4 ms·

Yes but there is no existing way to poison illegitimately gained bitcoins as not eligible for use with legitimate purchases even though it's totally possible to

Yes but there is no existing way to poison illegitimately gained bitcoins as not eligible for use with legitimate purchases even though it's totally possible to trace each and every bitcoin used to pay a ransom. In addition there is no 3rd party verification of the wallet owners so in practice there is plenty of ways to whitewash dirty bitcoin into clean currency, especially in economies with an large black/gray sector. Add to that that any international investigation into cyber crime becomes an instant political hot potato due to the prevalent political rhetoric around state sponsored actors and you have an environment where the treat of actual capture/punishment is extremely low.

spicybright 5y ago
This always fascinates me. If you have wallets you know are bad, and wallets you know are good, how can you launder anything if you can trace every transaction down?
- Stranger43 5y ago
  The way it one of the ways it work is that Vlad the blackmailer buys a bunch of digital artwork from Irina the artist using bitcoin, who then convert the bitcoin to cash in order to purchase something for her husband Vlad the legitimate businessman. And because none of the wallets aren't accurately linked to real persons all tree actors in the above transaction could be the same entity with 3 distinct fictional personas. Add to that that the former soviet block is littered with regions where nobody really agrees on who the legitimate government is and where the entire economy happens using foreign currency, there is plenty of ways to deliberately block investigations from simply following the money trail.
  - esyir 5y ago
    Yes, then all three wallets get tagged.
- gzer0 5y ago
  It is relatively easy to obfuscate the origin of your Bitcoin with multiple interpretations. The term to search for this is "CoinJoin" [1]. "CoinJoin requires multiple parties to jointly sign a digital smart contract to mix their coins in a new Bitcoin transaction, where the output of the transaction leaves the participants with the same number of coins, but the addresses have been mixed to make external tracking difficult." For example, the service Whirpool [2] cycles users' Bitcoin numerous times; the end result is one which can be interpreted 1,496 different ways. [1]. https://www.investopedia.com/terms/c/coinjoin.asp https://www.investopedia.com/terms/c/coinjoin.asp [2]. https://samouraiwallet.com/whirlpool https://samouraiwallet.com/whirlpool
  - JumpCrisscross 5y ago
    > where the output of the transaction leaves the participants with the same number of coins, but the addresses have been mixed to make external tracking difficult Wouldn’t the simple solution be tagging coins that exited such a tumbler?
    - esyir 5y ago
      Pretty much. Bitcoin wasn't made for anonymity. The logical approach to handling this is that exchanges consider coins from those wallets as invalid, creating a secondary class of coins.
    - gambiting 5y ago
      Yes, but then you have a problem of "tainted" bitcoins. So in theory you arrive in a situation where some bitcoins aren't equal others - they can't be spent in a normal way because at some point in the past they went through a tumbler, so payment providers won't touch them "just in case".
      - PeterisP 5y ago
        Yes, that's kind of the whole point - from the government or law enforcement perspective, having a class of "tainted" coins would not be a problem but the intended outcome, and if a side-effect of that is a serious disincentive to use tumbling/laundering services (since that would effectively taint/destroy your funds, no matter if they were originally clean), that would be considered as a bonus, not as a flaw.
- rocqua 5y ago
  You cannot fully trace every transaction. Transactions can happen off-chain, and transactions can be mixed. If I have an output of 1 BTC, and I want to send you 0.3 BTC, then that 1 BTC gets split up in 0.3 and 0.7BTC the 0.3 goes to your address, the 0.7 goes to a new address belonging to me. If that 1 BTC was "known bad" is the 0.3 BTC now also "known bad"? Also, for the outside it is a guess whether the 0.3BTC or the 0.7BTC transaction was my "change". You cannot fully trace every transaction. You can just find every other transaction it was linked to. That list grows somewhat big.
peteretep 5y ago
> Yes but there is no existing way to poison illegitimately gained bitcoins as not eligible for use with legitimate purchases I am curious about this. If Uncle Sam serves Coinbase notice that it considers the contents of XYZ wallet to be stolen goods, then haven't they created lower-value coloured coins, and won't other exchanges start creating lists of those pretty quickly?
- unnouinceput 5y ago
  No criminals involved in this kind of nefarious activities use Coinbase. The blockchain is all over the world and you can setup an exchange in your back yard if you wish, in middle of nowhere in Africa, for example. Good luck having Uncle Sam go there.
  - peteretep 5y ago
    Sure, but they're still going to want to _spend_ those coins at some point, and coins that can't be redeemed in the US are worth less than ones that can.
    - unnouinceput 5y ago
      Pretty sure the USD can be redeemed anywhere in world, not just US.
      - swiley 5y ago
        This is why blockchains really only make this slightly more convenient.
  - tomatotomato37 5y ago
    Any USD retrieved from TotallyLegitExchangeLLC up in Belarus could still be marked as tainted if most of its blockchain transfers volume originate from illegal activity, so I feel in practice you would be limited to a narrow band of exchanges popular enough to have legitimate traffic and yet still unknown enough that they're still under the radar of their parents countries and/or the US' financial institutions.

spicybright 5y ago

This always fascinates me. If you have wallets you know are bad, and wallets you know are good, how can you launder anything if you can trace every transaction down?

Stranger43 5y ago
The way it one of the ways it work is that Vlad the blackmailer buys a bunch of digital artwork from Irina the artist using bitcoin, who then convert the bitcoin to cash in order to purchase something for her husband Vlad the legitimate businessman. And because none of the wallets aren't accurately linked to real persons all tree actors in the above transaction could be the same entity with 3 distinct fictional personas. Add to that that the former soviet block is littered with regions where nobody really agrees on who the legitimate government is and where the entire economy happens using foreign currency, there is plenty of ways to deliberately block investigations from simply following the money trail.
- esyir 5y ago
  Yes, then all three wallets get tagged.
gzer0 5y ago
It is relatively easy to obfuscate the origin of your Bitcoin with multiple interpretations. The term to search for this is "CoinJoin" [1]. "CoinJoin requires multiple parties to jointly sign a digital smart contract to mix their coins in a new Bitcoin transaction, where the output of the transaction leaves the participants with the same number of coins, but the addresses have been mixed to make external tracking difficult." For example, the service Whirpool [2] cycles users' Bitcoin numerous times; the end result is one which can be interpreted 1,496 different ways. [1]. https://www.investopedia.com/terms/c/coinjoin.asp https://www.investopedia.com/terms/c/coinjoin.asp [2]. https://samouraiwallet.com/whirlpool https://samouraiwallet.com/whirlpool
- JumpCrisscross 5y ago
  > where the output of the transaction leaves the participants with the same number of coins, but the addresses have been mixed to make external tracking difficult Wouldn’t the simple solution be tagging coins that exited such a tumbler?
  - esyir 5y ago
    Pretty much. Bitcoin wasn't made for anonymity. The logical approach to handling this is that exchanges consider coins from those wallets as invalid, creating a secondary class of coins.
  - gambiting 5y ago
    Yes, but then you have a problem of "tainted" bitcoins. So in theory you arrive in a situation where some bitcoins aren't equal others - they can't be spent in a normal way because at some point in the past they went through a tumbler, so payment providers won't touch them "just in case".
    - PeterisP 5y ago
      Yes, that's kind of the whole point - from the government or law enforcement perspective, having a class of "tainted" coins would not be a problem but the intended outcome, and if a side-effect of that is a serious disincentive to use tumbling/laundering services (since that would effectively taint/destroy your funds, no matter if they were originally clean), that would be considered as a bonus, not as a flaw.
rocqua 5y ago
You cannot fully trace every transaction. Transactions can happen off-chain, and transactions can be mixed. If I have an output of 1 BTC, and I want to send you 0.3 BTC, then that 1 BTC gets split up in 0.3 and 0.7BTC the 0.3 goes to your address, the 0.7 goes to a new address belonging to me. If that 1 BTC was "known bad" is the 0.3 BTC now also "known bad"? Also, for the outside it is a guess whether the 0.3BTC or the 0.7BTC transaction was my "change". You cannot fully trace every transaction. You can just find every other transaction it was linked to. That list grows somewhat big.

peteretep 5y ago

> Yes but there is no existing way to poison illegitimately gained bitcoins as not eligible for use with legitimate purchases I am curious about this. If Uncle Sam serves Coinbase notice that it considers the contents of XYZ wallet to be stolen goods, then haven't they created lower-value coloured coins, and won't other exchanges start creating lists of those pretty quickly?

unnouinceput 5y ago
No criminals involved in this kind of nefarious activities use Coinbase. The blockchain is all over the world and you can setup an exchange in your back yard if you wish, in middle of nowhere in Africa, for example. Good luck having Uncle Sam go there.
- peteretep 5y ago
  Sure, but they're still going to want to _spend_ those coins at some point, and coins that can't be redeemed in the US are worth less than ones that can.
  - unnouinceput 5y ago
    Pretty sure the USD can be redeemed anywhere in world, not just US.
    - swiley 5y ago
      This is why blockchains really only make this slightly more convenient.
- tomatotomato37 5y ago
  Any USD retrieved from TotallyLegitExchangeLLC up in Belarus could still be marked as tainted if most of its blockchain transfers volume originate from illegal activity, so I feel in practice you would be limited to a narrow band of exchanges popular enough to have legitimate traffic and yet still unknown enough that they're still under the radar of their parents countries and/or the US' financial institutions.