Thursday, June 28, 2018

Feds Ran a Bitcoin-Laundering Sting Operation

Mark Addleman emails:
About a year ago, I remember you theorizing that the Feds would do something like this.  Looks like your prediction was on the mark!
He then points to this The Verge story:
Feds ran a bitcoin-laundering sting for over a year

More than 40 alleged dark-web drug dealers have been arrested as part of a sweeping federal effort described by the Department of Justice as “the first nationwide undercover operation targeting dark net vendors.” The core of the operation was an online money-laundering business seized by agents from Homeland Security Investigations and operated as a sting for over a year. By offering cash for bitcoin, HSI agents were able to identify specific drug dealers, ultimately tracing more than $20 million in drug-linked cryptocurrency transactions.

“For the past year, undercover agents have been providing money-laundering services to these dark net vendors, specifically those involved in narcotics trafficking,” said HSI Special Agent in Charge Angel Melendez, in a press conference earlier today... 
Melendez declined to give specifics on how the department had linked client wallets to drug transactions, saying simply, “there are tools and technologies that law enforcement uses to conduct blockchain analysis.”...
Melendez emphasized that the open nature of the blockchain made it difficult to hide drug money. “The biggest selling point for the blockchain is that it’s transparent. Everybody can see it. And we can see it, too.
More than three years ago in a post titled,  A Warning to Libertarians: Please Do Not End Up Like Ross Ulbricht, I wrote:
There are claims that  there are new bitcoin mixing technologies that make bitcoins completely anonymous in use. But how can we know that it is not the government that has set up these mixing exchanges, or infiltrated them after they have been set up? And keep in mind, the buying and selling of drugs on the dark net still requires physical delivery. How do we know the government isn't capturing the physical addresses where the drugs are delivered? How can we know that the government isn't running a major sting to catch sellers?

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