Saturday, June 8, 2013

So You Think Bitcoin is a Great Way to Remain Anonymous in Your Financial Transactions?

Wait until you get to the last paragraph of this clip from
The Bitcoin ATM is exactly what it sounds like. A user enters a dollar bill, scans a QR code, and receives Bitcoins in their online wallet. The obvious market for the device is any individual or business who deals in cash and would rather save it in Bitcoin than in a less anonymous bank account.

However, Lamassu co-founder Zach Harvey says Bitcoin is “horrible for money laundering.” That’s because Bitcoin is not nearly as anonymous as it’s been made out to be.

“People criticize anonymity, and, well, Bitcoin isn’t supposed to be 100% anonymous, and I think expecting it to be is focusing on something that isn’t one of its main advantages,” Harvey says. “In fact, it’s probably the most transparent currency.”

Some simple research on Bitcoin shows that although transactions are conducted anonymously, they can be traced. The Block Chain logs and displays all Bitcoin transactions. Starting there, anyone interested enough to see where the Bitcoins used to make one transaction could follow its trajectory from its origins.

Some researchers have used these resources to try to track down Satoshi Nakamoto, the mysterious person (or persons) behind Bitcoin. In 2012, security experts Dorit Ron and Adi Shamir downloaded the entire graph for all Bitcoin transactions and followed them back to their origins, concluding that they all descend from one large transaction made in November 2010, which was covered up in an attempt at maintaining anonymity.

“Finally, we noted that the subgraph which contains these large transactions along with their neighborhood has many strange looking structures which could be an attempt to conceal the existence and relationship between these transactions, but such an attempt can be foiled by following the money trail in a sufficiently persistent way,” the report explains.

Ron and Shamir’s research also found that “most of the minted Bitcoins remain dormant in addresses which had never participated in any outgoing transactions,” suggesting that these accounts were created to store, but never use, the Bitcoins belonging to the system’s creator. Harvey believes these accounts have never made outgoing transactions because Bitcoin’s creator wishes to remain anonymous, and knows that making a single transaction could tip his hand.

It may be difficult, but Bitcoin transactions can be traced back to the accounts and people responsible for them. Those looking to hide illegally obtained money from law enforcement, which has its share of capable hackers on its side, may be better off using cash, Harvey says.

“It doesn’t matter how many times they split it up. All they need is a computer to backtrack that and find exactly what the source was,” he says. “So, people using old systems of money laundering to try to fuse that with the Bitcoin network are basically failing, and are very easy to find. It’s so bad that they could be money laundering for 10 years, and make one mistake down the road and you see everything they’ve done.”


  1. Who does not want his bitcoins to be tracked, won't:
    The Politics Of Bitcoin Mixing Services - Forbes

  2. The Pros & Cons of Bitcoin - LeWeb London 2013