Clarification of how Monero works/vulnerability

Say a vendor received payment for monero on a DNM. If they transferred that to their cake wallet and converted to LTC/BTC, then sent that to an exchange to eventually be converted to fiat, isn't it traceable at the point of your cake wallet? The exchange of good isn't traceable, but eventually there is a paper trail from an electronic wallet?

Similarly, if a vendor were to withdraw their XMR to cake wallet, wouldn't that be traceable if an LEA was able to access a history of XMR addresses from an exchange, or are those addresses hidden even from an exchange? Would transferring directly from an exchange to a hardware wallet obfuscate where the XMR was actually going?

I've read the FAQ but I am a bit confused about the point at which someone could start tracking XMR addresses. It seems like monero is great for the exchange of goods and privacy, but there someone becomes extremely exposed if they ever want to use that turn that XMR into a reportable income.

submitted by /u/simbaandnala23
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