TLDR; CipherTrace announced an early stage Monero tracing capability but provided few technical details as to how tracing is accomplished. Subsequent interviews focused on a “statistical probability” approach and the likely use of off-chain data. Monero subreddit still buzzing.
In case you missed it, at the end of August, CipherTrace publicly announced the company has developed an early stage ability to trace always-on privacy cryptoasset Monero.
CipherTrace’s release notes, “[the capability] include[s] transaction search, exploration, and visualization tools for Monero transaction flows that have been integrated with CipherTrace’s Inspector financial investigations product. This provides ways to track stolen Monero currencies or Monero currencies used in illegal transactions.”
While the initial focus, given the funding received from their development contract with the DHS Science & Technology Directorate, appears to support law enforcement, CipherTrace also noted compliance and AML potential uses for financial institutions as well as the increased legitimacy for Monero and listing or relisting on exchanges.
The emerging field of commercial cryptoasset recovery may also benefit as this Monero tracing enhancement to CipherTrace Investigator will improve investigators’ attribution capability when fraudsters seek to exit their ill-gotten funds into fiat currency.
Almost immediately, however, the Monero community expressed doubts about how the tracing capability works, and subsequent interviews with CipherTrace suggested a “statistical approach” to the analysis that relies on heavy use of off-chain data.
Despite community skepticism, CipherTrace did note that more work needed to be done to augment the early stage tracing capability.