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Canadian Financial Intelligence Agency Raises Privacy Concerns Over Blockchain

The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, has suggested it has concerns about the anonymity of blockchain technology, and specifically the problems this can create with funding crime and creating problems for law enforcement.

The organization, which stands as Canada’s central financial intelligence agency, raised these concerns as part of a report into the technology, a position that has been reflected for some time according to documents obtained under freedom of information protocols.

Senior officials have been suggesting that the agency should focus on developing its own technologies to better analyze and assess financial data on the blockchain, as a mechanism for piercing the so-called “veil of anonymity” that shrouds transactions conducted through blockchain networks.

One of the primary concerns facing the agency is money laundering, and the report goes further in suggesting that the current Canadian regulation in this area falls short of what would be required to adequately deal with the problem.

However, while anonymity does exist through the network, the report highlighted the possibility of profiling from traces of information left on the system, including blockchain addresses that could help identify some users.

“Under these systems, users operate pseudo-anonymously, leaving behind various data (e.g. cryptocurrency addresses) that can be used to link a transaction to an individual, particularly where users are not careful to obscure their identity.”

Darren Gibb, a spokesman for FINTRAC, said that work was already in the pipeline to research and develop the new systems required to deal with these perceived problems.

“Research may identify the need to cover new entities or administer new reporting requirements to address any emerging money laundering or terrorism financing threats to the Canadian financial system from transactions and entities that are currently not covered.”

Anonymity is one of the defining characteristics of blockchain technology, particularly as it relates to cryptocurrencies such as bitcoin. While individuals do see bitcoin addresses recorded on the blockchain, it is generally accepted that linking these to individuals in the most serious cases of criminal behavior is virtually impossible, without user failures.

It remains to be seen whether FINTRAC and the Canadian authorities can prepare the new technologies they are looking for, in their bid to clamp down on illegitimate use of blockchain and cryptocurrency networks.

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