Bitcoin As A Government Surveillance And Tracking Tool

[Millard]

It's been (incorrectly) said that the genius of Bitcoin is that every transaction is completely untraceable. What if the truth is actually the opposite: the genius of Bitcoin is due to the fact that every transaction is entirely traceable in a public ledger?

Bitcoin may have the potential for anonymity. But it may also have the potential to help government monitor how people spend money.

There is at least one private company - Coin Validation - that want to make use of the public Bitcoin ledger to create a centralized tracking system linking real identities with associated Bitcoin addresses:

Their plan is to compile a database of the known identities associated with Bitcoin addresses in the hope that Coin Validation will become the one-stop-identity shop for law enforcement when trying to find out who’s doing something nefarious with Bitcoin, while providing a red-flag system for businesses who have customers trying to use Bitcoin that’s associated with illicit use.

“Essentially, we’ve been working with regulators for a structured approach for Bitcoin customers to be compliant,” says Waters. “We set up an API to work with their systems and we supply reporting tools they need for their databases. Which bitcoin addresses belong to a person? That’s the problem we’re solving.”

...

“People say Bitcoin is anonymous, but it’s also completely traceable,” says Guo. “Because the blockchain is already public, your privacy is limited, but a lot of people probably aren’t aware that they are being tracked,” adds Waters.

...

Waters expects tensions. Bitcoin’s appeal to many early adopters after all was the freedom that came from its statelessness, its anonymity, and its decentralization. With Coin Validation, he’s proposing a centralized tracking system that he knows won’t sit well with some hardliners in the community.

...

But what about Bitcoin laundering services and wallets designed specifically to make observation and tracking challenging?

“The average user is not sophisticated enough to launder Bitcoin,” says Guo.

“Typically people doing money laundering will reuse addresses or claim an address has lots of different identities,” says Waters. “This is a first step, not the silver bullet to end money laundering with Bitcoin.”

Source: http://www.forbes.com/sites/kashmirhill/2013/11/13/sanitizing-bitcoin-coin-validation/

 

[pumpingiron22]

Very interesting article millard!

 

[Millard]

If Coin Validation succeeds, you can expect the names of many drug (AAS) dealing sources to be entered into the database. If there customers didn't take anonymity measures in sending Bitcoin, they could be directly linked to illegal activity especially if their names appear in the database for any reason. Since the bitcoin blockchain is a public ledger, it means that the record is forever. So 10 years from now, long after one may have forgotten about a bitcoin-related steroid purchase, a company like Coin Validation may have made the connection.

 

[Masters Power]

This article is nearly a year old, I wonder in Coin Validation has gained any traction with businesses using Bitcoin.

 

[Millard]

This article is nearly a year old, I wonder in Coin Validation has gained any traction with businesses using Bitcoin.

I don't know. I wonder if there is a list of businesses who have signed up for Coin Validation. It would be convenient for those consumers who are calling for a boycott of such businesses:

http://bitcoinism.blogspot.com/2013/11/is-it-time-to-boycott-all-us-bitcoin.html

It seems to me that most small businesses would NOT want their finances to be so readily viewable by the general public (and its competitors). I agree with the author of the following article who thinks small business would prefer something like DarkWallet that would allow them to keep their bitcoin addresses private (and therefore their company account balance and transaction history as well):

1)You’re an online merchant, and your website doesn’t provide a new sending address for each customer order. All your revenue goes to the same address. Anyone can see your company’s account balance, transaction history and frequency of transactions.

This creates a competitive disadvantage, especially for startups and small businesses. A low account balance may make a business appear less attractive to potential customers. The inability to keep financial records private essentially creates a barrier to entry. A stealth address for receiving customer payments solves this problem.

Source: http://bitcoinmagazine.com/17114/go-ahead-peer-inside-darkwallet/

 

[Millard]

Here is another company attempting to connect real-word identities to Bitcoin addresses - Coinalytics:

http://coinalytics.co/

Source: http://cointelegraph.com/news/112988/if-you-bought-from-silk-road-coinalytics-may-have-you-mapped

 

[BIGMESC]

I wonder how this would work on offline and mobile wallets that are not connected to real-world ID's

Darkwallet needs to get out of alpha testing and get to stable software.

 

[flenser]

Too bad coinbase doesn't allow us delete transaction histories. I don't think there are any laws requiring them to keep it.

 

[Millard]

Too bad coinbase doesn't allow us delete transaction histories. I don't think there are any laws requiring them to keep it.

It's not up to Coinbase. It's not up to any government rule or regulation. It's the bitcoin protocol. It's the defining feature of the blockchain - ALL transactions are permanently recorded.

 

[flenser]

It's not up to Coinbase. It's not up to any government rule or regulation. It's the bitcoin protocol. It's the defining feature of the blockchain - ALL transactions are permanently recorded.

But coinbase stores specific transactions in a file with my name on it.

 

[Millard]

But coinbase stores specific transactions in a file with my name on it.

Those are regulation imposed by the government. Expect Coinbase to scrutinize and record transactions including recipients just like a traditional "money service business".

"Coinbase is a regulated Money Service Business under the FinCEN division of the U.S. Treasury Department and as such, we are required to review accounts in order to ensure compliance with regulations and/or our Terms of Use."

https://thinksteroids.com/community...u-use-bitcoin-to-buy-illegal-drugs.134361147/

 

[flenser]

Those are regulation imposed by the government. Expect Coinbase to scrutinize and record transactions including recipients just like a traditional "money service business".

"Coinbase is a regulated Money Service Business under the FinCEN division of the U.S. Treasury Department and as such, we are required to review accounts in order to ensure compliance with regulations and/or our Terms of Use."

Coinbase monitors your account to see if you use bitcoin to buy illegal drugs

That makes sense. I guess I should have read their faq...

 

[MindlessWork]

What about using Bitcoin services offshore? I am sure there are risks in using offshore services as well as hurdles in buying/selling/using bitcoin with such services, especially if you wanted to keep your BTC transactions private and away from US government scrutiny.

 

[Millard]

Bitcoin is a cop's BEST friend since it is "insanely traceable" due to the permanent public ledger of transactions:

But now, as Ross Ulbricht defends himself against charges of running the Silk Road and profiting from drug transactions, Bitcoin may be the single biggest problem for his defense. The same features that made Silk Road possible have now turned against him, and casual observers are realizing that Bitcoin isn’t as anonymous as they thought. The public Bitcoin ledger details Ulbricht's enormous financial holdings and a wealth of potentially incriminating transactions. Now that his wallet address has been discovered, the perfect anonymity tool has turned into the perfect source of evidence. Skeptics sometimes called the currency "prosecution futures," and now it looks like some of those futures are coming due.

...

"BITCOIN IS INSANELY TRACEABLE."

As a result, all the prosecution has to do is prove Ulbricht was profiting off the Silk Road's drug transactions — something that Bitcoin's public blockchain makes it easy to do. Every Bitcoin transaction is publicly recorded in the collective blockchain, giving researchers an easy view of how much is in any account at a given time. "Bitcoin is insanely traceable," says Nicholas Weaver, a researcher at UC Berkeley's International Computer Science Institute. "The Silk Road bitcoins are well known, not just the ones seized but the entire cloud of Bitcoins. Add in the known purchases from law enforcement, and it becomes downright trivial to create the "history cluster" that is Silk Road."

Source: In the Silk Road trial, Bitcoin is a cop’s best friend

 

[MindlessWork]

What about the Bitcoin derivatives that are popping up like Litecoin and Dogecoin? I am sure the security shortcomings of BTC will be resolved in order to make cryptocurrencies as anonymous as possible. The permanence of the BTC transaction trail is what is BTC's major flaw IMO.

 

[MassTurk]

This article makes more sence of the fast drop that happened recently. Everyone who realizes it's not as anonymous as it thought to be, is dropping bit coin maybe it found its bottom and will be profitable as a currency for the people who is capable of investing now. I know Millard said the bottom would be around 150.00$, it got pretty close to that early last week around 176.00.

 

[Millard]

What about the Bitcoin derivatives that are popping up like Litecoin and Dogecoin? I am sure the security shortcomings of BTC will be resolved in order to make cryptocurrencies as anonymous as possible. The permanence of the BTC transaction trail is what is BTC's major flaw IMO.

Darkcoin is a more anonymity-oriented cryptocurrency. It may appeal to a niche market for which anonymity is an absolute requirement.

Cryptocurrencies like Darkcoin (DRK) may co-exist with Bitcoin. BTC could be main trading currency but users may switch over to DRK when the circumstances dictate. It doesn't seem like DRK is headed for mainstream adoption.

This article makes more sence of the fast drop that happened recently. Everyone who realizes it's not as anonymous as it thought to be, is dropping bit coin maybe it found its bottom and will be profitable as a currency for the people who is capable of investing now. I know Millard said the bottom would be around 150.00$, it got pretty close to that early last week around 176.00.

I don't think the "anonymity" issues had anything to do with the crash in BTC prices. It's not really important to most consumers.

As long as BTC remains extremely volatile, traders will find it profitable no matter which direction it goes. Given the large VC investment in the BTC ecosystem, I don't think it will go away anytime soon. Still, I don't know that it will find a permanent floor at ~$150/BTC.

If a better cryptocurrency comes along, BTC may very well end up worthless. That's what speculation is all about For most people and investors, I don't think the anonymity features will be the determining factor about a cryptocurrency's superiority.

 

[MindlessWork]

Thanks for your post Millard, and perhaps DarkCoin could well be in a better position to take off due to the concerns about the security and anonymity of bitcoin as well as being compatible with BTC. I am sure DarkCoin would well be suited as a payment tool for the Silk Road denizens as well as for sources. As cryptocurrency is in a state of flux and constant development, hopefully there will be a solid crypto contender to real world cash!

 

[Millard]

Thanks for your post Millard, and perhaps DarkCoin could well be in a better position to take off due to the concerns about the security and anonymity of bitcoin as well as being compatible with BTC. I am sure DarkCoin would well be suited as a payment tool for the Silk Road denizens as well as for sources. As cryptocurrency is in a state of flux and constant development, hopefully there will be a solid crypto contender to real world cash!

DRK has been adopted by some 'dark markets'.

Darkcoin Now Accepted on Minor Dark Net Markets

Some people thought its unique (anonymity) features gave it more value relative to BTC and its price appreciation wasn't just a speculative bubble. But that doesn't appear to be the case. Its price has crashed too:

http://coinmarketcap.com/currencies/darkcoin/

 

[MindlessWork]

DRK has been adopted by some 'dark markets'.

Darkcoin Now Accepted on Minor Dark Net Markets

Some people thought its unique (anonymity) features gave it more value relative to BTC and its price appreciation wasn't just a speculative bubble. But that doesn't appear to be the case. Its price has crashed too:

Dash price today, DASH to USD live price, marketcap and chart | CoinMarketCap

The live Dash price today is $25.48 USD with a 24-hour trading volume of $28,416,984.13 USD. We update our DASH to USD price in real-time.

coinmarketcap.com

Maybe DRK should float along with BTC as its a compatible derivative? Definitely would make it easier to compute the total cost of a transaction in DRK