Criminal Underworld Dropping Bitcoin for Another Currency

The techniques are so potent that software that flags coins suspected of being obtained through crime now tags just about anything converted into or out of Monero as high risk, according to Pawel Kuskowski, chief executive officer of Coinfirm, which helps exchanges and other companies avoid tainted money. That compares with only about 10 percent of Bitcoin, he said.

"What we treat 'high risk' is something that's anonymizing funds," he said in a phone interview. "How are you going to prove that these funds are not coming from illegal sources?"

Monero is one of many privacy-focused coins, each offering different security features.

Its main competitor, Zcash — which isn't known to have a significant criminal following — can offer even better privacy protection. Instead of creating fake addresses to hide senders, it encrypts their true address.

That makes it impossible to identify senders by looking for correlations in addresses used in multiple transactions to pinpoint the real one — a vulnerability for Monero.

Still, Princeton University researchers recently developed a tool that helps them analyze Zcash transactions at least to some extent — but they haven't been able to crack Monero. And Zcash high-security features can't be used on disposable burner phones, a favorite of criminals eager to stay anonymous.

Developers behind Monero say they simply created a coin that protects privacy. Most people use it legitimately — they just don't want others to know whether they're buying a coffee or a car, Riccardo Spagni, core developer at Monero, said in a phone interview.

"As a community, we certainly don't advocate for Monero's use by criminals," Spagni said. "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."

'Utility' Too

Yet criminals are probably only a fraction of Monero's users, according to Lucas Nuzzi, a senior analyst at Digital Asset Research, which provides research to institutional investors.

"As with any disruptive technology, many of the initial use cases revolve around illicit activities," he wrote in an email. But as everyday people grow concerned about privacy and surveillance, "there is utility in these currencies that go beyond just a means of exchange for illicit goods."