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First of all, it's not really traceable. You can sell them on LocalBitcoins, and an outside observer will never know - all you see is coins moving from A to B.

First of all, it's not really traceable. You can sell them on LocalBitcoins, and an outside observer will never know - all you see is coins moving from A to B. Second of all, you can mix them with other coins, which instantly crushes all hopes of traceability. Example: Imagine you have wallets A (clean) and B (stolen) with 1 BTC each. You put them both into wallet C, and then you split it again equally into X and Y. Where is the stolen money now? And then there are altcoin exchanges.

numbsafari 9y ago
The holder of C could potentially be prosecuted for receiving stolen property, under AML laws, or as a co-conspirator in the original theft.
- koolba 9y ago
  If you replace bitcoin with cash, by your logic I'd be arrested for selling a thief an apple if he paid for it with stolen cash. That's the distinction. Is it money or is it a fenced good? If I'm receiving currency (be it real money or bitcoin), I'm not going to think about where it came from. It's fungible.
  - numbsafari 9y ago
    Unless he's reaching into a giant purple spattered bag that says "bank vault" and the name of a bank you know was robbed.
  - thisisit 9y ago
    Then you will be asked to cooperate and reveal the identity of the thief. If you don't, then yes you are in "potential" trouble.
    - koolba 9y ago
      I see no issue with cooperating. If they want to see my security footage then let them get a subpoena. If they want to see the IP logs and customer data for a potential money launderer, it's the same bar.
  - stephengillie 9y ago
    Physical dollars each have a unique serial number - aren't these sometimes used to track criminals as they spend stolen funds? Or is that just a Hollywood exaggeration?
    - booleandilemma 9y ago
      Re: currency tracking, you might like this: https://www.wheresgeorge.com https://www.wheresgeorge.com
    - kahnpro 9y ago
      I think it's only useful if you know which serial numbers were stolen, for example if you give specific range of serial numbers as a ransom payment.
      - zeta0134 9y ago
        When I worked as a bank teller briefly, we had this planned out. There was a stack of bills (usually 10s, but it was kind of random) that we were only to give out if we were actively being robbed. They were indistinguishable from regular currency to avoid suspicion, but the serial numbers were recorded for tracking purposes. This was in a small town bank, and I'm sure that larger banks have more sophisticated policies. I'm curious to know if ATMs have any similar features.
  - raverbashing 9y ago
    > by your logic I'd be arrested for selling a thief an apple if he paid for it with stolen cash. Yes, this can happen. Especially for higher valued items
  - heeen 9y ago
    https://en.wikipedia.org/wiki/Handling_stolen_goods https://en.wikipedia.org/wiki/Handling_stolen_goods
  - caseysoftware 9y ago
    Unfortunately, under the US drug laws, this is allowed. You're a drug dealer and rent an apartment? The landlord could now be at risk, regardless of whether they know how you make money to pay them. It's how the Feds have compelled completely law abiding citizens to work with law enforcement and/or threaten to take everything.
  - JumpCrisscross 9y ago
    > I'd be arrested for selling a thief an apple if he paid for it with stolen cash Welcome to anti-money laundering law. KYC regulations basically mean, for anyone handling large volumes of money, it's the vendor's business, and liability, to know where customers' money comes from.
- olegkikin 9y ago
  But C is just some address the thief used. You see, you can create a million of them a minute for free, and then move the stolen and clean money between them in a randomized way, making it indistinguishable from real transactions. All you see on the blockchain is money moving between addresses. Exchanges do know the identities of a small fraction of all addresses, that's true. But if someone wants to remain anonymous, and has a relatively small amount (in relation to exchange's liquidity), it becomes trivial to hide the money. Something like MtGox amounts are much much more complicated to clean in their entirety, that I agree with.
  - philbarr 9y ago
    Where does the clean money come from?
    - olegkikin 9y ago
      "Clean" in this case only means not this stolen money. It can be some other stolen money. Or it can be borrowed money. The bitcoin tumbler is a service that does the mixing, and as long as it has more than one customer, it can do the mixing.
      - saalweachter 9y ago
        I really gotta wonder what sort of protection this actually provides. A tumbler only helps if a lot of people with legitimate BitCoins frequently mix them in, so that people with coins from a mixer have a plausible claim of innocence. If mixers are primarily used by criminals, you've only anonymized which crime you've committed, you haven't really laundered the money. If those coins touch your real-world identity, you may not be incriminated in a particular crime, but you've made yourself into a suspect in a relatively small pool of crimes.
        olegkikin 9y ago
        You are correct. Tumbling is not laundering, it's only there to make the tracing close to impossible.
- kfrzcode 9y ago
  Does this maybe change depending on jurisdiction?
- deleted 9y ago
  [deleted]
- Ajedi32 9y ago
  Possibly, but only if they get caught. I imagine many of these services are run by individuals who remain anonymous to avoid prosecution in the event their service is used for money laundering.
  - watwut 9y ago
    I would like to know what is their average lifetime. AlphaBay was not exactly the same, but it was longest running market - meaning a bit above 3 years. It does not give much confidence.
philbarr 9y ago
But the blockchain records all movements of bitcoin, so if I have a coin's hash, I can trace it's movement in transactions from A->C->X wallets? A mixer or exchange is the best bet, but then you're relying on a third party. A mixer may record it's transactions with people to say which coin was given out for which coin moved in. At least this is my understanding of how the blockchain works. I may be wrong (likely!)
- olegkikin 9y ago
  No, you can't. Bitcoins are fungible. There's no way to mark stolen coins. That's why I asked - where is the stolen money, is it in X or in Y or in both? The best we can do to reduce crime is to convince most of the exchanges not to take the stolen coins (or take them, but give them back to the real owners). But there are so many of them, and many of them are anonymous, I don't see how we can do that.
  - philbarr 9y ago
    No, but you can mark the transactions right? So if I know all the bitcoins in that "bad" wallet, I can follow all transactions from that wallet and see where the coins end up?
    - olegkikin 9y ago
      What will that achieve? After mixing you end up with addresses that contain coins that are partially stolen, partially clean (tainted). You could, theoretically, convince some providers of goods/services not to accept any tainted coins. It is doable, but most business owners don't care about that, as long as the money is not pure stolen (in both Bitcoin and physical world). Consider that some money in your bank account has previously gone through being stolen, traded for drugs, guns, slaves, being laundered. Pretty much nobody but the Central Banks has clean money.
      - philbarr 9y ago
        Right - now we're talking about it as if it's been mixed. I originally said that his best bet would be to use a mixer, otherwise the transactions can be traced. And by mixing he's relying on a third party.
akerro 9y ago
>First of all, it's not really traceable. Or use BTC mixers.
sgift 9y ago
So, basically, online money laundering? Get a legitimate side business, mix clean and stolen BTC -> profit?
- olegkikin 9y ago
  Yes, kind of. Surprise, crime happens. HSBC laundered what, $670 billion dollars of Mexican cartels? How many executives ended up in prison? Didn't they pay some tiny fine and that's it? http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20121211 http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20... Also mixing is not laundering. Mixing only allows you to stop the tracing. Converting these mixed coins on a large scale to something like dollars is very very hard. Most exchanges that interact with the traditional banking system do check where you got the money from. It's not like you can send $1M worth of tumbled coins to Bitstamp/Kraken/Coinbase and convert them to dollars without tons of paperwork. And it's not like you can buy a house/car/boat with these coins and expect the IRS not to show up.
  - heeen 9y ago
    Is your argument HSBC committed a crime so everyone else should be allowed to, too?
    - philbarr 9y ago
      I don't think so, I think the argument was that, if crime is possible it will probably happen. There was no moral judgement about that.
    - olegkikin 9y ago
      No, my point was, if you're so worried about money laundering, bitcoin should be the least of your worries. One bank laundered more in a few years than ALL of bitcoin is worth multiplied by 15. And I doubt a significant portion of bitcoin is used for money laundering - it's mostly geeks, investors, and other early adopters holding it. Another point was - the government generally doesn't seem to care about massive scale money laundering. I have no other explanation why nobody went to prison, and the fine was only $1.9B on $670B laundered.
unfamiliar 9y ago
If X is roughly the size of A and Y is roughly the size of B (which you would hope if you are trying to launder coins without losing too much) then it is still very much traceable. Even if you go further and say, split Y into Y1 and Y2 and only cash out Y1, there is still some information retained.
- yebyen 9y ago
  It is traceable as such if it is gargantuanly "on the radar." I have no idea if WannaCry ranks as "on the radar" but I would not think so, in terms of size. We're talking about $140,000.
celticninja 9y ago
mixing them with other coins doesnt crush all hopes of traceability. Swapping them for other coins may help hide the link, but just adding them to a wallet with other coins will taint the other coins rather than clean the stolen ones. In your example the stolen coins are in wallet X and Y and using the blockchain we can determine exactly how much in each wallet comes from the stolen coin. A true mixing service takes the coins into a wallet and sends you coins that are from another wallet that has never had any contact with the coins you sent in. This is what breaks the chain you can trace. Altcoin exchanges let you clean your coins by using an altcoin as the mixer. Essentially you send BTC to an exchange, buy an altcoin, transfer altcoin to another exchange, buty bitcoin. You now have much harder to trace bitcoin.
posterboy 9y ago
now X and Y are both tainted.

numbsafari 9y ago

The holder of C could potentially be prosecuted for receiving stolen property, under AML laws, or as a co-conspirator in the original theft.

koolba 9y ago
If you replace bitcoin with cash, by your logic I'd be arrested for selling a thief an apple if he paid for it with stolen cash. That's the distinction. Is it money or is it a fenced good? If I'm receiving currency (be it real money or bitcoin), I'm not going to think about where it came from. It's fungible.
- numbsafari 9y ago
  Unless he's reaching into a giant purple spattered bag that says "bank vault" and the name of a bank you know was robbed.
- thisisit 9y ago
  Then you will be asked to cooperate and reveal the identity of the thief. If you don't, then yes you are in "potential" trouble.
  - koolba 9y ago
    I see no issue with cooperating. If they want to see my security footage then let them get a subpoena. If they want to see the IP logs and customer data for a potential money launderer, it's the same bar.
- stephengillie 9y ago
  Physical dollars each have a unique serial number - aren't these sometimes used to track criminals as they spend stolen funds? Or is that just a Hollywood exaggeration?
  - booleandilemma 9y ago
    Re: currency tracking, you might like this: https://www.wheresgeorge.com https://www.wheresgeorge.com
  - kahnpro 9y ago
    I think it's only useful if you know which serial numbers were stolen, for example if you give specific range of serial numbers as a ransom payment.
    - zeta0134 9y ago
      When I worked as a bank teller briefly, we had this planned out. There was a stack of bills (usually 10s, but it was kind of random) that we were only to give out if we were actively being robbed. They were indistinguishable from regular currency to avoid suspicion, but the serial numbers were recorded for tracking purposes. This was in a small town bank, and I'm sure that larger banks have more sophisticated policies. I'm curious to know if ATMs have any similar features.
- raverbashing 9y ago
  > by your logic I'd be arrested for selling a thief an apple if he paid for it with stolen cash. Yes, this can happen. Especially for higher valued items
- heeen 9y ago
  https://en.wikipedia.org/wiki/Handling_stolen_goods https://en.wikipedia.org/wiki/Handling_stolen_goods
- caseysoftware 9y ago
  Unfortunately, under the US drug laws, this is allowed. You're a drug dealer and rent an apartment? The landlord could now be at risk, regardless of whether they know how you make money to pay them. It's how the Feds have compelled completely law abiding citizens to work with law enforcement and/or threaten to take everything.
- JumpCrisscross 9y ago
  > I'd be arrested for selling a thief an apple if he paid for it with stolen cash Welcome to anti-money laundering law. KYC regulations basically mean, for anyone handling large volumes of money, it's the vendor's business, and liability, to know where customers' money comes from.
olegkikin 9y ago
But C is just some address the thief used. You see, you can create a million of them a minute for free, and then move the stolen and clean money between them in a randomized way, making it indistinguishable from real transactions. All you see on the blockchain is money moving between addresses. Exchanges do know the identities of a small fraction of all addresses, that's true. But if someone wants to remain anonymous, and has a relatively small amount (in relation to exchange's liquidity), it becomes trivial to hide the money. Something like MtGox amounts are much much more complicated to clean in their entirety, that I agree with.
- philbarr 9y ago
  Where does the clean money come from?
  - olegkikin 9y ago
    "Clean" in this case only means not this stolen money. It can be some other stolen money. Or it can be borrowed money. The bitcoin tumbler is a service that does the mixing, and as long as it has more than one customer, it can do the mixing.
    - saalweachter 9y ago
      I really gotta wonder what sort of protection this actually provides. A tumbler only helps if a lot of people with legitimate BitCoins frequently mix them in, so that people with coins from a mixer have a plausible claim of innocence. If mixers are primarily used by criminals, you've only anonymized which crime you've committed, you haven't really laundered the money. If those coins touch your real-world identity, you may not be incriminated in a particular crime, but you've made yourself into a suspect in a relatively small pool of crimes.
      - olegkikin 9y ago
        You are correct. Tumbling is not laundering, it's only there to make the tracing close to impossible.
kfrzcode 9y ago
Does this maybe change depending on jurisdiction?
deleted 9y ago
[deleted]
Ajedi32 9y ago
Possibly, but only if they get caught. I imagine many of these services are run by individuals who remain anonymous to avoid prosecution in the event their service is used for money laundering.
- watwut 9y ago
  I would like to know what is their average lifetime. AlphaBay was not exactly the same, but it was longest running market - meaning a bit above 3 years. It does not give much confidence.

philbarr 9y ago

But the blockchain records all movements of bitcoin, so if I have a coin's hash, I can trace it's movement in transactions from A->C->X wallets? A mixer or exchange is the best bet, but then you're relying on a third party. A mixer may record it's transactions with people to say which coin was given out for which coin moved in. At least this is my understanding of how the blockchain works. I may be wrong (likely!)

olegkikin 9y ago
No, you can't. Bitcoins are fungible. There's no way to mark stolen coins. That's why I asked - where is the stolen money, is it in X or in Y or in both? The best we can do to reduce crime is to convince most of the exchanges not to take the stolen coins (or take them, but give them back to the real owners). But there are so many of them, and many of them are anonymous, I don't see how we can do that.
- philbarr 9y ago
  No, but you can mark the transactions right? So if I know all the bitcoins in that "bad" wallet, I can follow all transactions from that wallet and see where the coins end up?
  - olegkikin 9y ago
    What will that achieve? After mixing you end up with addresses that contain coins that are partially stolen, partially clean (tainted). You could, theoretically, convince some providers of goods/services not to accept any tainted coins. It is doable, but most business owners don't care about that, as long as the money is not pure stolen (in both Bitcoin and physical world). Consider that some money in your bank account has previously gone through being stolen, traded for drugs, guns, slaves, being laundered. Pretty much nobody but the Central Banks has clean money.
    - philbarr 9y ago
      Right - now we're talking about it as if it's been mixed. I originally said that his best bet would be to use a mixer, otherwise the transactions can be traced. And by mixing he's relying on a third party.

akerro 9y ago

>First of all, it's not really traceable. Or use BTC mixers.

sgift 9y ago

So, basically, online money laundering? Get a legitimate side business, mix clean and stolen BTC -> profit?

olegkikin 9y ago
Yes, kind of. Surprise, crime happens. HSBC laundered what, $670 billion dollars of Mexican cartels? How many executives ended up in prison? Didn't they pay some tiny fine and that's it? http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20121211 http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20... Also mixing is not laundering. Mixing only allows you to stop the tracing. Converting these mixed coins on a large scale to something like dollars is very very hard. Most exchanges that interact with the traditional banking system do check where you got the money from. It's not like you can send $1M worth of tumbled coins to Bitstamp/Kraken/Coinbase and convert them to dollars without tons of paperwork. And it's not like you can buy a house/car/boat with these coins and expect the IRS not to show up.
- heeen 9y ago
  Is your argument HSBC committed a crime so everyone else should be allowed to, too?
  - philbarr 9y ago
    I don't think so, I think the argument was that, if crime is possible it will probably happen. There was no moral judgement about that.
  - olegkikin 9y ago
    No, my point was, if you're so worried about money laundering, bitcoin should be the least of your worries. One bank laundered more in a few years than ALL of bitcoin is worth multiplied by 15. And I doubt a significant portion of bitcoin is used for money laundering - it's mostly geeks, investors, and other early adopters holding it. Another point was - the government generally doesn't seem to care about massive scale money laundering. I have no other explanation why nobody went to prison, and the fine was only $1.9B on $670B laundered.

unfamiliar 9y ago

If X is roughly the size of A and Y is roughly the size of B (which you would hope if you are trying to launder coins without losing too much) then it is still very much traceable. Even if you go further and say, split Y into Y1 and Y2 and only cash out Y1, there is still some information retained.

yebyen 9y ago
It is traceable as such if it is gargantuanly "on the radar." I have no idea if WannaCry ranks as "on the radar" but I would not think so, in terms of size. We're talking about $140,000.

celticninja 9y ago

mixing them with other coins doesnt crush all hopes of traceability. Swapping them for other coins may help hide the link, but just adding them to a wallet with other coins will taint the other coins rather than clean the stolen ones. In your example the stolen coins are in wallet X and Y and using the blockchain we can determine exactly how much in each wallet comes from the stolen coin. A true mixing service takes the coins into a wallet and sends you coins that are from another wallet that has never had any contact with the coins you sent in. This is what breaks the chain you can trace. Altcoin exchanges let you clean your coins by using an altcoin as the mixer. Essentially you send BTC to an exchange, buy an altcoin, transfer altcoin to another exchange, buty bitcoin. You now have much harder to trace bitcoin.

posterboy 9y ago

now X and Y are both tainted.