Wasabi Wallet’s founder called the decision a major setback for Bitcoin’s fungibility, while one of the developers advocated using other privacy coordinators instead of zkSNACK.
CoinJoin is a protocol implemented to improve the privacy and anonymity of Bitcoin users, which consists of unifying in the same set all the transactions carried out by different users of the system. Thus, these transactions, once unified, no user can determine where the funds come from, as no one can see or associate the inputs and outputs of said transactions. Thus, not even the receiver of a transaction could tell from where he received the transferred funds.
CoinJoin, a popular Bitcoin (BTC) mixing tool, will block transactions associated with or marked as illegal. The announcement came from the official Wasabi Wallet Twitter account, of which Coinjoin is a part: “The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins.”
The official announcement highlighted that the CoinJoin services would begin blocking certain unspent transaction outputs (UTXOs) from their recording in CoinJoin with the help of the zkSNACK coordinator (a virtual machine used to mix source transactions).
Privacy-focused matching tools are primarily used to hide the origin of transactions and are often seen as a means of laundering illicit funds. However, Blockchain is a public ledger, and with various forensic tools developed by Chainalysis, money laundering through mixing tools has become quite difficult in recent years.
The Announcement: Rafe’s Reaction
The firm’s latest announcement angered many privacy advocates who accused the privacy-focused wallet of bowing to law enforcement. However, a Wasabi developer going by the name Rafe on Twitter explained that they have not committed to their core values, but instead must adhere to certain benchmarks: “No one has infiltrated Wasabi, since we wouldn’t be having this conversation if that were the case. There is no need to spy when banning inputs. Many would be happy to sink with the ship when needed. Is it better to have no zkSNACKs coordinator or to keep it running for majority?”
Rafe also noted that the UTXO blocking is limited to the ZkSNACK coordinator and people using any other coordinator can still feel private and secure. However, Adam Fiscor, the founder of the Wasabi wallet, acknowledged that blacklisting has reached the privacy wallet, and believes that it could be a threat to the fungibility of Bitcoin.
Cryptocurrencies and Illicit Activities: Are they Related?
Most governments and centralized entities have perpetuated a narrative about the use of cryptocurrencies for illicit activities and the role of privacy wallets and blending tools in helping them. However, research and data analysis have shown from time to time that the use of cryptocurrencies for illicit activities comprises a very small fraction of total transaction activity and has been in a steady decline with the advent of more powerful analytical tools.
According to data from Chainalysis, the illicit portion of all crypto transaction volume has decreased to 0.15% in 2021.
The recent arrest of the marital duo found to be trying to launder money from the multi-billion dollar Bitfinex hack is another prominent example, where not only were the hackers caught while trying to launder the stolen funds, the authorities managed to recover most of the hacked BTC as well.
By Audy Castaneda
