Bitcoin Perfectly Anonymous — Until You Spend It

jfruh writes "One of the great attractions of Bitcoin as a currency is that it's completely secure and anonymous. But according to researchers (PDF) from UC San Diego and George Mason University, that anonymity starts to vanish the minute you exchange bitcoin for real-world items or conventional currencies. The researchers tracked transactions across the Bitcoin ecosystem and found points where it would be easy for a government with subpeona power to find the identity of a Bitcoin user. They also concluded that the currency wasn't especially attractive for money-laundering purposes." Graph theory explains many things.

Comments

Of course.

[ls671]

Of course, nothing is really anonymous. It is just a cat and mouse game.

Re:Of course.

[wbr1]

Of course, nothing is really anonymous. It is just a cat and mouse game.

Nothing is really anonymous either. Just look at all the 'hacked' exchanges or a 51% attack.

Re:Of course.

[Anonymous Coward]

Of course, nothing is really anonymous. It is just a cat and mouse game.

Nothing is really anonymous either. Just look at all the 'hacked' exchanges or a 51% attack.

And furthermore, nothing is really anonymous.

Re:Of course.

[MickyTheIdiot]

I don't think I really care if it is anonymous or not. Anonymity is quite useless if you are buying real world goods. Even sending items to a 3rd Party P.O. box gives some hint as to identity.

Re:Of course.

[Anonymous Coward]

Of course, nothing is really anonymous. It is just a cat and mouse game.

Nothing is really anonymous either. Just look at all the 'hacked' exchanges or a 51% attack.

And furthermore, nothing is really anonymous.

I disagree. I think that nothing is really anonymous.

Re:Of course.

[lgw]

I'm unsure why people think Bitcoin is any kind of anonymous in the first place. Every transaction must be widely published for processing (in theory, ever miner can see every transaction). The entire money flow, every transaction worldwide, is known. Does anyone still think the NSA doesn't know every bitcoin transaction ever processed? Does anyone still think an IP address (with timestamp) is anonymous in any way?

The only anonymous in Bitcoin transaction is one where you hand someone the "wallet". Transferring your secrets, especially by hand, is as anonymous as handing cash to someone, but that's not really the intended model, or a particularly useful one.

Re:Of course.

[Anonymous Coward]

Of course, nothing is really anonymous. It is just a cat and mouse game.

Nothing is really anonymous either. Just look at all the 'hacked' exchanges or a 51% attack.

And furthermore, nothing is really anonymous.

I disagree. I think that nothing is really anonymous.

Cowards are anonymous. And nothing. But other than that, nothing is anonymous.

Re:Of course.

[wbr1]

Meant to say secure but was rushing.

Re:Of course.

[Darinbob]

The only way to be anonymous is to not have a name. Like the mouse.

Re: Of course.

[ExFCER]

Someone I knew said: "This is the Internet. No one is annoumus here."

Re:Of course.

[Anonymous Coward]

I was under the impression that a 51% attack had more to do with cheating at mining blocks, not anything to do with anonymity.

Re:Of course.

[geekoid]

Just a heads up: The leaked NSA document showed us that the NSA is far more limited then we had thought.

So no, the NSA doesn't.

Re:Of course.

[tnk1]

The hand to hand method *could* be useful to launderers or certain types of black marketeers. One of the ways in which governments are controlling the use of cash as a method of serious transaction is by making sure that only relatively small denomination bills exist. For those that are larger, there are fewer and they are more closely tracked.

With a bitcoin "wallet" transferred manually, you do lose much of the convenience of having a computer generated currency like that, but you have the increased ability to use manual methods for untraceable exchanges of value. You could, in theory, transfer a billion dollars equivalent of bitcoin by handing someone a USB drive and it would go completely unmonitored.

Of course, that assumes that there is a billion dollars in bitcoin out there, and that you can somehow exchange it for cash, or goods and services, on demand. It is doubtful that governments will ever make it easy to use bitcoin in the general economy, for the very reason that they want to maintain their carefully monitored monopoly on money intact.

Re:Of course.

[Teancum]

The only anonymous in Bitcoin transaction is one where you hand someone the "wallet". Transferring your secrets, especially by hand, is as anonymous as handing cash to someone, but that's not really the intended model, or a particularly useful one.

That is how the physical bitcoins themselves work. The authentication keys are printed on the note or physical coin which can be converted back to electronic currency at any time by the recipient. They can also be verified during each transaction for the paranoid, even though there is an element of trust involved.

There is also the "sneaker net" version of bitcoin transactions which also could work as well, for at least exchanging bitcoins from one person to another if you want to perform "off-grid" transactions. With that version of transaction (assuming the network itself is down) is that you build up the transaction history that gets posted globally once you get back to a computer which is connected to the internet. As long as you have a Raspberry Pi computer (or equivalent) and some sort of power source, including a solar panel, you could certainly conduct Bitcoin transactions with comparable security. There is a slim potential of double spending in such a situation, but even that could be verified or at least caught. Double spending would definitely be caught by the global network and such transactions would be invalidated.

Re:Of course.

[Anonymous Coward]

I'm anonymous. The name says I am Anonymous Coward so I trust it is correct.

------
Sent from my iPhone using tapatalk, version 1.1, from IP 199.21.122.15
Mozilla/5.0 (iPhone; U; CPU like Mac OS X; en) AppleWebKit/420+ (KHTML, like Gecko) Version/3.0 Mobile/1A543a Safari/419.3

Re:Of course.

[Anonymous Coward]

...which explains your position at the top.

Re:Of course.

[pne]

That is how the physical bitcoins themselves work. The authentication keys are printed on the note or physical coin which can be converted back to electronic currency at any time by the recipient.

That's half of it; the other half is that the keys are only visible after removing a tamper-evident cover. That's the part that lends confidence to the fact that the coins cannot have been spent already and that only the person removing the cover knows the key. (Well, they and the person who minted the coins and "loaded" them -- but not the previous owner of the physical coin.)

Bitcoin users are working on a fix: CoinJoin

[Anonymous Coward]

Check it out, https://bitcointalk.org/index.php?topic=279249.0

Re:Bitcoin users are working on a fix: CoinJoin

[Anonymous Coward]

Actually, ZeroCoin is further along.

http://zerocoin.org/

Re:Bitcoin users are working on a fix: CoinJoin

[Anonymous Coward]

No, zerocoin is not further along. Zero coin has made only imaginary progress. It requires rewriting the bitcoin protocol, and involves transactions which are very slow to validate. People are already using that coinjoin stuff.

Re:Bitcoin users are working on a fix: CoinJoin

[maxwell demon]

I have a system which is ready to use, and completely anonymous: Trustcoin.

The trick is that the coins only exist in your head, so no trail at all is left, except if someone listens directly to a transaction (and even that part can be made anonymous with known techniques).

It works as follows: You simply remember how many trustcoins you have. If you need to pay someone, you just say e.g. "I pay you five trustcoins" and subtract the five trustcoins in your head, while the other person adds the trust coins to the trustcoins they have in their head.

You probably already can guess why I called them "trustcoin": You have to trust the other party if you accept them.

Re:Bitcoin users are working on a fix: CoinJoin

[Anonymous Coward]

Yes, it requires some rewriting, *and* a hard fork.

That's why it won't be coming to bitcoin any time soon. However, it /will/ be implemented in MegaCoin quite shortly, if the ZeroCoin people are to be believed. Sort of a test case on a live alt-coin. And even without bitcoin implementation, there are trading platforms (like Cryptsy) which actively trade bitcoin for many alt-currencies: including MegaCoin.

Real anonymity isn't that far away.

Re:Bitcoin users are working on a fix: CoinJoin

[Anonymous Coward]

Meh, sounds a lot like a Hawala network.

Just like IRL

[atom1c]

You can live a cash-only life in hopes of improving your odds at general anonymity, but every time you stand in front of a CCTV camera you are exposing yourself to the world.

Re:Just like IRL

[gstoddart]

every time you stand in front of a CCTV camera you are exposing yourself to the world.

No, the judge was very clear that I'm not allowed to do that any more.

Re:Just like IRL

[invid]

Just wait until it is mandatory for vendors to scan currency serial numbers at every transaction.

Re:Just like IRL

[invid]

And then swab for DNA.

Re:Just like IRL

[lgw]

Most people don't realize it's already mandatory (in the US) to scan currency serial numbers at every large transaction with a financial institution. The government is content with that, so I assume it gives them all the power they need, or they'd demand it of all merchants.

Re:Just like IRL

[i kan reed]

Most people also don't seem to realize that large scale merchants already scan currency serial numbers for the purpose of tracking your purchases.

Re:Just like IRL

[bmk67]

You can live a cash-only life in hopes of improving your odds at general anonymity, but every time you stand in front of a CCTV camera you are exposing yourself to the world.

I expose myself in front of school yards, you insensitive clod.

Re:Just like IRL

[Anonymous Coward]

Just wear a mask... the current rev of penile recognition software isn't accurate (especially with small targets)

Re:Just like IRL

[lgw]

But at least they're not required to, and they only hand over that information to the government when the government asks them to!

Re:Just like IRL

[CreatureComfort]

[citation needed]

I have NEVER seen any cash I've handed over scanned as it went into the till of the cash register. Once it is there, there is no way for them to track a specific bill from the drawer back to me, especially if it's given to the next person in line as change.

I call BS.

Re:Just like IRL

[i kan reed]

I did a little bit of software work for a company that did that. They scan outbound from ATMs, and inbound from cash registers as money is turned in. They use data mining to locate likely(marketers don't care about being absolutely right) repeat buyers, whose identities they get from the banks.

Re:Just like IRL

[Anonymous Coward]

I have NEVER seen any cash I've handed over scanned as it went into the till of the cash register. Once it is there, there is no way for them to track a specific bill from the drawer back to me, especially if it's given to the next person in line as change.

No way? The majority of cash registers are monitor (because of employee theft) with CCTV. It would be trivial to figure out which bill in the stack was yours. Unless you're making a small purchase, your $20 bill is not likely to be given out to anyone else. Now, would anyone bother to find your bill? I highly doubt it, but don't fool yourself thinking it's impossible.

Re:Just like IRL

[Anonymous Coward]

just don't wear a hood if you are black

Re:Just like IRL

[Anonymous Coward]

are the customers informed ?
if not you shall consider leaking it....

Re: Just like IRL

[Cajun Hell]

Holy crap. And people worry about bitcoin?

Re:Just like IRL

[Deliveranc3]

When they empty the tills it's logged and categorized. If they don't resort the bills they know what time you were there.

So the government know where you shopped, and can find out when.

Since they're usually interested in: large foreign monies (payoffs to dictators, emptied cayman bank accounts etc.), or local tracking which means you got the money out of another bank machine.

They have a pretty good idea.

Comparatively Bitcoin allows the retailer to create as many accounts as they want, anonymously to receive money... which can be pretty anonymous, I generate a random number.... send the number to someone and can verify that money was sent to that random number. Only if I integrate accounts does it get tied to other transactions.

Two Comments

[Anonymous Coward]

1. If you mine them with a pool, and connect your wallet client to the net via a proxy or VPN, they may as well be anonymous.
2. There are bitcoin laundering / "tumbling" services available.

Re:Two Comments

[DerekLyons]

2. There are bitcoin laundering / "tumbling" services available.

Just because the services are available, that doesn't mean they're actually useful or effective.

Re:Two Comments

[Anonymous Coward]

2. There are bitcoin laundering / "tumbling" services available.

Just because the services are available, that doesn't mean they're actually useful or effective.

Logically, you're right, A doesn't automatically mean B.

In practice, you're wrong, because the mixing services already available work fine. The Silk Road is proof of that.

Re:Two Comments

[Anonymous Coward]

2. There are bitcoin laundering / "tumbling" services available.

And they will also be useless, once they start throwing people in jail for using them (i.e.money laundering), no evidence of having purchased drugs or whatever required.

At least with cash, anonymity will always be legal, as long it remains cash in the way we know it.

Re:Two Comments

[Anonymous Coward]

Basically it just requires solving the subset-sum problem which for all but very tricky hard and rare subsets is not that big of a deal. If you put $100 into a launderer, you'll get a total of $100 out. The high precision of bitcoin is actually quite helpful in this case; it's not a bunch of people putting $100 in and getting $50s and $20s out, it's one person putting B10.41934901 and getting B3.2415616 and B7.17778741 out, another person putting in B0.411, etc. I haven't bothered to check, but I imagine some of the launderers attempt to only accept simple whole numbers of bitcoins and pay them out in multiples of some small denominations, but that requires a lot of individual transactions and the recipient is *still* going to be spending a lot of the addresses together; once all or even most of the bitcoins are spent it is fairly trivial to match spending histories with initial deposits into the laundry.

The only "anonymous" way to use bitcoin is to pretend to be a whole lot of bitcoin-poor people who buy imaginary things from each other and from slightly richer people who can make the sort of payments you need to make for services. Good luck keeping track of consistent-history imaginary people over Tor/VPN proxies while simultaneously evading the NSA. They see both endpoints of your "anonymous" connections, you know.

No ... and No

[Anonymous Coward]

"One of the great attractions of Bitcoin as a currency is that it's completely secure and anonymous."

No it isn't, and no it isn't.

Re:No ... and No

[Anonymous Coward]

"One of the great attractions of Bitcoin as a currency is that it's completely secure and anonymous."

No it isn't, and no it isn't.

Unless your pseudonym is "Satoshi Nakamoto". In that case you're anonymous.

Is anybody surprised?

[gstoddart]

So, you mean if I have a transaction for $576.23 from Bob's Porn emporium, someone can sift through the transactions for $576.23 and figure out that was me?

Well, color me completely un-surprised. I'm not sure I've ever believed it was anonymous -- aren't the signatures of everyone who ever spent it tacked onto it?

Re:Is anybody surprised?

[Teancum]

So, you mean if I have a transaction for $576.23 from Bob's Porn emporium, someone can sift through the transactions for $576.23 and figure out that was me?

Well, color me completely un-surprised. I'm not sure I've ever believed it was anonymous -- aren't the signatures of everyone who ever spent it tacked onto it?

It isn't quite that, but it is more. Most people use the same traceable money pool where you can trace multiple transactions and use that to track people down. It isn't just Bob's Porn Emplorium, but also noting that from the same pool of bitcoins a transaction took place to Steve's Marijuana Farm, Sally's Whorehouse, and Chuck's Supermarket in Podunk, Kansas. That same pool of Bitcoins might have also received money from several people who are also all blood relatives.

The point is that each individual bitcoin can be traced from the first work unit where it was "mined" and be followed to every transaction where it was used. Anonymity happens if you change hash values (as individual users can use new public/private pairs to claim individual bitcoins), but it isn't perfect. It still can be traced to show how similar pools of coins are used for related transactions and can be eventually used to identify people.

Re:Is anybody surprised?

[SuricouRaven]

If you're paranoid, it's possible to just use disposeable wallets.

Re:Is anybody surprised?

[gstoddart]

If you're paranoid, it's possible to just use disposeable wallets.

*phbtbtbbt* Like I'm gonna trust disposeable wallets. ;-)

Re:Is anybody surprised?

[dirtaddshp]

Or use VPN/tor when spending.

Re:Is anybody surprised?

[lgw]

Disposable wallets don't hide you from the NSA. There's still going to be an IP address and timestamp associated with the transaction, and that's all they need.

Unless you mean "hand the wallet (with the keys) to someone on a USB drive", but you can do that with cash.

Re:Is anybody surprised?

[Anonymous Coward]

Perhaps someone can invent a bitcoin anonymity hub. I can submit, say, twenty bitcoins to the hub. The person across the street can submit ten bitcoins. Another person can submit 40 bitcoins. Hundreds of people can submit whatever amount of bitcoins they want. I can then request that my twenty coins be split into three different (new or existing) accounts, two accounts having five bitcoins and one account with ten (I can specify how many bitcoins goes into each account). Every twenty four hour period or so, to ensure confusion, the Bitcoin hub will fill all the orders for the day transferring to my three accounts whatever I requested using random bitcoins taken from other random people. The hub can even charge a small transaction fee in bitcoins.

Re:Is anybody surprised?

[Teancum]

Perhaps someone can invent a bitcoin anonymity hub..

Some of the early exchanges worked just like that and it was even encouraged. You could transfer in a pile of your bitcoins to the exchange and haul them out a day or two later. Since so many bitcoins were going in and out of the exchanges themselves, tracing even large blocks of bitcoins was quite problematic. Basically you had to start and end at those exchanges.

The problem with exchanges now is the personally identifying information that is linked to accounts. Earlier, the exchanges didn't require anything other than an e-mail address (a throwaway yahoo address worked fine) to set up an account. Certainly an anoymizing hub like you are suggesting could easily be done and trivial to create.

Re:Is anybody surprised?

[Anonymous Coward]

"There's still going to be an IP address and timestamp associated with the transaction, and that's all they need."

No - that's not how it's done. It's the blockchain that keeps track of all transactions, from the point where each individual coin was mined until the end of time. You can hide your IP address - but you can't hide from the blockchain. And timestamps are irrelevant: this isn't Tor. It just takes one slip that exposes your IP address to a transaction, and all your bitcoin are de-anonymized.

But... look into ZeroCoin:

http://zerocoin.org/

Workable anonymity is coming. First to one of the alt-coins (Megacoin). Eventually to bitcoin...

Re:Is anybody surprised?

[Archangel Michael]

Why couldn't there be a "washing bank", where coins are co-mingled and exchanged for equal amounts, minus transaction fee?

What I imagine is that on a periodic or regular basis, you trade your serialized bit coins to a "wash bank" for a "bit coin count" and then withdraw the equal value of new coins (some of which may be yours returned), to spend. If you have enough people washing their coins in such a bank, the bank could then be an anonomizing service.

I "deposit" 100BTC into the wash bank, get a notice of a 99 BTC deposit. When I need it, I go to the bank, trade in my 99 BTC deposit slip, receive a new set of 99 BTC. Especially useful if I have one time wallets.

Re:Is anybody surprised?

[lgw]

And how do you "publish" a transaction for processing without an IP address? It's not the blockchain that keeps a history of all the IP addresses involved, it's the NSA database of all the traffic data from the entire internet.

Re:Is anybody surprised?

[nogginthenog]

They already exist. The fee is a fraction of a BTC.

Re:Is anybody surprised?

[Anonymous Coward]

You may be looking at it a little off-target.

You don't 'publish' transactions. You insert them into the blockchain. The question is: from *where* do you insert them? There are still ways to end-run NSA IP-observation: VPNs over Tor are obvious - but there are others.

Re:Is anybody surprised?

[lgw]

Well, as long as the government keeps pretending that TOR is strong we're good then. I'd put more faith in a Pringles can at this point, which I guess is the sort of thing you're alluding to.

Re:Is anybody surprised?

[TheRealMindChild]

The point is that each individual bitcoin can be traced from the first work unit where it was "mined" and be followed to every transaction where it was used

This just isn't true. Person A sends me X bitcoins to a disposable receiving wallet. Person B sends me Y bitcoins to another disposable receiving wallet. When I spend (X+Y) * 0.7 bitcoins, the blockchain sees them "sent" from my main wallet, with no inherent connection to the disposable wallets. You can trace as far as main wallet->receiving wallet they were sent to, but no further. You had it correct in your first paragraph, but lost in in the second.

https://blockchain.info/wallet/bitcoin-faq

Re:Is anybody surprised?

[SuricouRaven]

You could usr TOR over a VPN from a Pringles can.

Re:Is anybody surprised?

[Anonymous Coward]

So what if the NSA knows that someone got on tor from a starbucks? If you just take a few precautions the only real risk is when sooner or later you attempt to obtain physical goods. Even then it's just old-fashioned police work (stake-out), and nothing technologically impressive that will catch you. Just make sure to use a fake MAC and don't pay for anything on a credit card when you go to the coffee shop. Also all the normal stuff like no installed junk on your computer that will phone home. I don't think many coffee shops have cameras, so it should be pretty easy to leave no trace.

Re:Is anybody surprised?

[Teancum]

The disposable wallets are something you explicitly need to make though. Some of this can be done by default in the Bitcoin transaction software (aka the "client software" that generates transactions) but it must be explicitly done.

There still is a chain of evidence though that says this particular bitcoin I received came from blocks A, B, C,.... ,X, Y, Z as a chain of custody going back to when they were originally mined. This is a part of the accounting that makes sure you can't double spend the same Bitcoin.

When you spend Bitcoins, you need to provide evidence that you have those Bitcoins, hence the wallet. You can have multiple public keys that can be unlocked from the same private key (which is what you are talking about in terms of the "disposable wallet), and those are much harder to trace, but in theory you still can trace even those transactions.... once the Bitcoins are spent again.

Lets say the DEA somehow obtains the wallet of Steve's Marijuana Farm that I mentioned. Since they have the actual wallet information (aka all of the private keys, even if it is multiple keys), they can do this step by step analysis for everybody that sent money to Steve and every transaction in between when the Bitcoins were mined to when they arrived in Steve's wallet. In other words, the anonymity of the purchaser is lost here, even though the privacy of the seller can still be maintained until the coins get spent again.

You are simply flat out wrong here then. There is definitely an inherent connection between the disposable wallets and your main wallet, assuming you want to spend the Bitcoins. That is sort of the point of the paper in the main post is that your anonymity is preserved until you spend them. Once that happens, the connection between the disposable wallet and the main wallet is established again. All you are talking about here are those additional public keys that can each be unlocked from one or more private keys you might hold to confirm that you are authorized to spend those Bitcoins.... thus the previous transactions are all linked together. You can't find out who Steve is from all of the Bitcoins that are being sent to an address, but Steve can find a whole lot of information about you.

This is where a DEA (or other law enforcement agency) honeypot could really be a nasty wakeup call for some people.

Re:Is anybody surprised?

[maxwell demon]

If they can prove that your bitcoin came from the money laundering bank, they got you for money laundering. No link to the original crime necessary for that, since money laundering is a crime itself. They'll probably also find hints about the true origin when they study your confiscated computers.

Re:Is anybody surprised?

[geekoid]

Don't confuse, to complex for you to work out in you head as difficult or even reasonably secure.

Re:Is anybody surprised?

[Teancum]

Don't confuse, to complex for you to work out in you head as difficult or even reasonably secure.

I think this scales as a sort of >O(n^2) type of problem if you want to be more specific on the kind of complexity. That goes well beyond something simply difficult to work out in your head and indeed serves as the basis for much of the encryption methods used today including how Bitcoin itself works for mining and authenticating payments.

When the number of Bitcoins transferred in and out of a particular address is in the tens of thousands, sneaking a much smaller number into that stack is mostly statistical noise, which is where you can hide your transactions in such a scheme. The longer you wait between sending the money into such an exchange/bank and when you withdraw that money, the more secure you can be assured that it will be hard to trace those coins.

While I haven't done the actual algorithms to figure out the statistical likelihood, I know it can be done. It sure as hell is far more secure than a 10 character password, and likely a 50 character password. The weak point in one of these cleaning houses is not the method of moving bitcoins in and out of the exchange, but the authentication being used by the website or whomever you are using for that kind of "laundering service". That can be attested to the fact that it has been through the exchanges (my own experience included) that you are more likely to lose bitcoins than through even scam artists skimming a few in a ponzi scheme or some other nonsense.

Re:Is anybody surprised?

[lennier]

Why couldn't there be a "washing bank", where coins are co-mingled and exchanged for equal amounts, minus transaction fee?

Why, I'm sure there could.

And I'm also sure that such a laundry service could easily log and trace your IP address, HTML cookies, and any other identifying information it can extract each time you send them bitcoins, and forward that information to the NSA/FBI/CIA, for another per-transaction fee.

Of course, if the laundry service valued your privacy (worth zero bitcoins to them) over snitching on you (worth X bitcoins plus freedom from prosecution), they wouldn't do that. But you couldn't prove that it was, and you couldn't prove that it wasn't. You'd just have to trust that perfect strangers operating in a criminal environment with no loyalty to you would always make the non-rational economic choice, wouldn't you?

Re:Is anybody surprised?

[lennier]

This just isn't true. Person A sends me X bitcoins to a disposable receiving wallet.

How do you create or receive that wallet?

How do you give the address of that wallet to a person you want to give you money?

How do you spend coins from that wallet?

How do you do any of the above without tying any personally identifying information (such as IP address) to that wallet address?

Re: Is anybody surprised?

[Cajun Hell]

What "original crime?" It's probably worth examining/repealing ML laws, though, if THAT is the original crime. I had no idea it was against any law to give someone 4 quarters for a dollar.

Re:Is anybody surprised?

[lennier]

Or use VPN/tor when spending.

Without using the default version of Firefox that shipped with the official Tor package.

Re:Is anybody surprised?

[Teancum]

If they can prove that your bitcoin came from the money laundering bank, they got you for money laundering. No link to the original crime necessary for that, since money laundering is a crime itself. They'll probably also find hints about the true origin when they study your confiscated computers.

Which is why you would use a legitimate exchange or some other website that "holds" your bitcoins temporarily for some sort of speculation. Mt. Gox used to be a perfect site for something like that as it was commonly used for things far beyond just laundering the coins.

I would envision that eventually there will be some legal requirements for anybody running such websites that will require some formal authentication even to just "day trade" on the exchange. Some of the exchanges formerly allowed you to join in the speculation without authentication as long as you didn't request the actual monetary units (Euros, Dollars, Rubles, and other currencies were used with some exchanges I have interacted with). In that way you could speculate with Bitcoins, buy up the government-backed currencies, then sell them back at hopefully a profit. This was even seen as a positive feature of the exchange at the time.

Because there are legitimate uses for such transactions, it would be incredibly difficult to prove that the purpose of the exchange was just laundering. If you are dumping money into exchanges that openly brag they are being used just for laundering, yeah that could be much more problematic.

Re:Is anybody surprised?

[Anonymous Coward]

Use an old MSI wind or Asus EEPC netbook or something else you buy cheap off eBay with no harddrive, boot tails ( https://tails.boum.org/ ) from a thumbdrive.

That's your spending PC.

What would make it slightly more convenient would be a bitcoin addon to import the private keys from the webcam, so you don't have to type it in from your printed wallet.

Re:Is anybody surprised?

[Anonymous Coward]

Indeed, the hub would have to be trustworthy and reliable and if the server crashed or something you might be out of luck.

Re:Is anybody surprised?

[Electricity Likes Me]

It gets secure only when you start approaching numbers the size of those uses in cryptography, which itself is numbers similar in size to those used for the data cryptography of the BitCoin protocol. At which point you're generating another problem: all those transactions are making the block-chain get longer and longer...

Re: Is anybody surprised?

[Electricity Likes Me]

It isn't. But it is a crime to knowingly accept money gained through criminal activity, and to launder it for the purpose of obfuscating that fact. So anyone running "BitCoin laundry" is doing exactly that - providing a service where they deliberately blind themselves to possible criminal activities of people asking for the service.

A big part of financial regulations is that once you hit a certain size and scope of operation, you have to demonstrate you take reasonable measures to identify that the money you are handling is legally obtained (at least if you want to operate independently - I imagine you could get away with such an operation by turning all the data over to the government of who sends money in).

Re:Is anybody surprised?

[Electricity Likes Me]

Also "somehow" is not that nebulous: the DEA simply tells Steve "if you cooperate we'll drop some of the charges". Steve gives up all his keys and thus customers.

Re:Is anybody surprised?

[Teancum]

In this case, the "n" is the number of customers and people using the exchange although explicitly it is the number of transactions between Bitcoin customers and the exchange in a given period of time between when you put your money into the exchange and when it gets pulled out. That certainly can approach numbers on a similar scale of complexity approaching modern cryptography (assuming >O(n^2) is correct).... or at least the software used to untangle those transactions would need to be of similar complexity as cracking some modern encryption methods including what is being used for Bitcoin storage itself.

I really doubt this is a O(n) type of problem, sort of what you are implying here. A thousand transactions a day or more and trying to match specific incoming transactions with outgoing transactions would be a real guessing game... and that is a very small exchange. As far as how Bitcoin is going to survive under transaction loads approaching that of major stock exchanges like the NYSE or NASDAQ, that has been a subject of substantial speculation over the years as well. On the positive side, the transaction fees for such transaction volume will be positively huge and will far overwhelm anything miners get from the raw Bitcoin creation so those involved in running the network will be smiling all of the way to the bank if that happens.

Re:Is anybody surprised?

[Teancum]

How do you do any of the above without tying any personally identifying information (such as IP address) to that wallet address?

The IP address of transactions is not recorded in the block chain logs, and the only "person" that would "know" what IP address is associated with a particular wallet or transaction would be any node on the network (these are peer-to-peer nodes, not a central server) which receives the transaction information. Those transactions then get passed around from node to node gradually being accumulated to produce blocks made by the miners.

Basically, the wallet information itself isn't the weak part of the concept. What gets the identity compromised is if you coordinate a particular wallet ID (usually the "bitcoin address") with an IP number or URL external to the Bitcoin protocol itself, such as posting the Bitcoin address on a website or in a Twitter Tweet.

Re:Is anybody surprised?

[Electricity Likes Me]

But the thing is this is all digital: it can be data-mined easily. You're not going around to businesses collecting receipts, or having to even mangle data so it can be correlated from different sources. Everything's in the same format, and easily analyzable by computer.

Part of the difficulty of normal forensic accounting is that the data formats suck. But for pure tracking purposes, BitCoin is a dream - all the data is owned by everyone all the time as a nature of the protocol, so you can build social graphs and run correlation functions as much as you want.

Re:Is anybody surprised?

[Teancum]

But for pure tracking purposes, BitCoin is a dream - all the data is owned by everyone all the time as a nature of the protocol, so you can build social graphs and run correlation functions as much as you want.

The "trick" to Bitcoin tracking is trying to correlate the various addresses of the protocol to specific people. Once that is done, yes it gets much easier to do things that at least get to the level of marketing analytics which can identify somebody who drinks coffee, drives a Tesla automobile, and buys organic food sold in Oregon (or something like that). It certainly could be at least a marketer's dream in terms of following both number of transactions and quantities of money spent that follows from one kind of business to another. Even if you can't identify individual customers, you certainly can see that individual Bitcoin pools have been spent on various merchants and can even make temporal relations (aka they buy coffee on Monday, and it appears that their paycheck comes in on Thursday where they do several purchases at once on that day). Admittedly that can also be used to identify individual consumers by name from other data sources, which is where your identity is compromised.

Re:Is anybody surprised?

[Archangel Michael]

Money Laundering is about taking illicit funds and making them legit. My wash bank idea doesn't do that. It anonymitizes the bit coins, breaking the chain of ownership.

I guess they already thought about this but

[Anonymous Coward]

Can't you just create a new account to pay from every time you spend bitcoins?

Re:I guess they already thought about this but

[Minwee]

Where would the coins in the new account come from?

not at all anonymous

[MrL0G1C]

I don't see why anybody would call bit coin anonymous, miners and everybody with the main client hold the full transaction history - 100% complete history of ALL transactions if I understand correctly. So how is it in the slightest bit anonymous?

Re:not at all anonymous

[JesseMcDonald]

Bitcoin is pseudonymous. Sure, the transaction history is public, but in regard to personally identifying information it only contains public keys, hashes of public keys, and signatures made using the corresponding private keys. Keys can be generated at will—one person can have a thousand different keys, or several people can share one (provided they trust each other).

Naturally, it's up to the user to avoid linking their keys to each other or to their real-world identity. You can avoid linking your IP address easily enough by connecting to the network via Tor or I2P. Avoiding a link to your real-world name and address is much harder when you're ordering physical goods or services.

Re:not at all anonymous

[gox]

Bitcoin is perfectly pseudonymous and traceable. Which means, if you don't mix transactions between your different identities, you can preserve your anonymity.

Say, you made some coins by selling your coding skills (or naked pictures) online, without revealing any personal information (IP and personal e-mail addresses included). Then you went and spent those coins to pay someone to build your anonymous identity a website. This is perfectly doable.

However, if you then go and order some pizza to your home address with the rest of those coins, it is possible in theory for an entity with reach to associate your code (or naked pictures) to your home address.

It also works the other way. If you buy some coins with a bank transfer, it's possible that they can associate your expenditures with your ID. There is plausible deniability of course, but that won't prevent them from breaking into and searching your house when you are away. If you are perfectly sure that the people you are transacting with are not agents, you are likely safe.

Luckily, since there is very limited friction, it's fairly easy to figure out how to cover your tracks. Required learning is similar to what you have to do for WWW or e-mail (which everyone needs to know at this point anyway). If you are familiar with the innards of historical digital currencies, you already know.

Re:not at all anonymous

[Anonymous Coward]

And as long as the people you trade your coins with avoids linking their keys to each other or to their real-world identity.

Re:not at all anonymous

[JesseMcDonald]

And as long as the people you trade your coins with avoids linking their keys to each other or to their real-world identity.

That won't make any difference unless they know who you are, or have some traceable connection to you outside the Bitcoin network. If I trade Bitcoins for online services, for example—like hosting, or access to a digital download—and take the proper precautions, the other party need never know who provided the payment or received the service. At that point it doesn't matter how private they are.

Re:not at all anonymous

[Anonymous Coward]

>

Luckily, since there is very limited friction, it's fairly easy to figure out how to cover your tracks.

Sure, wait for the early adopters to finish eating each other in the shark games, and allow it to become an established currency. Get paid in it and then never convert it to a physical currency. Bitcoin can only possibly reach maximum anonymity when you never leave the network. Same with TOR.

That is not to say it is maximally anonymous if you stay in-network. However, the fact that leaving the network at any point demonstrably reduces security really shouldn't be glossed over as much as it is. While the value of systems like TOR and Bitcoin is predicated on the external services they let you access now, future anonymity networks need to take a more strict approach to borders.

Very Old News and Acknowledged by Bitcoin Devs

[Teancum]

One of the ways that you can increase anonymity with Bitcoin purchases is by issuing a different hash key for each different kind of transaction. There are other techniques for moving around large numbers of Bitcoins as well including swapping the coins between wallets.

I'll agree that the exchange of Bitcoins for government-backed currencies is particularly problematic as current exchange laws require all sorts of identification for such transactions. On the other hand, you can live "off the grid" and just exchange Bitcoins for stuff like food, shelter, clothing, and other stuff and not bother with pesky details of exchanging into a government currency.

Almost everything mentioned in the article as some sort of deep revelation was acknowledged by the developers and "fans" of Bitcoins on forums within weeks of the original software published by Satoshi was released.... and happened years ago. Talk about stale news. The only real news is that somebody with "credentials" in a "scholarly paper" has made the same claims.... thus it can be included on Wikipedia or some other similar website.

Re:Very Old News and Acknowledged by Bitcoin Devs

[Wingman 5]

One of the ways that you can increase anonymity with Bitcoin purchases is by issuing a different hash key for each different kind of transaction

Unless you are part of the mining pool that mined the coin you spent yourself you still can be "tracked" by getting the information from whomever you got your initial coins from (be it thru subpena or coercion).

Re:Very Old News and Acknowledged by Bitcoin Devs

[Anonymous Coward]

Although you can increase anonymity within spending bitcoins I believe when they refer to "spending" bitcoin they're talking about exchanging it for US dollars, so there is nothing you can really do to prevent that except like you said "live off the grid" which is currently impossible to do since not everyone takes or even know's about bitcoins.

I think it's a good thing to have this, even if it's a "well duh" moment simply due to the fact that it makes bitcoin look more legitimate. One of the reasons bitcoin was announced as illegal here in Thailand was due to the concern that it would be easily used for money laundering which they take very seriously here. I think the main reason however was simply the rules on the books makes it illegal since they never thought up the idea of an internet currency.

Bitcoin is to money as email is to mail

[Deliveranc3]

It's just a bit easier, simpler, convenient and cool.

But the postal service is cutting deliveries to bi-weekly. And it really didn't take very long.

Re:Bitcoin is to money as email is to mail

[Anonymous Coward]

It's just a bit easier, simpler, convenient and cool.

FYI: I think you'll find significant disagreement over that last one, especially here on /. where the majority strongly disagrees with you.

Re:Bitcoin is to money as email is to mail

[ediron2]

A partially flawed analogy since the postal service seems to be under partisan siege.

I suspect that you're right that postal services are imploding due to more convenience via internet.

Going a bit further, their only chance in the face of email convenience would be to adapt as they used to (post offices have served numerous other civic purposes in the past). Services like exchanges for Bitcoin are interestingly an example of the sort of space where I'd trust a public trust agency like the post office. Certificate and identity management, anonymized communication, secure public internet, services that support international commerce... adding trust and consistency.

Re:Bitcoin is to money as email is to mail

[Anonymous Coward]

It's just a bit easier, simpler, convenient and cool.

You delusional bitcoin fanatics are so amusing. Compared to regular money, Bitcoin is not easier, it is not simpler, and it is not more convenient.

As for "cool", if you're obsessed with cryptocurrency and/or a true believer in getting rich quick via Bitcoin, then sure. Otherwise not so much.

And in other news...

[Anonymous Coward]

Look, it's captain obvious!

Trade for Beer

[cyber_rigger]

Sell Beer for Cash

Re:Trade for Beer

[Anonymous Coward]

I find Bacon work better

Possible solution

[gmuslera]

Don't buy for you. Buy for others. Break the link between the one that actually paid and the one that received the product or service. If it becomes widespread enough will add enough noise to make tracking unreliable. You can do it i.e. sending your bitcoins to the person that will use their own bitcoin/wallet/etc to do the actual purchase for you.

Re:Possible solution

[Anonymous Coward]

Don't buy for you. Buy for others. Break the link between the one that actually paid and the one that received the product or service. If it becomes widespread enough will add enough noise to make tracking unreliable. You can do it i.e. sending your bitcoins to the person that will use their own bitcoin/wallet/etc to do the actual purchase for you.

Basically, TOR for bitcoin

Re:Possible solution

[GameboyRMH]

That's kind of what the CoinJoin idea amounts to.

Re:Possible solution

[Anonymous Coward]

But in a way where no one can cheat and rip of the other people.

Re:Possible solution

[Reziac]

Hmmm... how long before that becomes 'fencing' and is declared illegal??

Don't need anonymity ...

[PPH]

... for purchases. The gov't will see my garage full of Porsches and Ferraris and the yacht at the dock. What I need to do is to disconnect my means of income from expenditures.

No problem with taxes. I'll pay them. But I don't need the IRS snooping on my investments and calling their buddies with stock tips so they can front run me.

I used to work for an outfit that bid (but lost) a major IT contract to support IRS operations. The story was that they bid way below their cost. But they figured that getting their hands on taxpayer data and using it for their own purposes would more then make up for their loss. To this day I wonder what the contract winner is doing.

I wonder how contractors like Booz Alan Hamilton bid NSA contracts.

Re:Don't need anonymity ...

[Anonymous Coward]

I wonder how contractors like Booz Alan Hamilton bid NSA contracts.

It starts with a well-placed blowjob.

Re:Don't need anonymity ...

[lgw]

If your "means of income" are legal, and you're paying your taxes, what benefit is there in decoupling that from your expenditures?

The only point I see in "decoupling " is if you're laundering money for some reason (illegal income, or tax avoidance), and it seems Btc really isn't good for that.

Re:Don't need anonymity ...

[Anonymous Coward]

I can only think of one place: RIGHT HEEEEEEEEERRRE!

Re:Don't need anonymity ...

[ub3r n3u7r4l1st]

"what benefit is there in decoupling that from your expenditures?"

There are reasons why people don't want others to know where they spend their money:
- Buying illegal drugs
- Donate $ to political candidates above the statutory maximum
- Donate $ to finance terrorisism and other illegal activities
- Bribery

Re:Don't need anonymity ...

[Anonymous Coward]

Privacy? Not everybody wants the IRS to know what they do for a living. You don't have to be a criminal either. I might dig shit for a living out of sewers as an example (I actually have a customer who does just that). While I might not have a problem paying my taxes or fair share (even if it is a cash-only business) I may have an issue with the IRS coming in and demanding that I tell them what I do. It's an embarrassment, humiliating, etc.

It's none of there business. The only thing that matters is one pays his fair share of taxes. Unfortunately the way the laws are written the IRS snoops in and monitors your business. It's called an audit. It used to be worse. They used to come into peoples homes and anything new that wasn't recorded last year and wasn't reported would get you nick'd.

Another example is if you operate a coffee shop they'll come in and demand access to your records of cups purchased. That way they can take the number of cups purchased and multiply it by the price charged for coffee. Then that will give them a rough estimate on what you are making.

There is a reason movie theaters won't give you an extra popcorn bag or a soda cup. It isn't just that they want to sell you more sodas or popcorn. The reason is the IRS will end up forcing them to cough up taxes on money not earned.

Either way it is none of there business.

Re:Don't need anonymity ...

[CommanderK]

Or others such as buying an engagement ring, tampons, laxatives and many others. Do you really want others to know about everything you spend money on?

Re:Don't need anonymity ...

[Anonymous Coward]

buying an engagement ring, tampons, laxatives and many others.

That's either the most perverted marriage proposal I've ever seen or one of the most elaborate pranks.

Re:Don't need anonymity ...

[PPH]

I' more concerned with them knowing where I earn it. Aside from having the government officials front running my investment decisions based on their inside information*, they tend to like to extract additional political donations from profitable businesses.

*It wasn't until Obama's administration that there was some small move to stop our legislators from legally trading stocks based upon inside information. There are still lots of loopholes.

Re:Don't need anonymity ...

[Anonymous Coward]

Do you just respond to posts without even reading them? His first concern is government contractors mining his tax data to play against him in the market. His second concern is he doesn't know who else is doing what else with that data. These sound like reasonable concerns to me.

Re:Don't need anonymity ...

[Electricity Likes Me]

If your plan is to keep an engagement a secret then I think you've misunderstood the purpose of marriage entirely.

And for that matter, who the hell would want to keep buying tampons a secret? This is in the same vein of thought as wanting to make sure no one knows you buy toilet paper.

Yeah... just like credit cards are completely anon

[Anonymous Coward]

Until you get one...

i.e. What a ridiculous summary opening. I mean it's good to try to inform people but don't spread misinfo like that!

It is not a Bitcoin weakness

[Anonymous Coward]

It is not a Bitcoin weakness. As usual the weakness is in the fact that people want convenience more than security and therefor use an easy, centralized "exchange", thus creating a single point of failure/attack/compromise.

Really stupid.

[Anonymous Coward]

If identity is by a SCAN of a passport or something alike.. I can't imagine any money laundering criminal would be so stupid to use his own identity. So, a bitcoin exchange is still a good way to launder money.

Re:The answer is more maple syrup

[Zontar The Mindless]

So in other words, it's a lot like cash, but less likely to bear trace amounts of cocaine?

Cash (bitcoin) 'n carry... Stop and frisk

[fustakrakich]

"Where'd ya get the money?"

Of course if you don't have any, you're busted for vagrancy...

Probable cause, works every time, makes everything legal.

The game, is over.

Re:Cash (bitcoin) 'n carry... Stop and frisk

[Anonymous Coward]

Either "I forgot" or "5th amendment".

Re:Cash (bitcoin) 'n carry... Stop and frisk

[fustakrakich]

There's a saying:

*The graveyard is full of people who had the right of way*

Lead passes through paper fairly easily. There are no rules, except for the laws of physics.

Nope. False claims.

[Anonymous Coward]

Most of the threats the government throws around is a scare tactic.

When they present a subpeona to me for bitcoin transactions, it will be ignored, or at least no real data will be presented. Bitcoins are not subject to their currancy scams.

Aren't all those gambling sites used for laundry ?

[Anonymous Coward]

Bitcoin Faucets and Paid-To-Click site collection, rated and verified payout. check freebtcexp.tk

Not true

[davidwr]

In practical terms, buying things with cash is anonymous unless the transaction generates a paper trail or any recording isn't erased-over before someone looks at it or copies it.

Sure, currency usually has serial numbers and coins are relatively easy to lift fingerprints from, but I'm talking the practical, everyday world of buying groceries, etc. Yes, if the grocery store is robbed 10 minutes after you shop there, the police will probably see you on the security-camera playback. But in most cases, those recordings are erased without ever having been copied or seen after a few weeks or months.

American Center for Law and Justice

[ub3r n3u7r4l1st]

Sign the petition to abolish the IRS:

http://aclj.org/us-constitution/abolish-the-irs

Bit-coin is traceable By DESIGN!

[bobbied]

Bit-coin boils down to a set of digitally signed documents getting passed around. To pay somebody, you sign the coin over to them and this gets recorded using your key and attached to the coin. It is simply NOT untraceable, by design it is not untraceable because the whole history of a coin is encoded in its history blocks. All you need is a copy of a coin and you can easily trace the wallets it has passed though since the coin was created.

The ONLY advantage Bit-Coin has is that it doesn't have to pass though a bank when doing transfers between individuals. I can send $10,000 worth of Bit-Coin to you in another country and nobody will report the transaction. It is also not necessary recorded which wallet belongs to who, but tracing a coin IN and OUT of a wallet is *always* possible. So if I can attach a wallet to you, I can examine all Bit-Coins and trace every transaction you made. The data exists in the coins themselves.

How folks got this "Bit Coin is untraceable" idea is beyond me. Of course it is, or the whole scheme used to pass them around wouldn't work. All you need to do is set up a mining operation and you will be sifting though many coins and have access to their data blocks. The whole point is that EVERYBODY can see which wallet *owns* what coin so everybody can verify that they got handed a valid coin from the current owner and the up to date data blocks that go with it.

Re:Bit-coin is traceable By DESIGN!

[Anonymous Coward]

I think the issue is that it enables obfuscation of transactions in a way that hasn't been nearly as comprehensive before. No reliance on one or two third parties. It would probably be a painful process, but there may be people doing it

Buy online money with cash (e.g. buying prepaid vouchers) in a store
Trade that for bitcoins online person-to-person over TOR (or just buy bitcoins in person using localbitcoins instead of the first two steps)
Run them through "bitcoin fog", "blockchain" or other mixers (one of them maybe is a honeypot)
Trade the resulting bitcoins for litecoins
Trade them back for bitcoins using a different account also set up over TOR
Run them through a mixer (at this point it's really tough to track them back to you; even if one or more steps is a honeypot
Buy drugs from an FBI honeypot on silkroad
Get them delivered to a drop point that can be monitored remotely (motion-sensitive cameras across the road maybe)?

double spend.

[Anonymous Coward]

The problem with passing someone a wallet (or single private key) is that the recipient has no guarantee that you did not save a copy somewhere. And if you did, then you can spend the funds at any time.

So the only way it can really work is if the recipient immediately sends the funds to another address while both parties are present, or the recipient 100% trusts the other party.

This is the double-spend problem that makes decentralized digital currencies a hard problem and that bitcoin mining solves.

Re:double spend.

[tnk1]

That is a good point. It could turn into one of those Hollywood movie scenes where they sit around for awhile lounging around in their meeting location waiting for the "funds to check out". And then the heroes show up and save the day. Or something.

Also right out:

[Anonymous Coward]

Barack Obama masks, if wearing rodeo clown attire. Not because of any racism, but because of the power of the accusation of such.

No money laundering?

[MobSwatter]

Wall Street: No on bitcoin.

offshore bitcoin exchange

[manu0601]

I am surprised there is no bitcoin exchange in offshore juridiction that are usually money laundering friendly

UCSD

[ShakaUVM]

Savage and Voelker are both awesome professors. Nice to see them in the news again on Slashdot.

I've know this for a while...

[Anonymous Coward]

There is another flaw as well, since the number of bitcoins to be created is capped, and since they're held in an encrypted wallet, they are susceptible to being lost...

Bitcoin - An Analysis [28C3]
http://www.youtube.com/watch?v=-FaQNPCqG58

Steps I've taken for anonymous coin transactions

[Anonymous Coward]

Bitcoin wallet client only connects via coffee shop wifi + a private VPN that accepts payments via prepaid visa + tor. When exchanging coins for USD, orders for 100 dollar bills are placed on the silkroad, and discretely packaged/sent to a po box that is rented for the year with cash and a photoshopped utility bill.

Re:The answer is more maple syrup

[Anonymous Coward]

I wonder if the banks have clicked on to the fact that they could wash their millions of bills and extract the cocaine for resale?

i am once more dazzled

[KingBenny]

here i go posting this left and right, so im like HEY next time im gonna say im a team of overpaid overdegreed university researchers ...
dazzling insight, took you how long to get there ?
skjoozme, but circumstances lead me to be a bit on the short side where it comes to temper lately

Bartercard is similar

[Anonymous Coward]

You earn Bartecard dollars which you can spend, however Australia tax department gets 10% gst