The U.S. Department of Homeland Security, which was established in 2002 under the George W. Bush presidency, is considering backing the development of a product that would allow it to forensically analyze activity on blockchains of privacy-focused cryptocurrencies such as Monero and Zcash.

A list of pre-solicitation topics states:

“Prior efforts have addressed Bitcoin analytics, which covers only a limited scope within the realm of cryptocurrencies. This proposal seeks applications of blockchain forensic analytics for newer cryptocurrencies, such as Zcash and Monero.”

When Bitcoin was a new phenomenon, it was perceived as enabling anonymous transactions. While this is true to some extent due to the fact that no real-world identity is tied to the Bitcoin blockchain, activity on the Bitcoin blockchain is fully transparent. Monero and Zcash on the other hand, are capable of hiding the sender of a transaction, the receiver of a transaction, as well as the transaction amount.

“A key feature underlying these newer blockchain platforms that is frequently emphasized is the capability for anonymity and privacy protection. While these features are desirable, there is similarly a compelling interest in tracing and understanding transactions and actions on the blockchain of an illegal nature.”

Tension between governments and privacy coins

In Japan, a country that’s usually perceived as friendly to cryptocurrency, there have been multiple reports on government agencies applying pressure on cryptocurrency exchanges that allow their users to trade privacy coins. While there have previously been reports of an outright ban on privacy coins in Japan that was going to happen in June, the ban seems to never have materialized. Still, the pressure from the government seems to be having an effect, as both Monero and Zcash are absent from the country’s largest crypto exchanges such as BitBank, BitFlyer, Zaif, and Coincheck.