Why Privacy Coins Often Appear in Post-Hack Fund Flows

The movement of illegally acquired digital assets, particularly those stolen in major cyberattacks and exchange hacks, frequently involves a rapid transition into privacy-focused cryptocurrencies. This operational preference highlights the critical role these coins play in the subsequent stages of fund laundering and evasion of law enforcement.

**1. Breaking the Chain of Traceability**
Conventional cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) operate on public ledgers. While addresses are pseudonymous, every transaction is visible, allowing blockchain analysis firms (like Chainalysis) to trace funds, identify clusters, and link transactions back to known illicit entities or tainted sources. Privacy coins, such as Monero (XMR) and, to a lesser extent, Zcash (ZEC) when shielded transactions are used, are designed to obscure transactional details. They employ mechanisms like ring signatures and zero-knowledge proofs (zk-SNARKs) to hide the sender, recipient, and transaction amount, effectively breaking the public, traceable link established by the initial theft.

**2. The ‘Cleansing’ Layer**
Post-hack funds are often considered ‘hot’ or ‘tainted.’ Any attempt to liquidate them directly through regulated exchanges will trigger automated compliance flags (KYC/AML) because the funds are traceable to a known criminal event. By rapidly swapping the stolen BTC or ETH into Monero, the criminals create a ‘cleansing’ layer. Once inside the privacy network, the funds become fungible and untraceable to their origin. This transformation is crucial for enabling subsequent steps, such as conversion to fiat or usage on darknet markets (where Monero is often the preferred currency).

**3. Robust Anti-Analysis Features**
Monero is overwhelmingly the coin of choice for professional cybercrime groups (including state-sponsored actors like North Korean groups) because of its default privacy settings. Unlike Zcash, where shielded transactions are optional, Monero’s privacy features are mandatory, ensuring all transactions are uniformly obscured. This uniformity prevents heuristics and statistical analysis often used to deanonymize optional privacy features. The inherent resistance to tracking makes Monero highly effective as a temporary, high-security vault for storing and moving stolen capital.

**4. Facilitating Off-Ramp Liquidation**
While highly liquid centralized exchanges generally avoid listing privacy coins due to regulatory pressure, these assets retain sufficient liquidity via decentralized exchanges (DEXs), smaller global exchanges, and various peer-to-peer (P2P) platforms. The anonymity provided by the privacy coin allows hackers to attempt egress (conversion to fiat) with significantly reduced risk, as there is no public record linking the specific coins being sold to the original hack source.

Source: Why privacy coins often appear in post-hack fund flows