4 ms·

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

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.
  - Y_Y 5y ago
    And assuming all tumbled coins were tainted? Perhaps you could, but then I can imagine tumblers paying "innocent" people (out-of-band) to tumble their coins, while charging money launderers to do the same. If you could get a big fraction of all the active coins/wallets to be "tainted" then people are much less likely to refuse to transact with them.
    - 5y ago
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.

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.
- Y_Y 5y ago
  And assuming all tumbled coins were tainted? Perhaps you could, but then I can imagine tumblers paying "innocent" people (out-of-band) to tumble their coins, while charging money launderers to do the same. If you could get a big fraction of all the active coins/wallets to be "tainted" then people are much less likely to refuse to transact with them.
  - 5y ago

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.