Key conclusions

• Privacy coins are just a step in the broader process of post-hack money laundering. They serve as a ephemeral black box disrupting traceability.

• Hackers typically move funds through consolidation, obfuscation, and chain jumping, and only then introduce layers of privacy before attempting to withdraw.

• Privacy coins are most useful immediately after a hack because they reduce on-chain visibility, delay blacklisting, and facilitate crack attribution links.

• Enforcement actions against mixers and other laundry tools often shift illicit flows toward alternative routes, including privacy coins.

Following cryptocurrency hacks, fraudsters often transfer stolen funds via privacy-enhancing cryptocurrencies. While this has created the impression that hackers prefer privacy coins, these assets function as a specialized “black box” within a larger laundering process. To understand why privacy coins appear after hacks, you need to consider the process of cryptocurrency laundering.

This article describes how funds move after a hack and what makes privacy coins so useful to fraudsters. It examines emerging laundering methods, the limitations of privacy coins such as Monero (XMR) and Zcash (ZEC) as laundering tools, the legal employ of privacy technologies, and why regulators must balance innovation with the need to curb money laundering.

How funds flow after a hack

After a hack, fraudsters typically do not send the stolen assets directly to the exchange for immediate liquidation; instead, they follow a deliberate, multi-step process to cover their tracks and ponderous down the investigation:

1. Consolidation: Funds from multiple victims’ addresses are transferred to fewer wallets.

2. Obfuscation: Assets are moved through chains of intermediary cryptocurrency wallets, often using cryptocurrency mixers.

3. Chain jumping: Funds are bridged or swapped across different blockchains, breaking the continuity within the tracking tools of any single network.

4. Privacy layer: Some of the funds are transformed into privacy-oriented assets or routed through privacy-preserving protocols.

5. Paycheck: The assets are ultimately exchanged for more liquid cryptocurrencies or fiat via centralized exchanges, OTC outlets, or peer-to-peer (P2P) channels.

Privacy coins typically come onto the scene in steps four or five, further blurring the ability to track lost funds because earlier steps have already complicated the onchain story.

Why privacy coins are attractive to fraudsters right after a hack

Privacy coins offer particular benefits precisely when fraudsters are most vulnerable, right after theft.

Reduced visibility on the chain

Unlike clear blockchains, where the sender and recipient as well as transaction amounts remain fully auditable, privacy-focused systems intentionally hide these details. As funds move to such networks, standard blockchain analytics lose much of their effectiveness.

Following a theft, fraudsters attempt to delay identification or bypass automatic address blacklisting by exchanges and services. The sudden drop in visibility is especially valuable in the critical days after the theft, when monitoring is most intense.

Breaking attribution chains

Fraudsters typically do not transfer directly from hacked assets to privacy coins. They typically employ multiple techniques, swaps, cross-chain bridges, and intermediate wallets before introducing a privacy layer.

This multi-step approach makes it much more complex to connect the final result to the original hack. Privacy coins act more as a strategic interruption to the attribution process than as a stand-alone money laundering tool.

Negotiating power on OTC and P2P markets

Many laundering paths involve informal OTC brokers or P2P traders who operate outside of widely regulated exchanges.

The employ of more privacy-providing assets reduces the amount of information contractors have about the origin of funds. This can simplify negotiations, reduce the perceived risk of a deal being frozen mid-deal, and improve attacker leverage in less clear markets.

Did you know? Several early ransomware groups originally demanded payment in Bitcoin (BTC), but later switched to privacy coins only after exchanges started working more closely with law enforcement on blacklisting addresses.

Squeezing mixer and evolving washing methods

One reason why privacy coins appear more frequently in certain time frames is the enforcement pressure on other laundering tools. When law enforcement targets specific high-risk mixers, bridges, or exchanges, illicit funds simply move to other channels. This change is resulting in a diversification of money laundering routes across blockchains, exchange platforms and privacy-focused networks.

When fraudsters perceive one laundering route as risky, higher volumes occur on alternative routes. Privacy coins benefit from this energetic because they offer inherent transaction obfuscation regardless of third-party services.

Limitations of privacy coins as a money laundering tool

Regardless of privacy features, most large-scale hacks still involve extensive employ of BTC, Ether (ETH), and stablecoins in later stages. The reason is basic: liquidity and exit options are vital.

Privacy coins typically exhibit:

These factors complicate the conversion of significant amounts of cryptocurrencies into fiat currency without careful analysis. Therefore, fraudsters employ privacy coins for a compact period of time before returning to more liquid assets before the final payout.

Effective laundering involves integrating privacy-enhancing tools with highly liquid assets tailored to each phase of the process.

Did you know? Some darknet marketplaces list prices on Monero by default, even if they still accept Bitcoin, because sellers prefer not to disclose their income patterns or customer sizes.

Behavioral trends in asset laundering

While tactical specifics vary, blockchain analysts typically identify several high-level “red flags” regarding illicit fund flows:

• Layering and consolidation: Rapidly disperse assets across a enormous network of portfolios, then strategically reaggregate to simplify the final exit.

• Chain jumping: Moving assets between multiple blockchains to break the deterministic connection of a single ledger, often combining privacy-enhancing protocols.

• Strategic delay: Allowing funds to remain dormant for longer periods of time to bypass a period of increased public and regulatory scrutiny.

• Bypasses directly to Fiat: Favoring OTC brokers for eventual liquidation to avoid tough monitoring systems of major exchanges.

• Hybrid privacy: Using privacy-focused coins as a specialized tool within a broader laundering strategy, rather than as a complete replacement for mainstream assets.

The contours of anonymity: why traceability persists

Despite the obstacles posed by privacy-preserving technologies, investigators continue to secure victory by targeting the edges of the ecosystem. Progress is usually achieved by:

• Adjustable gates: Forcing interactions with exchanges that require strict identity verification

• Human networks: Targeting the physical infrastructure of money mule syndicates and OTC offices

• Off-chain intelligence: Employ of customary surveillance, confidential informants and suspicious activity reports (SARs)

• Operational friction: Exploiting errors made by the perpetrator that link his digital footprint to his real-world identity.

Privacy coins raise the complexity and cost of investigations, but they cannot fully insulate fraudsters from the combined pressures of forensic analysis and customary law enforcement.

Did you know? Blockchain analytics firms often focus less on the privacy coins themselves and more on tracking how funds flow in and out of them, as these breakpoints provide the most reliable research signals.

The reality of the legal employ of privacy-enhancing technologies

It is vital to distinguish between the technology itself and its potential criminal applications. Privacy-focused financial tools, such as some cryptocurrencies or mixers, serve vital purposes, including:

• Protecting the confidentiality of business transactions, which includes protecting trade secrets or competitive business transactions

• Protecting individuals from surveillance or monitoring in a hostile environment

• Reducing the risk of targeted theft by limiting public visibility of personal assets.

Regulatory scrutiny is not based on the mere existence of privacy features, but on their employ for illegal activities such as ransomware payments, hacker proceeds, sanctions evasion or obscure web markets.

This key distinction makes effective policymaking complex. Broad bans risk limiting the lawful financial privacy of ordinary users and businesses, while often failing to stop criminal networks switching to alternative methods.

Balancing action by regulators

For cryptocurrency exchanges, the repeated emergence of privacy coins in post-hack laundering processes increases the need for:

• Improve transaction monitoring and risk assessment

• Reduce exposure to high-risk inflows

• Enhance compliance with cross-border travel regulations and other jurisdictional standards.

For policymakers, this highlights an ongoing challenge: criminals are adapting faster than inflexible regulations can evolve. Efforts to crack down on one tool often shift efforts to others, making money laundering a energetic, moving target rather than a problem that can be completely eliminated.