• T Skevington and M Bacina

Chainalysis expands services to cover zcash and dash

Blockchain analysis company Chainalysis has expanded its Reactor and Know Your Transaction (KYT) service offerings to cover multiple additional digital assets, including Algorand, and (in)famous privacy tokens zcash and dash.

In its announcement, Chainalysis suggests that privacy coins such as zcash and dash are not as private as most users might expect. In particular, Chainalysis claims that:

The two cryptocurrencies’ [zcash and dash] privacy features – both in how they’re built as well as how they’re used in the real world – leave room for investigators and compliance professionals to investigate suspicious or illicit activity and maintain compliance,

Chainalysis's blog post unpacks the above further, and includes an explanation of how Chainalysis can undermine the privacy features of each asset. For Dash, Chainalysis identifies that as a fork of Bitcoin, Dash’s inherent structural similarity to Bitocin allows the techniques that Chainalysis uses on CoinJoin bitcoin mixers can be applied to work on dash. Further, Dash's key privacy feature 'PrivateSend' is only used by a minority of its users.

In contract, Zcash, which is a privacy token by design rather than by fork, offers a 'shielded pool' service that encrypts wallet addresses, balances and transactions via the zero knowledge proof zk-SNARK. Despite this, Chainalysis found that:

of the transactions that interact with a shielded pool, only 6% are completely shielded, i.e. sender, receiver, and transaction amount are all encrypted. That’s only 0.9% of all Zcash transactions. 

No doubt expanding its service offerings to cover more digital assets, particularly privacy focused assets, will only strengthen the resolve of members of the community who already believe that Chainalysis and its contemporaries are "in an arms race against privacy.

Of course, this criticism usually ignores the reality that blockchain analysis companies operate to facilitate the anti-money laundering and counter-terrorism financing laws in place, and commonly accepted, all over the world. These laws exist for good reason, and have in past been used to great effect to uncover criminal activity, such as when Chainalysis assisted police and regulators to break up a major child exploitation website.