Privacy coins frequently emerge in the aftermath of hacks, functioning as just one element in a more complex laundering scheme that involves multiple stages such as swaps, bridges, and off-ramps.
Key Takeaways
- Privacy coins serve as a component in a larger laundering strategy, offering a temporary solution to conceal transactions post-hack.
- Scammers often manage stolen assets through a sequence of methods intended to obscure their origin before introducing privacy measures to evade detection.
- The nature of blockchain analytics diminishes significantly when funds are moved into privacy-centric networks, delaying identification and helping evade automatic blacklisting by exchanges.
When a security breach occurs in the crypto realm, stolen cryptocurrency doesn’t immediately end up on an exchange. Instead, it’s funneled through a series of strategic steps to complicate tracing:
- Consolidation: Funds from various victim wallets are combined into fewer addresses.
- Obfuscation: These funds are shuffled through various intermediary wallets, often facilitated by mixing services.
- Chain-Hopping: Assets are switched between different blockchains, complicating their tracking further.
- Privacy Layer: A portion of the funds is converted into privacy-centric coins.
- Cash-Out: The funds are eventually exchanged for more widely accepted cryptocurrencies or fiat currency through various methods.
Privacy coins usually come into play at the later stages, enhancing the difficulty of tracing the origin of the funds.
Why Privacy Coins Are Appealing for Scammers Right After a Hack
- Reduced Onchain Visibility: Unlike traditional blockchains that expose transaction details, privacy coins conceal significant information, making it challenging to audit transactions.
- Breaking Attribution Chains: Instead of moving directly to privacy coins, scammers deploy multiple techniques to complicate linking the stolen assets back to the hacks.
- Negotiating Power: Conducting transactions using privacy coins permits scammers to interact with brokers without revealing the funds’ history, thus lessening the perceived risks.
While privacy coins offer certain advantages, they are not foolproof. Significant hacks typically still utilize more liquid assets like Bitcoin or Ethereum in subsequent stages due to their higher demand and availability.
In conclusion, while privacy coins may offer a layer of anonymity, investigators continue to find innovative ways to track illegal fund flows. The key is understanding how these funds are introduced and circulated within the cryptosphere.
