Chainalysis adds support for privacy coins in compliance software offerings

Chainalysis has added support for Dash and Zcash in two of its products.

Chainalysis Reactor, the firm's investigation software, and the Know Your Transaction (KYT) offering are now able to track the two cryptocurrencies, the company said on Monday. This means that clients using the software can track compliance for the coins' combined $1.5 billion in daily trading volume.

Dash and Zcash are both privacy coins, meaning they have additional privacy features in their protocols. Dash contains an optional "PrivateSend" feature, a built-in mixer that hides origin addresses at no added fee. Zcash enables a feature called shielding, an option that allows users to encrypt blockchain activity. Zcash's shield pools enable greater privacy than mixing, according to Chainalysis. 

Despite these privacy features, Chainalysis's announcement asserts that it's possible to connect inputs and outputs on some PrivateSend transactions, and in some cases identify the single address from which the output came. 

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"This means that while PrivateSend does increase privacy for its users, successful investigations can still be performed," said the statement.

Additionally, only 0.7% of Dash transactions that transfer funds utilize the PrivateSend feature, and mixing transactions themselves only make up 9% of Dash transactions, according to Chainalysis.

Fourteen percent of Zcash transactions utilize one of the protocol's shielded pools, but only 0.9% of Zcash transactions are entirely encrypted, or when sender, receiver and transaction amounts are shielded. This means most don't use the privacy function of the protocol, and those that do can still be identified in some cases, according to research on shield pool usage patterns. 

"So even though the obfuscation on Zcash is stronger due to the zk-SNARK encryption, Chainalysis can still provide the transaction value and at least one address for over 99% of ZEC activity," the post said.

About Author

Aislinn Keely is a reporter on The Block's policy team holding down the legal beat. She covers court decisions, bankruptcies, regulatory actions and other key moments in the legal sphere, putting them in context for the wider crypto industry. Before The Block, she lent her voice to the NPR affiliate WFUV and helmed Fordham University's student newspaper. Send tips or thoughts on all things policy and legal to [email protected] or follow her on Twitter for updates @AislinnKeely.