Not even bitcoin is anonymous enough for some criminals on the dark net.
For years, the cryptocurrency has been the payment method of choice for people buying and selling drugs and other illegal items on the dark net. But it presents a double bind: bitcoin is pseudonymous, allowing folks to buy meth with a degree of privacy, but it's also set up so that every transaction is traceable on a public ledger called the blockchain—not exactly ideal if you never, ever, ever want anybody finding out about your online habit.
Now, there's an alternative. On Monday, AlphaBay—the largest online market for drugs and other unsavoury items like fraud tools—announced on Reddit that the platform is adding support for an ostensibly super-anonymous cryptocurrency called Monero starting on September 1st, citing its "security features."
So, what is Monero? The first thing to know is that unlike most other bitcoin rivals, Monero wasn't built using bitcoin's own code. Instead, it's based on a protocol called CryptoNote that was first described in a 2012 whitepaper written by one "Nicolas van Saberhagen," an assumed pseudonym not unlike the one adopted by bitcoin's Satoshi Nakamoto. While Monero shares similarities with bitcoin, like mining and a blockchain as core mechanics, it has some big differences that help its users maintain their anonymity online, at least according to the currency's advocates.
Bitcoiners will often use a single wallet address, and all transactions connected to it are viewable by anyone. In contrast, Monero creates unique addresses for every transaction with a private "viewkey" that only lets the receiver, and whomever they give the viewkey to, access the full transaction information. In theory, that means no snooping by the feds. Monero also "mixes" coins automatically—basically jumbling one transaction with other similarly-sized ones—adding another layer of confusion for anybody trying to trace a transaction through the blockchain.
That selling point has buoyed consistent and low-level interest in Monero since its inception in 2014. On Monday, the day of the AlphaBay announcement, Monero was trading at a market cap of roughly $40 million USD compared to bitcoin's market cap of more than $9 billion. By early Tuesday morning, Monero's market cap was nearly $60 million.
"It's more secure than bitcoin since the transaction blockchain of bitcoin can be viewed publicly"
"It makes perfect sense for the darknet auction site to welcome Monero," Tyler Moffitt, senior threat researcher for security firm Webroot, wrote me in an email. "It's more secure than bitcoin since the transaction blockchain of bitcoin can be viewed publicly."
According to former Bitcoin Foundation head and security researcher Peter Vessenes, Monero gets "okay marks" on its core technology, but it could be overpromising when it comes to protecting the privacy of criminals.
For example, Vessenes wrote me in an email, the fact that there's still only a relatively small number of Monero users means that any massive transaction will stick out like a sore thumb: there just won't be many others of a similar size to mix with. That would defeat the coin's promise of privacy, especially for drug vendors moving large amounts of product.
"If you think about moving say $2 million in a currency like this, you're going to have a lot of trouble," Vessenes wrote. "Monero works by sort of combining up your transaction volumes with other similarly sized transactions in round amounts—it's going to be pretty hard to find people to do those large-scale moves with you."
"The switching cost from just using bitcoin to using Monero is going to be high"
For the average user sending small amounts of money, however, "My sense is that there is a larger anonymity set that you are a part of in Monero than within a bitcoin mixer," Jonathan Levin, co-founder of bitcoin blockchain analysis firm Chainalysis, wrote me in an email.
If Monero takes off on AlphaBay, it could create the critical mass needed to deliver on its own promises. It's a bit of a self-fulfilling prophecy: widespread use on dark net markets might drive increased investment in and usage of Monero, thereby solving the privacy problem created by a relatively small pool of users. Indeed, AlphaBay's Reddit post announcing its move to Monero stated: "We expect this to cause a spike in the price, so if you are an investor, now is the time to purchase Monero."
This isn't the first time a cryptocurrency promising better privacy than bitcoin has tried to break into the markets, making some users skeptical about the promise of Monero. Dash, a cryptocurrency that formerly went by the name Darkcoin, received substantial media attention when a few mid-sized markets implemented it in 2014. Two years later, Dash hasn't been implemented on any online dark net markets worth noting.
"The switching cost from just using bitcoin to using Monero is going to be high, since not only is there a tech shift, a trust issue, there is also greater volatility," Levin wrote. The $20 million overnight jump in Monero's market cap, while potentially indicating increased usage and thus greater anonymity, also means that the currency's value is highly volatile.
If Monero takes off, it just might be the super-anonymous currency that the web's secretive drug economy has been waiting for.