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This makes me very nervous about the Monero I own. It is understandable that the government would eventually use AML against Bitcoin mixing services. But how wi

This makes me very nervous about the Monero I own. It is understandable that the government would eventually use AML against Bitcoin mixing services. But how will the government go after cryptocurrencies that have mixing and transaction obfuscation built into their protocols? I've heard the argument that it is impossible for the US Government to regulate decentralized cryptocurrencies. FinCEN cannot force a change in the Bitcoin or Monero protocols. However it is entirely within the government's authority to regulate the users of said currencies. So I imagine the government would add onerous reporting requirements for any citizen or corporation holding privacy based coins in order to circumvent their privacy features.

giancarlostoro 6y ago
If you report your earnings when you sell I don't know if there's an issue. I think the government is going to be losing if they want to go after people before they cash out. Technology will always be miles ahead of bureaucracy.
- blibble 6y ago
  not sure what use your cashed out earnings will be once they confiscate them after they lock you up governments have years to come after you (and in many countries: the rest of your life)
  - droffel 6y ago
    Lock you up for what? Using Monero doesn't mean you're a criminal. Am I misunderstanding, or are you implying that caring about my privacy is a criminal act, and that paying taxes on perfectly legitimate income is (or would become) illegal?
    - blibble 6y ago
      engaging in money laundering? who knows that's the point: even if you're not doing anything shady you don't really know what sort of long term risk you're taking on if you're using something that looks to governments as if it's tailor made for money laundering
      - droffel 6y ago
        I guess I shouldn't use a VPN, because that might look like I have something to hide. Using cash? No way! If I use cash I might look like a criminal. Leave my cell phone at home? No way, I wouldn't want to be suspicious, would I? I need the government to surveil me every second of every day, because if they don't, maybe I'm a criminal. At what point do you say enough is enough, and embrace the idea that you should minimize your digital footprint whenever possible?
        blibble 6y ago
        all of your examples also have some level of risk, which is going to be essentially negligible a technology specifically designed to allow untracable electronic monetary transactions is going to be many orders of magnitude riskier to use
        akimball 6y ago
        Actually, use it to reduce risk. If you have no visible wealth you are largely immune to extortion, kidnapping, fraud, and robbery.
iongoatb 6y ago
The DOJ just released a report that explicitly says that use of privacy coins like Monero is a "high risk activity" and "indicative of possible criminal conduct". https://cointelegraph.com/news/doj-says-use-of-privacy-coins-is-indicative-of-possible-criminal-conduct https://cointelegraph.com/news/doj-says-use-of-privacy-coins...
- droffel 6y ago
  So is using cash. Lots of things could be 'indicative of possible criminal conduct'. Thankfully, the US operates under presumed innocence until proven guilty. This attitude of people claiming you shouldn't seek privacy lest you 'look like a criminal' is disappointing. I expect better from HN.
  - asdfasgasdgasdg 6y ago
    > This attitude of people claiming you shouldn't seek privacy lest you 'look like a criminal' is disappointing. I expect better from HN. "Indicative of possible criminal conduct" means more than just "looking like a criminal." That means, if you were to be arrested for something, your use of Monero might count as evidence that you were involved in criminal activity. Combined with enough other circumstantial evidence, it might even contribute to your conviction, even without a smoking gun. This would depend on the judge and jury, but it's worth noting. I don't think it's "better" for people to ignore the risks of certain behaviors and pretend those risks don't exist. You apparently care a lot about optimizing a particular dimension: privacy. Recognize that other people have different mixes of priorities. Not everyone must agree with yours. Some people who disagree with you might even comment on this very site, as offensive as that is.
    - wolco2 6y ago
      I think he was lamenting the loss of priority of privacy within the general hn makeup. If everyone took your advice no one would protest, write a political comment against anyone in power, take any position that isn't accepted by all and be ready to drop that opinion when society shifts. You live in a free society. Use your freedom or risk losing it.
doggosphere 6y ago
Governments could certainly compel exchanges to not list Monero or other privacy coins. But even if they compelled users to list addresses of the coins they own, the nature of Monero makes it very redundant. It would be ineffective and a waste of time, and it wouldn't stop users from exchanging it.
sgp_ 6y ago
Creator of the Breaking Monero series and a compliance analyst at a cryptocurrency OTC desk here. This mixer was penalized for running an unlicensed MSB. This is far more about that then it is about banning privacy technologies generally. For traditional Bitcoin mixers as in this case, someone receives money from users and then transmits money to many users. This is money transmission and requires registration with FinCEN and sometimes requires registration with states (though some states have exemptions for completely crypto to crypto transmission that doesn't touch USD or other fiat). Mixing in this case is interactive where there is a clear money transmitter. In Monero's case, the ring signature "mixing" (mixing is a terrible/misleading way to refer to ring signatures) is non-interactive, and there is no intermediary (eg: a mixer) acting as a money transmitter. Thus, there is nothing to fear from this specific enforcement action. I'm happy to answer other questions as well. But for money transmission to occur, an intermediary needs to accept customer funds. For a Monero transfer, there is no intermediary. Someone could build an MSB on Monero itself which would require registration, but using Monero to send funds directly to a merchant for one's own purchase, for example, is not money transmission.
- beervirus 6y ago
  Is this legal advice about the definition of "money transmitter"? It sure reads that way.
  - sgp_ 6y ago
    Obviously not legal advice, but FinCEN's guidance is quite easy to follow here: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20... > Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). > An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA. > An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.” This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission. Another resource: https://www.perkinscoie.com/en/news-insights/anti-money-laundering-regulation-of-privacy-enabling-cryptocurrencies.html https://www.perkinscoie.com/en/news-insights/anti-money-laun...
ineedasername 6y ago
If transaction obfuscation violates laws regarding trackability of financial transactions, then and cryptocurrency that builds obfuscation into their protocols has a product that is inherently illegal. It would be no different than building any feature into software that violates the law, say DRM circumvention as an example. However I don't know if obfuscation alone would be considered illegal: In this case, the services went beyond merely facilitating obfuscation. They were not properly registered as a Money Services Business, and they specifically marketed their services for use in illicit transactions. Going back to the DRM example, it's the difference between software that has legitimate uses but could be used to break DRM (Think binary editors to crack a video game's DRM) as compared to advertising your binary editor not as a general purpose tool, but for that specific illegal purpose. (Disregarding, for a moment, the philosophical issues surrounding the use of DRM, on which I tend to lean more towards less use of DRM)
- dboreham 6y ago
  We also have the prior art of: cash.
hdjfktkrk 6y ago
In a way having Monero is like having large piles of cash. As long as you can prove they came from legitimate sources and that all taxes on them were paid, you have nothing to worry about. You also need to be careful not to deny in an official way that you own Monero if that is the case.
- jeremyjh 6y ago
  No, there is another risk here. At some point Monero could be dropped by exchanges due to regulatory pressures or even perceived exposure, since every transaction involving it is untraceable they could find it impossible to implement future tracking and reporting requirements. This sort of thing is not unprecedented, just look at Poloniex (which never dealt in actual dollars, only Tethers) who finally gave up and banned all US custmers. This, of course, would devalue the currency.
  - digianarchist 6y ago
    >At some point Monero could be dropped by exchanges due to regulatory pressures or even perceived exposure Could be argued that it hasn't yet been picked up by exchanges for this reason. Also, looking at the more corporate friendly Zcash which was dropped by Coinbase UK [0]. Likely from pressure from their banking partner ClearBank. These coins won't last without a mechanism to covert to fiat. [0] - https://www.coindesk.com/coinbase-uk-dropping-support-for-cryptocurrency-zcash https://www.coindesk.com/coinbase-uk-dropping-support-for-cr...
    - RandomBacon 6y ago
      > Could be argued that it hasn't yet been picked up by exchanges for this reason. Monero is traded at Kraken, a U.S.-based exchange. Kraken even has a banking charter in Wyoming.
  - akimball 6y ago
    On-chain atomic swaps with Bitcoin reduces fiat exchange to btcusd exchange.
  - 6y ago
RandomBacon 6y ago
Here's what a law firm says about privacy coins: https://www.perkinscoie.com/images/content/2/3/v3/237411/Perkins-Coie-LLP-White-Paper-AML-Regulation-of-Privacy-enablin.pdf https://www.perkinscoie.com/images/content/2/3/v3/237411/Per... TL;DR: I wouldn't be nervous if I was you.
6gvONxR4sf7o 6y ago
Mixing and transaction obfuscation are built into good old fashioned cash, right? I wonder what the legal basis is there, and how that could be applied to a cryptocurrency with cash-like properties.
- benlivengood 6y ago
  Not really; every federal reserve note has a serial number. People just assumed that no one had the incentive or ability to track them.
  - deleted 6y ago
    [deleted]
  - hungryforcodes 6y ago
    It's not an assumption, normally people DON'T keep track of any of this. When I go to the bar and buy a beer with $10, the bar tender is for sure NOT writing down the serial number on the bill, checking my ID, and forwarding that information off to the FBI. The $10 can sit for a day or two in the till, and then be returned to another customer as change. In this way it continues its anonymous passage through the economy.
  - 6gvONxR4sf7o 6y ago
    What about coins then? Those don't have any serial numbers or anything like that, and there's some legal basis that makes that "untrackable" currency legal.
garmaine 6y ago
The Department of Justice released an enforcement memo just last week that states merely using Monero, zcash, etc. are treated as criminally suspicious :(
jl2718 6y ago
I suppose the liability, if so broadly interpreted, would fall on the miners, but only if it could be proven that they won a block that contained a transaction used for illicit purposes. The interpretation that somebody is liable for mixing at all, with no illicit use proven within the transactions, is probably questionable. The miners are also not receiving dirty money as compensation, so even more so. And even with illicit use shown, laundering can happen with just about anything you can buy and sell, so, unless every retail store is doing KYC, then they could also be exposed to such liability. Above all, I don't know if coercion is a successful long-term strategy for defeating privacy coins. Even for criminals, the value must tie back to average citizens purchasing it from them, and even with no enforcement they would not want to be part of that, and the value would collapse. If a privacy coin does have value, it reflects political fears of the average citizen, and aggressive enforcement unaligned with common values may actually increase its value. The dollar system is the most valuable partially because it does enforce common values, and permits all else within. But obviously not everybody believes that this is guaranteed in the future.
- freeone3000 6y ago
  Money laundering does not require the actual source of the money be illegal. You can fall foul of 18 USC 1956 through a.2.B.ii route, where merely deliberately concealing the source or destination is punishable by a fine for the entire amount concealed. a.2.C provides for 2 years in prison if you didn't report when you had to. This is not a questionable interpretation, this is the law as written -- mixing is illegal on its face, no matter the source or destination.
  - jl2718 6y ago
    Thank you for the citation, but now that I've read the law, every section in here seems to require that at least part of the money is proceeds of unlawful activity: https://www.law.cornell.edu/uscode/text/18/1956 https://www.law.cornell.edu/uscode/text/18/1956
    - freeone3000 6y ago
CryptoPunk 6y ago
I'm not a lawyer, but I believe regulatory agencies would need new legislation to make use of privacy-protecting cryptocurrency software illegal. It's that legislation that I would worry about.
AviationAtom 6y ago
The IRS is offering $625k right now to anyone who can break Monero's privacy: https://www.forbes.com/sites/kellyphillipserb/2020/09/14/irs-will-pay-up-to-625000-if-you-can-crack-monero-other-privacy-coins/ https://www.forbes.com/sites/kellyphillipserb/2020/09/14/irs...
moksly 6y ago
I sold off all my crypto and put the money into regular stock as soon as my country announced it would start taking an interest in taxing it and that you were responsible for proving whatever they though wrong. It’s just too much of a risk and a bother, and I suspect it will only get worse from here. I really don’t need something that might come back to bite me financially or even criminally 25 years from now.
blueprint 6y ago
Nothing stops exchanges from doing KYC prior to XMR txs in order to comply with AML regulations. Mixers probably aren't doing KYC...?

giancarlostoro 6y ago

If you report your earnings when you sell I don't know if there's an issue. I think the government is going to be losing if they want to go after people before they cash out. Technology will always be miles ahead of bureaucracy.

blibble 6y ago
not sure what use your cashed out earnings will be once they confiscate them after they lock you up governments have years to come after you (and in many countries: the rest of your life)
- droffel 6y ago
  Lock you up for what? Using Monero doesn't mean you're a criminal. Am I misunderstanding, or are you implying that caring about my privacy is a criminal act, and that paying taxes on perfectly legitimate income is (or would become) illegal?
  - blibble 6y ago
    engaging in money laundering? who knows that's the point: even if you're not doing anything shady you don't really know what sort of long term risk you're taking on if you're using something that looks to governments as if it's tailor made for money laundering
    - droffel 6y ago
      I guess I shouldn't use a VPN, because that might look like I have something to hide. Using cash? No way! If I use cash I might look like a criminal. Leave my cell phone at home? No way, I wouldn't want to be suspicious, would I? I need the government to surveil me every second of every day, because if they don't, maybe I'm a criminal. At what point do you say enough is enough, and embrace the idea that you should minimize your digital footprint whenever possible?
      - blibble 6y ago
        all of your examples also have some level of risk, which is going to be essentially negligible a technology specifically designed to allow untracable electronic monetary transactions is going to be many orders of magnitude riskier to use
        akimball 6y ago
        Actually, use it to reduce risk. If you have no visible wealth you are largely immune to extortion, kidnapping, fraud, and robbery.

iongoatb 6y ago

The DOJ just released a report that explicitly says that use of privacy coins like Monero is a "high risk activity" and "indicative of possible criminal conduct". https://cointelegraph.com/news/doj-says-use-of-privacy-coins-is-indicative-of-possible-criminal-conduct https://cointelegraph.com/news/doj-says-use-of-privacy-coins...

droffel 6y ago
So is using cash. Lots of things could be 'indicative of possible criminal conduct'. Thankfully, the US operates under presumed innocence until proven guilty. This attitude of people claiming you shouldn't seek privacy lest you 'look like a criminal' is disappointing. I expect better from HN.
- asdfasgasdgasdg 6y ago
  > This attitude of people claiming you shouldn't seek privacy lest you 'look like a criminal' is disappointing. I expect better from HN. "Indicative of possible criminal conduct" means more than just "looking like a criminal." That means, if you were to be arrested for something, your use of Monero might count as evidence that you were involved in criminal activity. Combined with enough other circumstantial evidence, it might even contribute to your conviction, even without a smoking gun. This would depend on the judge and jury, but it's worth noting. I don't think it's "better" for people to ignore the risks of certain behaviors and pretend those risks don't exist. You apparently care a lot about optimizing a particular dimension: privacy. Recognize that other people have different mixes of priorities. Not everyone must agree with yours. Some people who disagree with you might even comment on this very site, as offensive as that is.
  - wolco2 6y ago
    I think he was lamenting the loss of priority of privacy within the general hn makeup. If everyone took your advice no one would protest, write a political comment against anyone in power, take any position that isn't accepted by all and be ready to drop that opinion when society shifts. You live in a free society. Use your freedom or risk losing it.

doggosphere 6y ago

Governments could certainly compel exchanges to not list Monero or other privacy coins. But even if they compelled users to list addresses of the coins they own, the nature of Monero makes it very redundant. It would be ineffective and a waste of time, and it wouldn't stop users from exchanging it.

sgp_ 6y ago

Creator of the Breaking Monero series and a compliance analyst at a cryptocurrency OTC desk here. This mixer was penalized for running an unlicensed MSB. This is far more about that then it is about banning privacy technologies generally. For traditional Bitcoin mixers as in this case, someone receives money from users and then transmits money to many users. This is money transmission and requires registration with FinCEN and sometimes requires registration with states (though some states have exemptions for completely crypto to crypto transmission that doesn't touch USD or other fiat). Mixing in this case is interactive where there is a clear money transmitter. In Monero's case, the ring signature "mixing" (mixing is a terrible/misleading way to refer to ring signatures) is non-interactive, and there is no intermediary (eg: a mixer) acting as a money transmitter. Thus, there is nothing to fear from this specific enforcement action. I'm happy to answer other questions as well. But for money transmission to occur, an intermediary needs to accept customer funds. For a Monero transfer, there is no intermediary. Someone could build an MSB on Monero itself which would require registration, but using Monero to send funds directly to a merchant for one's own purchase, for example, is not money transmission.

beervirus 6y ago
Is this legal advice about the definition of "money transmitter"? It sure reads that way.
- sgp_ 6y ago
  Obviously not legal advice, but FinCEN's guidance is quite easy to follow here: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20... > Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). > An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA. > An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.” This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission. Another resource: https://www.perkinscoie.com/en/news-insights/anti-money-laundering-regulation-of-privacy-enabling-cryptocurrencies.html https://www.perkinscoie.com/en/news-insights/anti-money-laun...

ineedasername 6y ago

If transaction obfuscation violates laws regarding trackability of financial transactions, then and cryptocurrency that builds obfuscation into their protocols has a product that is inherently illegal. It would be no different than building any feature into software that violates the law, say DRM circumvention as an example. However I don't know if obfuscation alone would be considered illegal: In this case, the services went beyond merely facilitating obfuscation. They were not properly registered as a Money Services Business, and they specifically marketed their services for use in illicit transactions. Going back to the DRM example, it's the difference between software that has legitimate uses but could be used to break DRM (Think binary editors to crack a video game's DRM) as compared to advertising your binary editor not as a general purpose tool, but for that specific illegal purpose. (Disregarding, for a moment, the philosophical issues surrounding the use of DRM, on which I tend to lean more towards less use of DRM)

dboreham 6y ago
We also have the prior art of: cash.

hdjfktkrk 6y ago

In a way having Monero is like having large piles of cash. As long as you can prove they came from legitimate sources and that all taxes on them were paid, you have nothing to worry about. You also need to be careful not to deny in an official way that you own Monero if that is the case.

jeremyjh 6y ago
No, there is another risk here. At some point Monero could be dropped by exchanges due to regulatory pressures or even perceived exposure, since every transaction involving it is untraceable they could find it impossible to implement future tracking and reporting requirements. This sort of thing is not unprecedented, just look at Poloniex (which never dealt in actual dollars, only Tethers) who finally gave up and banned all US custmers. This, of course, would devalue the currency.
- digianarchist 6y ago
  >At some point Monero could be dropped by exchanges due to regulatory pressures or even perceived exposure Could be argued that it hasn't yet been picked up by exchanges for this reason. Also, looking at the more corporate friendly Zcash which was dropped by Coinbase UK [0]. Likely from pressure from their banking partner ClearBank. These coins won't last without a mechanism to covert to fiat. [0] - https://www.coindesk.com/coinbase-uk-dropping-support-for-cryptocurrency-zcash https://www.coindesk.com/coinbase-uk-dropping-support-for-cr...
  - RandomBacon 6y ago
    > Could be argued that it hasn't yet been picked up by exchanges for this reason. Monero is traded at Kraken, a U.S.-based exchange. Kraken even has a banking charter in Wyoming.
- akimball 6y ago
  On-chain atomic swaps with Bitcoin reduces fiat exchange to btcusd exchange.
- 6y ago

RandomBacon 6y ago

Here's what a law firm says about privacy coins: https://www.perkinscoie.com/images/content/2/3/v3/237411/Perkins-Coie-LLP-White-Paper-AML-Regulation-of-Privacy-enablin.pdf https://www.perkinscoie.com/images/content/2/3/v3/237411/Per... TL;DR: I wouldn't be nervous if I was you.

6gvONxR4sf7o 6y ago

Mixing and transaction obfuscation are built into good old fashioned cash, right? I wonder what the legal basis is there, and how that could be applied to a cryptocurrency with cash-like properties.

benlivengood 6y ago
Not really; every federal reserve note has a serial number. People just assumed that no one had the incentive or ability to track them.
- deleted 6y ago
  [deleted]
- hungryforcodes 6y ago
  It's not an assumption, normally people DON'T keep track of any of this. When I go to the bar and buy a beer with $10, the bar tender is for sure NOT writing down the serial number on the bill, checking my ID, and forwarding that information off to the FBI. The $10 can sit for a day or two in the till, and then be returned to another customer as change. In this way it continues its anonymous passage through the economy.
- 6gvONxR4sf7o 6y ago
  What about coins then? Those don't have any serial numbers or anything like that, and there's some legal basis that makes that "untrackable" currency legal.

garmaine 6y ago

The Department of Justice released an enforcement memo just last week that states merely using Monero, zcash, etc. are treated as criminally suspicious :(

jl2718 6y ago

I suppose the liability, if so broadly interpreted, would fall on the miners, but only if it could be proven that they won a block that contained a transaction used for illicit purposes. The interpretation that somebody is liable for mixing at all, with no illicit use proven within the transactions, is probably questionable. The miners are also not receiving dirty money as compensation, so even more so. And even with illicit use shown, laundering can happen with just about anything you can buy and sell, so, unless every retail store is doing KYC, then they could also be exposed to such liability. Above all, I don't know if coercion is a successful long-term strategy for defeating privacy coins. Even for criminals, the value must tie back to average citizens purchasing it from them, and even with no enforcement they would not want to be part of that, and the value would collapse. If a privacy coin does have value, it reflects political fears of the average citizen, and aggressive enforcement unaligned with common values may actually increase its value. The dollar system is the most valuable partially because it does enforce common values, and permits all else within. But obviously not everybody believes that this is guaranteed in the future.

freeone3000 6y ago
Money laundering does not require the actual source of the money be illegal. You can fall foul of 18 USC 1956 through a.2.B.ii route, where merely deliberately concealing the source or destination is punishable by a fine for the entire amount concealed. a.2.C provides for 2 years in prison if you didn't report when you had to. This is not a questionable interpretation, this is the law as written -- mixing is illegal on its face, no matter the source or destination.
- jl2718 6y ago
  Thank you for the citation, but now that I've read the law, every section in here seems to require that at least part of the money is proceeds of unlawful activity: https://www.law.cornell.edu/uscode/text/18/1956 https://www.law.cornell.edu/uscode/text/18/1956
  - freeone3000 6y ago

CryptoPunk 6y ago

I'm not a lawyer, but I believe regulatory agencies would need new legislation to make use of privacy-protecting cryptocurrency software illegal. It's that legislation that I would worry about.

AviationAtom 6y ago

The IRS is offering $625k right now to anyone who can break Monero's privacy: https://www.forbes.com/sites/kellyphillipserb/2020/09/14/irs-will-pay-up-to-625000-if-you-can-crack-monero-other-privacy-coins/ https://www.forbes.com/sites/kellyphillipserb/2020/09/14/irs...

moksly 6y ago

I sold off all my crypto and put the money into regular stock as soon as my country announced it would start taking an interest in taxing it and that you were responsible for proving whatever they though wrong. It’s just too much of a risk and a bother, and I suspect it will only get worse from here. I really don’t need something that might come back to bite me financially or even criminally 25 years from now.

blueprint 6y ago

Nothing stops exchanges from doing KYC prior to XMR txs in order to comply with AML regulations. Mixers probably aren't doing KYC...?