornado Cash currently has over $300 million in total value locked, or TVL, according to DeFi Llama. This figure was closer to $850 million in November 2021 when the project announced the launch of its layer-2 scaling network on Arbitrum.
Related: Crypto privacy is in greater jeopardy than ever before — Here's why
The Tornado Cash protocol has been at the center of several decentralized finance exploits, including the $375 million wormhole attack in February and the more recent $100 million Horizon Bridge hack. As a mixer, Tornado Cash allows cryptocurrency users to obfuscate transaction trails. Currently, the protocol supports mixing a maximum of 100 Ether (ETH) at a time.
Anonymous culture in crypto may be losing its relevance
Although anonymous teams have built some of the leading infrastructure in crypto, many new participants in the ecosystem are using their real identities.
Crypto has inherited many values that were popularized in the early days of the internet.
Many participants in the crypto space have been anonymous since the beginning of Bitcoin (BTC), since using this digital money offers a certain degree of anonymity so long as nobody knows the public address of the user. The true identity of its creator, Satoshi Nakamoto, remains unknown to this day.
The most recent wave of innovation spearheaded by decentralized finance (DeFi) and nonfungible token (NFT) projects have anonymous teams that maintain their general right to remain unknown.
The founder of DeFi analytics dashboard DefiLlama, anonymous person 0xngmi, released a bug bounty on his identity. Rather than giving out this quest to find vulnerabilities in the DefiLlama code, he offered 1 Ether (ETH) to whoever could reveal his identity with a detailed explanation of how they found out. No one has managed to reveal his identity at the time of writing.
0xngmi has also been educating people that would like to become anonymous with a guide on “How to stay anon,” which is a collaborative document that allows contributors to add and edit to improve it.
Navigating through Crypto Twitter, there are plenty of pseudonymous “celebrities” that, based solely on the reputations they have built, have a digital persona with a substantial amount of followers.
Another account that remains anonymous on Twitter, The DeFi Edge, tweeted the reasons why he has decided for the account to remain anonymous. The founder of the eponymous DeFi analysis site has no intention to reveal their identity for the time being, but has dropped some minor details:
Why I've chosen to remain anonymous for now, and why I might semi-doxxed myself later: pic.twitter.com/OGZLmU9Nte— The DeFi Edge ️ (@thedefiedge) March 11, 2022
As the industry rebrands to Web3 and a wide array of talent is being lured into the ecosystem, a greater number of participants in the space have decided to take a different approach. They are in the position to later reveal different characteristics of their physical persona to become pseudonymous or reveal their true identity altogether.
After the recent Terra collapse, the BBC reported that a man presented himself at Do Kwon's home in Seoul only to find his wife answering the door. The 30-year-old founder of Terra has been active on Crypto Twitter, using his real identity to promote his protocol and communicate with the community in these times of crisis. Having his identity open to the public might have helped him convey trust to investors and the community, but it also exposed him to threats in real life. Situations like these are some of the reasons why many entrepreneurs in the space remain anonymous.
Related: How Terra’s collapse will impact future stablecoin regulations
In a constant struggle between the open flow of information and retaining the privacy of the individual, protecting anonymity and avoiding getting doxxed has become an important issue of the new cultural and technological revolution taking place in online society.
One of the biggest controversial identity reveals was when journalist Kate Notopoulos authored an article titled “We found the real names of Bored Ape Yacht Club’s pseudonymous founders,” in which she uncovered the identities through publicly available records associated with Yuga Labs.
Revealing an identity ≠ doxxing
Usually referenced as a hostile action via the internet, doxxing is meant to insinuate the ability to find a person and reveal private information about an individual or organization. Although the term was coined by extreme groups as a way to threaten and intimidate marginalized persons online, the word doxxing currently blends into the meaning of revealing an identity without exclusive extremist connotations.
Recently, 0xngmi gathered some findings that linked Charlotte Fang as the person behind the anonymous account Miya. The founder of the NFT art project Milady Maker allegedly used this pseudonymous online profile to spread hate speech toward minorities through social media.
After being recognized as the person behind the pseudonymous account allegedly linked to an online cult, Charlotte had to step down from the project as Milady Maker’s floor price plummeted.
Anonymous teams handling fortunes
Decentralized autonomous organizations (DAOs) have opened the door for many participants to be able to contribute to the governance of a project while remaining anonymous. Either for safety reasons or to avoid regulation, the majority of these projects have anonymous founders and contributors. This has been the norm in recent years.
Grug, a pseudonymous account on Twitter, told Cointelegraph his reasons for remaining anonymous as CapitalGrug and the value of being judged solely on performance and ideas:
“I think the main reason that I chose to be anonymous is so that I can participate in and help maintain the same type of irreverent culture that I found so cool about crypto from the start.”
Plenty of good actors in the space have remained anonymous, bringing value to projects and communities by not having other defining characteristics influence people’s perceptions of that persona.
Being anonymous can also be the path for people that need a fresh start, but this can also have the effect of allowing malicious actors to infiltrate the space.
Back in January, the true identity of 0xSifu, founder of Defi protocol Wonderland, was unveiled as Michael Patryn, the co-founder of now-defunct crypto exchange QuadrigaCX.
The co-founder of the scandal-ridden exchange had previously been sentenced to 18 months in a United States federal prison for identity theft related to credit card fraud. Patryn is not even his real name; following the prison term and previous to founding QuadrigaCX, he reportedly changed his name from Omar Dhanani.
Recent: Crypto’s youngest investors hold firm against headwinds — and headlines
The Wonderland protocol collapsed with this news and the debate of whether anonymous teams should be allowed to handle large sums of money took the center stage. Even Danielle Sesta, co-founder of Wonderland, said that he expects anonymous teams to lose relevance in favor of teams that have their full identity revealed.
Redefining anonymous identity
Although with the transition toward transparency in crypto in recent years, anonymous culture is still very strong. One doesn’t have to remain completely anonymous in the space, as Grug shared:
“Our fund is all anon for instance, although we have all doxxed to one another. When I go to events and people whip out their phone to follow me on Twitter they are usually anonymous.”
Identity, whether it's public or anonymous, is a very delicate subject that we all struggle with. Finding the balance between fully anonymous and a public identity will be the key to a more rich and diverse crypto community.
Up to this point, anonymous culture in crypto has proved to bring some positive value, as it minimizes biases and allows individuals to fully express themselves. Bad actors can take advantage of this to pursue a fresh start, which can be dangerous if they keep acting maliciously. But, if they become healthy contributors to an ecosystem and provide value to the community, it could prove people deserve a second chance.