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My understanding is that because of the distributed transaction nature of Bitcoin-the-protocol, the stolen coins will be "hot" forever. As soon as they're spen

by chiph 14y ago

My understanding is that because of the distributed transaction nature of Bitcoin-the-protocol, the stolen coins will be "hot" forever. As soon as they're spent, they'll show up in the logs. The identity of the thieves may never be known, but the coins themselves are identifiable. I'm surprised someone hasn't started a hot-sheet for stolen coins, so that exchanges and individuals can check before accepting them.

feral 14y ago
People have talked about 'marking' Bitcoins before. There are some issues with the idea. Some of them are subtle: The first thing to realize is that bitcoins do not exist as independent trackable entities, in the system. So there are no individually identifiable bitcoins that you can 'mark'. Instead, address balances exist. So, you might say, lets just mark the address balance as 'hot'. This has some merit. It violates what appears to be a design assumption of Bitcoin, which is that bitcoins are meant to be fungible; but it has some merit. If someone tries to pay you with a transfer from that address full of stolen coins, you can just say "Im not accepting that as valid payment. Take your business elsewhere." But, what happens when somebody - lets say an anonymous mixer - accepts, say, 100 stolen bitcoins, into an address that has 900 bitcoins already in it. Now, you have an address with 1000 bitcoins. 10% of these bitcoins are dirty - but which 10%? How do you deal with this scenario? What if someone tries pay you 100 coins from that address? Do you say that transfers from that address are only worth 90% of the value they had before? What if that address goes through a mixer again? You can keep track of percentage 'contamination' but its going to start making things complicated. If you accept dirty bitcoins, that weren't dirty when you got them (lets say you are a mixer and get a transfer before people realise there has been a theft), what happens? Also, who gets to say which bitcoins are dirty? A centralised authority? That sort of breaks the design goal of fungibility - if you have to ask a central authority whether this is a real bitcoin or not, why not also just have the centralised authority issue them in the first place, and dispense with all the complexity? I'm not sure whether a marking system would work; there certainly seem to be some reasons its tricky. I've seen discussions about this on the bitcoin forum; plenty of people there who have thought about this a lot.
- chiph 14y ago
  OK, so you (the criminal) have addresses with known-good reputations which you're able to fence the stolen coins through. Once accepted into their wallet, they are indistinguishable from any other coin already present or added later. It seems that the problem now becomes one of reputation management. The diamond markets in New York work entirely by trust (a handshake can seal a $10 million deal), but that's not possible when the community is the world. A pretty challenge. :)
  - Groxx 14y ago
    If you send the 'bad' coins into the 'known good' wallet, everyone can see it. So while the coins themselves are potentially indistinguishable for reasons similar to melting together all the gold you receive and chipping off a bit to spend, the entire account is now known to accept coins from a bad source. You can send any part of any coins in an account to somewhere else, so it's not really 'melting', but it's a useful mental picture for laundering bitcoins. In real-world cases like this, you generally launder the money through untraceable sources, where they can re-enter the system from anywhere and be 'clean'. You can do something similar in bitcoin, where I think they're called "mixers". I don't know if any automated ones exist, but basically: mix (i.e., melt) a bunch of people's money from addresses A-M in one account, and send the same amount out to (brand-new, anonymous) addresses N-Z. N-Z are owned by unknown entities, so as long as e.g. X doesn't receive exactly as much money as only D put in, you can't infer ownership. All coins are 'tainted' because the sources can be tracked perfectly (i.e., a marker chemical in gold), but who owns what coin is now lost. Obviously there's more to it, and distributing without losing perfect anonymity is difficult, but it shows the basic problem. Again similar to melting, you can even send # coins to addresses 1-9 over a large period of time, while melting more and more coins into the shared pool, so there's less of a chance of guessing who owns what based on timing.
elliottcarlson 14y ago
The problem isn't really about identifying the "hot" coins - but rather the history of the coins - you can transfer the same coins constantly to your own wallets, adding noise to the transaction history. If there are 500 transactions to white wash the history, then there is little that can be done besides looking through the whole history of the coins - and if there are other bitcoins in the wallet that were obtained legitimately then you might have to search down multiple historical transaction logs for each partial coin.
kylebrown 14y ago
Blockchain.info has a taint analysis tool, and there are other tools. Most bitcoins have a long, highly-mixed history, tainted some small fractional percent of most any address from time before. Probably because mtgox, as the largest exchange, mixes coins pretty thoroughly. Risk to the thieves is that if they try to sell the coins through them, mtgox will freeze the funds. They have to be mixed elsewhere first and who knows what taint threshold mtgox uses to freeze funds. For example, after the Linode hack the stolen coins were moving around and there were reports, from people who had bought coins from cryptoXchange or had paid with paxum, that mtgox was freezing those deposits because they were connected to the stolen funds.
- DougWebb 14y ago
  That sounds a lot like how all US currency has traces of cocaine on it, because at some point most US bills (maybe just $100 bills) have passed through a coke dealer's hands.
  - politician 14y ago
    "The Argonne National Laboratory study revealed that the average contamination was 16 micrograms." http://www.snopes.com/business/money/cocaine.asp http://www.snopes.com/business/money/cocaine.asp
- napillo 14y ago
  All that 'taint' thing shows is how traceable the wallet is to another wallet. If you have high taint, that means you aren't using anonymizers.

by chiph 14y ago

feral 14y ago

People have talked about 'marking' Bitcoins before. There are some issues with the idea. Some of them are subtle: The first thing to realize is that bitcoins do not exist as independent trackable entities, in the system. So there are no individually identifiable bitcoins that you can 'mark'. Instead, address balances exist. So, you might say, lets just mark the address balance as 'hot'. This has some merit. It violates what appears to be a design assumption of Bitcoin, which is that bitcoins are meant to be fungible; but it has some merit. If someone tries to pay you with a transfer from that address full of stolen coins, you can just say "Im not accepting that as valid payment. Take your business elsewhere." But, what happens when somebody - lets say an anonymous mixer - accepts, say, 100 stolen bitcoins, into an address that has 900 bitcoins already in it. Now, you have an address with 1000 bitcoins. 10% of these bitcoins are dirty - but which 10%? How do you deal with this scenario? What if someone tries pay you 100 coins from that address? Do you say that transfers from that address are only worth 90% of the value they had before? What if that address goes through a mixer again? You can keep track of percentage 'contamination' but its going to start making things complicated. If you accept dirty bitcoins, that weren't dirty when you got them (lets say you are a mixer and get a transfer before people realise there has been a theft), what happens? Also, who gets to say which bitcoins are dirty? A centralised authority? That sort of breaks the design goal of fungibility - if you have to ask a central authority whether this is a real bitcoin or not, why not also just have the centralised authority issue them in the first place, and dispense with all the complexity? I'm not sure whether a marking system would work; there certainly seem to be some reasons its tricky. I've seen discussions about this on the bitcoin forum; plenty of people there who have thought about this a lot.

chiph 14y ago
OK, so you (the criminal) have addresses with known-good reputations which you're able to fence the stolen coins through. Once accepted into their wallet, they are indistinguishable from any other coin already present or added later. It seems that the problem now becomes one of reputation management. The diamond markets in New York work entirely by trust (a handshake can seal a $10 million deal), but that's not possible when the community is the world. A pretty challenge. :)
- Groxx 14y ago
  If you send the 'bad' coins into the 'known good' wallet, everyone can see it. So while the coins themselves are potentially indistinguishable for reasons similar to melting together all the gold you receive and chipping off a bit to spend, the entire account is now known to accept coins from a bad source. You can send any part of any coins in an account to somewhere else, so it's not really 'melting', but it's a useful mental picture for laundering bitcoins. In real-world cases like this, you generally launder the money through untraceable sources, where they can re-enter the system from anywhere and be 'clean'. You can do something similar in bitcoin, where I think they're called "mixers". I don't know if any automated ones exist, but basically: mix (i.e., melt) a bunch of people's money from addresses A-M in one account, and send the same amount out to (brand-new, anonymous) addresses N-Z. N-Z are owned by unknown entities, so as long as e.g. X doesn't receive exactly as much money as only D put in, you can't infer ownership. All coins are 'tainted' because the sources can be tracked perfectly (i.e., a marker chemical in gold), but who owns what coin is now lost. Obviously there's more to it, and distributing without losing perfect anonymity is difficult, but it shows the basic problem. Again similar to melting, you can even send # coins to addresses 1-9 over a large period of time, while melting more and more coins into the shared pool, so there's less of a chance of guessing who owns what based on timing.

elliottcarlson 14y ago

The problem isn't really about identifying the "hot" coins - but rather the history of the coins - you can transfer the same coins constantly to your own wallets, adding noise to the transaction history. If there are 500 transactions to white wash the history, then there is little that can be done besides looking through the whole history of the coins - and if there are other bitcoins in the wallet that were obtained legitimately then you might have to search down multiple historical transaction logs for each partial coin.

kylebrown 14y ago

Blockchain.info has a taint analysis tool, and there are other tools. Most bitcoins have a long, highly-mixed history, tainted some small fractional percent of most any address from time before. Probably because mtgox, as the largest exchange, mixes coins pretty thoroughly. Risk to the thieves is that if they try to sell the coins through them, mtgox will freeze the funds. They have to be mixed elsewhere first and who knows what taint threshold mtgox uses to freeze funds. For example, after the Linode hack the stolen coins were moving around and there were reports, from people who had bought coins from cryptoXchange or had paid with paxum, that mtgox was freezing those deposits because they were connected to the stolen funds.

DougWebb 14y ago
That sounds a lot like how all US currency has traces of cocaine on it, because at some point most US bills (maybe just $100 bills) have passed through a coke dealer's hands.
- politician 14y ago
  "The Argonne National Laboratory study revealed that the average contamination was 16 micrograms." http://www.snopes.com/business/money/cocaine.asp http://www.snopes.com/business/money/cocaine.asp
napillo 14y ago
All that 'taint' thing shows is how traceable the wallet is to another wallet. If you have high taint, that means you aren't using anonymizers.