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Internal FBI risk assessment of Bitcoin network [pdf]
- willvarfar 14y agoI like the presentation style. The particular phrasing of "assesses with low confidence" took a bit of twisting to understand, though. Its just a convention you have to get use to in these kind of reports, I guess.
- pirateking 14y agoImpressively crafted document. Found it to be very concise and educational.
- bencoder 14y agoThis was leaked quite some time ago and determined to be genuine. Wired's original article: http://www.wired.com/threatlevel/2012/05/fbi-fears-bitcoin/ http://www.wired.com/threatlevel/2012/05/fbi-fears-bitcoin/
- piokoch 14y agoNice document. It shows well the way of thinking of our governments. "detecting suspicious activity, identifying users, and obtaining transaction records is problematic for law enforcement." - That must deeply hurts FBI people :) "Despite the virtual nature of Bitcoin, users value the currency for many of the same reasons people trust Federal Reserve notes: they believe they can exchange the currency for goods, services, or a national currency at a later date." People do not trust "Federal Reserve notes" (or any other official currency) - they are forced to use it, since they must pay taxes in it. But it is good, that at least some people realize that there is no such a thing like US dollar, only those "notes" printed by Ben Bernanke and his pals. If one day Bitcoin gets truly popular governments will be in trouble. How to tax that beast? I wonder if there is any other solution then poll tax.
- wintersFright 14y agoPeople arguably trust FRN's since the majority continue to save in FRN's/bank credits (I agree the trust is misplaced).
- Uchikoma 14y agoWith so few people - in Germany at least - having their assets in Gold etc. but in bank accounts in $,EUR,... I assume most people trust the currency.
- Tyrant505 14y agoDoesn't Germany hold a huge amount of gold? Additionally, the only euro country not collapsing on itself?
- rmc 14y agoThe US Dollar area (i.e. the US) has come closer to default than the Eurozone.
- Tyrant505 14y agoyep. But can the largest military power really default?
- brazzy 14y agoEasier than anyone else, I'd say. "Hi Everyone, POTUS here. About those treasury bonds a lot of you are holding... we're not going to pay interest on them. Or pay back the princiapl. Ever. On a totally unrelated note, here are some pictures of our 11 carrier strike groups. Impressive, aren't they?"
- dripton 14y ago"Hey, POTUS, you got us. BTW, we'll never lend you money again. Or vote for your party again." The US would never need to default on its debt, since its debt is in USD. Worst case, it would just print more money, leading to inflation.
- TDL 14y agoArgentina is a serial defaulter yet investors still lend money to the government there. If the U.S. decided to completely default on it's debt it would be more destructive to the U.S. economy since the majority of the debt is held by U.S. citizens & institutions. Insurance companies & banks would collapse instantly since the a very large percent of their asset bases would be wiped out. We (meaning U.S. citizens) owe more to ourselves than to any foreign entity. Default is, at least right now, a political non-starter.
- peteretep 14y ago> People do not trust "Federal Reserve notes" Really? There I was thinking foreign governments liked holding their reserves in US dollars... > that at least some people realize that there is no such a thing like US dollar, only those "notes" printed by Ben Bernanke and his pals Wake up, SHEEPLE!
- piokoch 14y ago"foreign governments liked holding their reserves in US dollars" Yes every government has to keep dolar reserve because this is the only currency you can buy oil with. USA managed to force oil suppliers to accept only US dollars. This is the source of the dollar power and enable FED to print as much dollars as they want. People all over the World must purchase dollars.
- indiecore 14y agoOk why do foreign governments also hold Euros, British Pounds, Chinese Yuan, Japanese Yen and Canadian Dollars as reserve currency? You're tinfoil hatting bit too hard here man.
- rjknight 14y agoMinor snark, but 'the Fed', as in 'The Federal Reserve Bank of the United States of America' is an abbreviation, not an acronym. If you really want to use a TLA, 'FRB' (Federal Reserve Bank) might work, but 'FED' is meaningless. This undermines the credibility of your pronouncements on monetary economics.
- cynoclast 14y agoYou really do not have a clue how our monetary system works, do you?
- peteretep 14y agoSo enlighten us all, rather than posting snarky comments.
- vectorbunny 14y ago>People do not trust "Federal Reserve notes" I trust Federal Reserve notes. US currency has high barriers to counterfeiting and can be exchanged for goods and/or services with actual rather than virtual anonymity. I may be a cave man, but I'm not alone. US banknotes are the 'gold standard' of black and grey markets around the world.
- noarchy 14y agoGovernments are cracking down on the use of cash in ways that will only help the promotion of Bitcoin. http://www.forbes.com/sites/jonmatonis/2012/10/17/large-cash-transactions-banned-in-mexico/ http://www.forbes.com/sites/jonmatonis/2012/10/17/large-cash...
- vectorbunny 14y agoWhile I am ignorant of the situation in Spain, it is interesting to note that the two other governments detailed in the linked Forbes article have extreme organized crime problems. I am sure this says something about the role of the rule of law in the bootstrapping of trust. Integrating licit and illicit revenue streams will always be a foundational issue for any illegal enterprise. I have not looked deeply into the implementation details, but Bitcoin does not strike me as a viable money laundering solution. At the point you move large amounts of value out of the ecosystem and into the 'straight' economy, you require the complicity of bankers.
- narag 14y agoThe problem in Spain is this: http://en.wikipedia.org/wiki/Informal_sector http://en.wikipedia.org/wiki/Informal_sector Estimated to be 20% to 25% of GDP compared to an average of 15% to 20% in the neighborhood. Edit: as an extra fact, "we" (I've never seen one) hold most of 500€ bills that have been printed.
- vectorbunny 14y agoThank you for the link. An English translation of the referenced title (Hernando de Soto's 'El otro sendero') is available in the extended network of my public library system, and I have placed a hold on it.
- caf 14y agoPeople do not trust "Federal Reserve notes" (or any other official currency) - they are forced to use it, since they must pay taxes in it. That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, or why criminals who aren't expecting to pay tax at all still deal in official currency.
- tsahyt 14y agoBecause it's easy to spend since others accept it. Money itself has absolutely no value at all. It's more a promise that somebody will accept it when you want to buy something with it.
- takluyver 14y agoWhich is precisely what the FBI report was describing: "they believe they can exchange the currency for goods, services, or a national currency at a later date."
- adambyrtek 14y agoThat's the whole point of fiat money, isn't it?
- brazzy 14y agoIt't the whole point of money, period.
- Daniel_Newby 14y ago> That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, ... It is legal tender for debts. Offering currency to a creditor extinguishes the debt, whether or not they accept it.
- sliverstorm 14y agoExactly. We trust USD to be accepted as legal tender for debts.
- Nursie 14y agoLOL. Most people do trust cash, within certain limits, because they're not crazy libertarians. The value of bitcoin is every bit as illusory and consensual as paper money. That it's not under central control and has a fixed supply is interesting, but doesn't give it intrinsic value.
- sturadnidge 14y agoActually the fixed supply is part of what does give it intrinsic value. Value is fundamentally anything that has utility _and_ scarcity. If the supply of BTC was infinite, it would have essentially no value (or at least it's value would diminish at such a rate that it would be useless for anything).
- Nursie 14y agoValue is just what people think something is worth, it's a shared illusion, not an intrinsic property of ... anything much. Having a static, fixed supply and independence from central control makes something valuable to you, not so much to me. >If the supply of BTC was infinite, it would have essentially no value But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are. edit: Probably not the best example, but either way, value is a perception.
- sturadnidge 14y agoYou misunderstand. Independence from central control has nothing to do with it. I'm not defining value in the philosophical sense, which as you point out is entirely subjective, but you seem to be arguing against the generally accepted definition of value as applied to a system where something is exchanged in return for something else. > But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are. Perhaps you need to re-read my comment. I never said scarcity alone was enough - if no one used it, it wouldn't have utility. You need both, hence my use of the word 'and'. And thanks for the completely unnecessary downvote.
- dia80 14y agoThere are two obvious ways in which expanding the money supply can go wrong. 1) Bernake et al. are feckless idiots and will leave the money presses running long after inflation rears its head, a la Zimbabwe, causing hyper inflation and the destruction of the world economy 2) The economy picks up a bit and they stop printing. However, that huge pool of money they have created is enough to drive inflation so high that they are either faced with allowing a period of high inflation 70's style or breaking the economy again with restrictive monetary policy. Outside wild conspiracy theories I don't think 1 is plausible and 2 is hardly likely to lead to the huddled masses attempting to warm themselves around a pile of burning trillion dollar notes. So I think confidence in the dollar is safe for the interim.
- jerguismi 14y ago1) is not plausible unless it happens. Hyperinflations tend to happen only once in a history of a fiat currency. It sounds a little bit crazy to propose that hyperinflation would happen to one of the really big world currencies (euro, dollar, yen...). But I don't see any technical reasons why it couldn't happen at some point in the future.
- nhaehnle 14y agoYou may be interested in this paper on hyperinflation: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102 The tl;dr version: The root cause of hyperinflation has never in history been runaway printing of money. Rather, the root cause is always some mixture of foreign-currency denominated debt, political chaos, and collapse of a country's productive capacity. To give a bit more detail: This analysis applies to both the Weimar republic hyperinflation (excessive reparations demanded by the victors of World War I denominated in real goods and foreign currencies, combined with a military occupation of Germany's steel and coal industrial center) and the recent Zimbabwe hyperinflation (high USD-denominated government debt combined with a collapse of domestic production due to stupid economic reforms). The hyperinflation is simply a result of such untenable economic situations. They tend to be "cleansing fires" in some sense: especially in the Weimar republic case, the hyperinflation made it very obvious to everybody that the war debts need to be backed off.
- nhaehnle 14y agoIf one day Bitcoin gets truly popular governments will be in trouble. How to tax that beast? I wonder if there is any other solution then poll tax. You would tax Bitcoins in the same way you tax transactions in USD, EUR, and so on. There really is no difference, once you stop to think about it. Even with the USD, taxation does not work by the government subpoenaing your bank's records. Instead, it is your (or your employer's) responsibility to report your income and related data according to the legal requirements. The same applies to Bitcoin transactions. Obviously there are some differences in the investigation of tax evasion. But there will still be records somewhere, and prosecution is used to deal with similar problems when transactions are cash-only.
- njharman 14y ago> they are forced to use it, since they must pay taxes in it. Last I checked, people use US Dollars for a fuck load more than paying taxes. > How to tax the beast. Cash is and was even more so in the past harder to track than bitcoin and yet somehow the "hooligans" managed to collect taxes.
- Ingaz 14y agoI am Russian. Years ago I had strange experience: my friend invited me as unofficial expert. I was amazed: the guys whom I talked were "right guys". One of them told me: "From the call log I can tell more than a guy think himself" (Excuse me for bad English) M
- sliverstorm 14y agoNice document. It shows well the way of thinking of our governments. Yea, it sure does reveal how silly the FBI is. I mean, why would the organization tasked with domestic security & stability analyze the potential threats of Bitcoin? Bitcoin is made of lollipops and rainbows; it could never be used maliciously. Seriously, analyzing it critically doesn't mean they are afraid of it. It just means it is an unknown that they want to understand.
- wintersFright 14y agoInteresting that they don't address whether there are concerns about it eroding tax revenue or if it is a threat to federal reserve notes.
- saraid216 14y agoI'm guessing it's because that's not something the FBI cares about. The FBI is just a police force; it ain't the Federal Reserve.
- wintersFright 14y agobut you need a police force to enforce fiat :)
- kybernetikos 14y agoYou need a police force to enforce contracts and there is no system of exchange that can survive without contract.
- objclxt 14y agoNo...you need a justice system to enforce contracts: contract law and dispute resolution pre-dates the idea of a police force by hundreds of years. Breaking a contract is a purely civil matter. The police usually don't investigate tort law, only criminal law. When the police do get involved in civil law disputes it can get quite controversial.
- Nursie 14y ago>> contract law and dispute resolution pre-dates the idea of a police force by hundreds of years. So does centrally controlled currency...
- johnyzee 14y ago> FBI assesses with high confidence that [...] malicious actors can [...] use botnets to generate bitcoins. As far as I understand bitcoin (which isn't too far, admittedly), the generation of bitcoins is actually encouraged, and only possible within some well-defined boundaries which basically just ensures that bitcoins are put into circulation up until it hits the fixed limit. Maybe someone could clear that up for me? In that case the "malicious actors" would actually be performing a useful service for the bitcoin ecosystem.
- Scaevolus 14y agoIt's malicious in the sense that infected machine resources are being used to directly turn a profit for the controller. Other ways of profiting off botnets include renting out DDoS and spam capabilities.
- sliverstorm 14y agoNot just turn a profit for the controller, but incur a cost for the victim. I measured my computer the other day; when I start mining, my power draw jumps 160 watts, and I have a fairly efficient machine.
- ewillbefull 14y agoInterestingly botnets are probably a month away from being unprofitable for mining Bitcoins, in fact GPUs will be unprofitable for mining Bitcoins all-together. ASIC devices are being shipped over the next six months which will increase the mining difficulty substantially.
- mazsa 14y agopdf: http://www.wired.com/images_blogs/threatlevel/2012/05/Bitcoin-FBI.pdf http://www.wired.com/images_blogs/threatlevel/2012/05/Bitcoi...
- BUGHUNTER 14y agoThank you very much for the direct pdf link, I hate does sites that try to simulate ell established office tools like a pdf viewer in a browser, fail with this and still want to collect your data like email address to give you the real thing. Unfortunately too many people out there are using this crap sites.
- p3drosola 14y agoYeah, sorry about that. I submitted the actual link to the pdf, but HN turned it into a scribd link.
- andrewcooke 14y agoonly the [scribd] part is to scribd. the rest of the link goes to the original pdf. this is how hn has handled pdf links for a long time now.
- sneak 14y ago> Since Bitcoin does not have a centralized authority, law enforcement faces difficulties detecting suspicious activity, identifying users, and obtaining transaction records Yeah. Difficulty obtaining bitcoin transaction records. Good on you, FBI.
- kybernetikos 14y agoHang on, aren't the transaction records public and stored by the whole network?
- fredsted 14y agoYep.
- Munksgaard 14y agoI think that's the point.
- jarman 14y agoDifficulty obtaining meaningful transaction records. Transaction are public, but often obfuscated.
- delinka 14y agoBy "difficult" the FBI certainly means "we'd have to perform some amount of manual reconciliation because the meaningful data won't just fall into our laps." Pretty standard for the last 15 years. As for "obfuscation," I was under the impression that the system doesn't attempt to obfuscate what payment addresses are involved in a transaction. It's not pertinent to the network which physical person controls which addresses.
- dmix 14y agoThe network doesn't automatically obfuscate transactions, but it's easy to do using tumbling services.
- JulianMorrison 14y agoGiven that Bitcoin records all transactions for posterity, and given the ongoing rise of "big data" analytics, I'd say Bitcoin is likely to be harder, in the long run, to use for shenanigans. A government currency has forms in which transactions create no paper trail. Bitcoin does not. Really the big disruption Bitcoin could cause if it becomes well established, is to act as a stable reference frame against which the other currencies can be compared (versus now, where they all float against each other). No government owns the Bitcoin printing press. It cannot be used as an instrument of fiscal policy, and it weakens the ability to use government currency as an instrument of fiscal policy.
- feral 14y ago>Given that Bitcoin records all transactions for posterity, and given the ongoing rise of "big data" analytics, I'd say Bitcoin is likely to be harder, in the long run, to use for shenanigans. A government currency has forms in which transactions create no paper trail. Bitcoin does not. I did some research on anonymity (mentioned in that document); I find it hard to project how private Bitcoin will be in future. Our impression was that currently many users were careless, and that many identities (in the form of publicly disclosed Bitcoin address ownerships) were linked to meaningful transactions; such that with basic network analysis it was possible to passively observe semantically meaningful transactions, like "the person who owns this twitter account, which seems to be a real person, donated to wikileaks" or "this account which is a public organisation donation address is linked to an address that transferred bitcoins to that other organisation". We speculated that if Bitcoin became widely used, without changes in usage patterns, then a large e-commerce site (someone like Amazon accepting payments in Bitcoin - leaving questions of scalability aside) could passively observe much of what was going on on the network, because they had so many known identity-address pairs to start with (e.g. shipping addresses). But the other argument is that its probably relatively easy for usage patterns to change. I think you have to assume that end-users will always be careless. We see this in almost every security setting. So it doesn't matter whether its possible for sophisticated users to guard their privacy, if you don't get privacy by default. But people could build overlay systems which are backed onto Bitcoin. A lot of the wallet services are like this already, and are not readily amenable to the blockchain level analysis (although of course you then you are trusting your wallet service with your privacy and money). Alternatively core or client developers could add protocol-level or low-level Bitcoin mixing (again, with an overhead cost, so there might be scalability concerns), or develop client interfaces which encourage more privacy by default. Its too early to tell how observable/analyzable it'll be in steady state, if it builds traction. I think its possible the system will end up much more observable, for casual users, than cash or even credit cards currently are, but I don't think that's inevitable.
- BUGHUNTER 14y agoAnother part of the global anti-cybermoney-publicity-campagne that we can see right now starting is a study of the European Central Bank on "Virtual Currency Schemes", Oct. 2012. Read it: http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes201210en.pdf http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes20121... Edit: BTW, if you are interested in international monetary policy you can find many important publications on the ECB site: http://www.ecb.int/pub/html/index.en.html http://www.ecb.int/pub/html/index.en.html
- nhaehnle 14y agoI suspect you may be overreacting with the tinfoil-hattery. Obviously those institutions like the ECB and the FBI are interested in virtual and new currencies. That's part of their job! But if you actually read those publications, you'll notice that they aren't very urgent at all. Their stance is basically that they want to keep up with the development, but don't see a reason to act right now.
- sturadnidge 14y agos/Bitcoin/cash/ and all the negative arguments about propensity for criminal activity are quite amusing.
- Nursie 14y agoIt's a bit harder for someone to take over your computer to create cash. It's pretty hard for someone to hijack your wallet with a Trojan and if they do get into your bank account that way then the police and the bank might take an interest. I know this is a meme in the BTC community - any criticism of BTC as a payment method is met with the claim that "it's just like cash" and any criticism of weaknesses of BTC as a currency is met with the claim that "it's a payment method and a commodity". To me it pretty much fails at all of the above. There's no doubting it's good for purchasing contraband though.
- PeterisP 14y agoBitcoin does share some those properties with cash. That's the whole point. Cash (in volume) is currently treated with suspicion for criminal activity, and is the center of attention for policing crime/drug money, financial fraud and money laundering. So bitcoin should be as well. And it can be regulated in the same way as cash - you can ask financial institutions to report any bitcoin deals above $xxx (as they do for cash), you can regulate any intermediaries/payment services to follow the existing money laundering laws also for bitcoin - a core provision is know-your-customer, i.e., no anonymous customers allowed.
- Tyr42 14y agoWhat does the "(U/FOUO)" that keeps showing up mean?
- ecito 14y agoUnclassified / for official use only
- natep 14y agoUnclassified/For Official Use Only. Basically means that it's not Secret, but still can't be distributed without permission. Different organizations have different discipline structures around leaking FOUO material, but I don't think there are any legal implications.
- count 14y agohttp://en.wikipedia.org/wiki/Sensitive_but_unclassified http://en.wikipedia.org/wiki/Sensitive_but_unclassified
- deleted 14y ago[deleted]
- Monotoko 14y ago"For instance, child pornography and Internet gambling" - So, me playing the UK National Lottery online is illegal? o.o
- ninetax 14y agoI would love to participate in this discussion, but I feel like I don't know enough about the economics of currency to make any real contribution. Does anyone know of some good resources (online courses, books, etc)?
- theycallmemorty 14y agoI'm no expert either, but http://www.khanacademy.org/ http://www.khanacademy.org/ has a lot of great videos on economics.
- ninetax 14y agoThanks, I saw those but none seems specific enough. I've taken courses in macro and micro economics so I'm looking for something deeper, just on currency. I did also see khanacademy's lectures on currency relating to china, but it would be cool to find a reputable book.
- nhaehnle 14y agoThis is always a contested subject because economics has so many competing branches, many of them with more or less overt ideological overtones. IMHO, you should listen to economists that (a) emphasize looking at the operational realities of what actually happens in the monetary system, and (b) tell you that banks matter for what happens in the economy. (If you find it hard to believe that a majority of economists ignore banks in their models of the economy, good for you and your common sense!) This means you should read what Steve Keen writes and listen to what he says (he blogs at http://www.debtdeflation.com/blogs/ http://www.debtdeflation.com/blogs/), and what the Modern Monetary Theory crowd write, as they explain such basic things as what role reserves and bonds play, from first principles (start here: http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html http://neweconomicperspectives.org/p/modern-monetary-theory-...). More generally, "endogenous money" is an important keyword to look out for, because our monetary systems are endogenous in the sense that money is mostly created by banks, not by the government. If you venture into online economics resources, you will run into a lot of (economic) Austrians. I believe this is mostly because of the Mises institute, which is well funded by people with an ideological ax to grind. It's good to reflect on their messages occasionally, but they should be taken with a grain of salt. (And since they are hardcore gold bugs, they don't get endogenous money, which means that much of what they say simply doesn't apply to our current economic framework.)
- politician 14y ago"All Bitcoin transactions are published online and Internet Protocol (IP) addresses are linked to the public Bitcoin transactions." How are IP addresses linked to the block chain?
- TazeTSchnitzel 14y agoWell, presumably if you infiltrate the P2P network, you can catch the transaction at its source?
- politician 14y agoSure, but surely the block chain doesn't contain Source IP Address fields.
- TazeTSchnitzel 14y agoThat is correct.
- cwkoss 14y agoNodes can see which IP address sent them the transaction. Usually, this is a "supernode" connected to hundreds of others which received the transaction from someone else. However, if you have your own supernodes and can see which node first broadcast that transaction, and you know either they sent it or are more connected to the original sender than you are.
- Groxx 14y agoUnless I misunderstand Bitcoin more than I think I do, this is flat-out wrong (~1/3 of the way through the document): (U) What Users Can Do To Increase Anonymity ... • (U) Combine the balance of old Bitcoin addresses into a new address to make new payments. Combining balances just means you have a bunch of disparate nodes in the network which may not be related, and you are intentionally connecting them. So if you combined anonymous nodes A-Y with Z which was linked to you, A-Y are now logically linked to you because Z tainted the whole pool. (edit: or at the very least, all the money in A-Y) Yeah, there are ways to make it true/er, but I'm arguing against the principle of the suggestion. And I have doubts that combining (only your) addresses will ever increase anonymity.
- sp332 14y agoIt makes it a little harder to prove. If you do something sketchy and get bitcoins in wallet 1, and then buy something from wallet 1, people will see that the same wallet that did something sketchy also bought something. On the other hand, if you move bitcoins from wallet 1 to wallet 2, then do the buying from wallet 2, there's some separation and people aren't sure if it's the same person.
- Groxx 14y agoThis is suggesting doing something sketchy with 1 and then moving it and 2 and 3 to 4. You can improve your odds of evading detection by moving things around a bit, yes, but most applications I'm aware of will simply move them all in a single transaction. There have also been some fairly large-scale network analysis papers showing linked accounts and the flow of e.g. one big theft a while back - unless you run it through a mixer, you're only mixing with yourself, which runs the risk of revealing everything if you leak a little too much. And regardless, if you then use 4 to do anything that's linked to you, it's further evidence that you are linked to all the accounts - in no way better than before, and possibly worse. You also can't use the money from 2 or 3 to do things linked to you, because now they're linked to you and the sketchy 1. If you had left them isolated, observers would only have information on 1, nothing would have changed, and you could use 2 and 3 without leaking any information about 1.
- gscott 14y ago"In July 2011 FinCEN revised the definition of money transmission service to mean the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds or other value to another location or person by any means." Sounds like if you make a market for gift cards you need to be a licensed money transmitter FYI.