Elliptic Adds "Blockchain Monitoring" Support for Zcash & Horizen

Surveillance corporation Elliptic announced that it added “blockchain monitoring” support for “privacy coins” Zcash and Horizen. Elliptic’s blog post on this matter describes how there are two “classes” of privacy coins: privacy-by-default ones like Monero (which are essentially impossible to develop monitoring tools for) and opt-in privacy ones like Zcash:

The first class of privacy coins are private by default. This includes the likes of monero, which seeks to conceal the details of all transactions. It is unlikely that there will ever be blockchain monitoring tools that allow compliance professionals to trace monero transactions - if such a capability existed it would defeat the point of such an asset.

The second class of privacy coins are those that have opt-in privacy. This includes the likes of Zcash (ZEC) and Horizen (ZEN), which allow users to choose whether to make their transactions visible on the blockchain or not. The vast majority of transactions that take place in these currencies look the same as bitcoin transactions - they are fully visible on the blockchain, and blockchain monitoring tools such as Elliptic’s can be used to trace the source and destination of funds, and assess their risk.

Therefore, as the post goes on to explain, services that use surveillance products can just treat Zcash shielded transactions the same way they treat Bitcoin transactions originating from a mix or coinjoin (in reality, this treatment very much resembles “guilty until proven innocent” or, as Janine Roem says, “risky-until-proven-untainted”):

If blockchain monitoring indicates that a Zcash deposit ultimately originated from a shielded wallet, then as with funds from a bitcoin mixer, the funds cannot be traced any further. But in both cases, an exchange can still use solutions like Elliptic’s to assign risk scores to the transactions that reflect its risk appetite. And in both cases, the compliance analyst at the exchange can then use the same processes to assess the risk of this customer’s transaction and determine next steps.