According to an analysis by Arkham Intelligence, the US government is in possession of a considerable amount of Zcash, a digital currency known for its privacy features. This holding, estimated to be worth around $1.5 million, is believed to have originated from assets seized during the 2017 shutdown of the AlphaBay darknet market. Arkham Intelligence connected these funds to government-controlled wallets via transfers linked to the Department of Justice's investigation into the marketplace. Although the government hasn't officially addressed the specific findings concerning Zcash, the holding is noteworthy due to the privacy-centric nature of the cryptocurrency. However, it constitutes only a small portion of the federal government's vast cryptocurrency reserves, which include nearly $30 billion in Bitcoin and $187 million in Ethereum, mostly acquired through similar law enforcement actions.
This situation underscores a peculiar conflict where the government possesses a digital asset designed to conceal financial trails, which regulators aim to expose. As policymakers increase their scrutiny of risks associated with illicit finance, Zcash and similar technologies have become focal points in regulatory discussions. This tension will be highlighted during a roundtable on December 15, featuring Zcash founder Zooko Wilcox, Aleo Network Foundation CEO Alex Pruden, and SpruceID founder Wayne Chang, alongside the US Securities and Exchange Commission (SEC). Hester Peirce, who heads the SEC's crypto task force, indicated that the discussion seeks to enhance the agency's understanding of modern privacy tools. She emphasized that new insights could enable the regulator to refine its oversight strategy without compromising civil liberties.
The debate over Zcash's traceability has been fueled by Arkham's recent claim that it can identify more than half of all Zcash activities. In a post dated December 8, Arkham stated that its service has managed to attribute over 53% of all transactions, both open and private, to known entities. Furthermore, more than 48% of inputs and outputs have been linked to specific entities, totaling over $420 billion in tagged operations. This announcement has sparked debate among privacy advocates, with critics pointing out that most Zcash transactions occur in a "transparent" mode, which is publicly visible on-chain like Bitcoin, making them easier to trace. However, Zcash's shielded transactions, which encrypt transaction metadata, remain much harder to analyze.
Zooko Wilcox challenged the implications of Arkham's findings, arguing that their analysis does not equate to a breach of the protocol's encrypted shielded pool. He asserted that the data primarily reflects activity in Zcash's transparent addresses rather than compromising its core privacy framework. Arkham has not provided comprehensive methodological details, and CryptoSlate has been unable to independently verify the extent of its tracing capabilities.
Despite the scrutiny, Zcash has been among the best-performing major tokens this year. The asset's value soared over 1,000% in recent months, reaching a peak above $700 in November before settling at approximately $434, based on CryptoSlate data. This strong performance has attracted renewed interest from institutional investors, with Grayscale recently applying for a spot-focused exchange-traded fund (ETF) for the asset.