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The article doesn't touch one service that can be, and is used regularly by people that want to stay anonymous with Bitcoin and yet cash out - mixing services.

by M4v3R 13y ago

The article doesn't touch one service that can be, and is used regularly by people that want to stay anonymous with Bitcoin and yet cash out - mixing services. You can essentially lose the block chain trail using them. Say you have money on address A, and want to deposit it to address B. Mixing service gives you a deposit address X, and also controls a totally unrelated (not "tainted", i.e. there are no shared inputs outputs between the two) address Y). So it goes like this: A --> X . . . Y --> B Using this there is no way to tell that A is connected to B.

travisp 13y ago
This is true, and does provide some anonymity, but there are several situations, at least in the US, in which you can basically be considered guilty until proven innocent where the burden is on you to prove that everything is legal (tax evasion and asset forfeiture). If you can be linked with either side of the mixing service, the fact that nobody can tell where the money went (or came from), might not protect you. For example, suppose your standard of living suddenly improves and you start buying cool expensive toys, but you don't report increased income with the IRS. As I understand it, the IRS can audit you and ask you to prove to them where the money came from. Similarly, if you get stopped with a large pile of "anonymous" cash in your car, you may be asked to prove that the cash was obtained legitimately, and they may hold the cash until you can prove otherwise.
- jlgreco 13y ago
  Money laundering has two parts. Obscuring the money, and making the money look legitimate. If you are dealing with cash, the first is more or less done for you (though if you are dealing with counterfeit cash, you still need to worry about the first). Mixers do the first and don't advertise themselves as services for the second. Mixers basically put you in the same position as organized crime is traditionally in before laundering, lots of cash that isn't really tied with a crime, but has no good reason to be in your possession.
cLeEOGPw 13y ago
If it is not possible to link X and Y, how do bitcoin network recognize Y as a valid address with bitcoins, if there is no history of bitcoins arriving to the address?
- tempestn 13y ago
  Presumably as well as facilitating this transaction with you A->X...Y->B they are also facilitating this with someone else: C->Y...X->D (In reality they would probably have many addresses and not just orchestrate simple pairs like that, but the idea is that the transactions balance out.) So they only need to seed each address with a bit of initial capital, then balance out the transactions.
quasque 13y ago
The paper mentions mixing services but suggests that they are unsuitable for large-scale laundering due to their relatively low volume. That is, if someone wanted to cash out thousands of bitcoins, it would not be possible to disconnect the block chain trail as the value of bitcoins being transferred would dwarf the rest of the transactions being mixing in.
cube13 13y ago
Unless the service maintains a log of all the transactions, which I would imagine they would have to do to ensure that the BTC was properly transferred, and that the transaction has been properly executed. So you're still just a subpoena away from it getting revealed.
- tokenizerrr 13y ago
  For all the reasons you mentioned the logs can be deleted after the process has been completed, if logging is necessary for that.
  - sirclueless 13y ago
    This isn't a trustworthy arrangement. It may be true for a short time that a company holds true to its promise to delete logs, but especially in the US the government can and does issue subpoenas that require companies to keep all logs, and also prevent them from disclosing that they have received such orders.
- rlpb 13y ago
  Mixing services can be anonymous, and their physical location or corresponding legal entities unknown. As others have said though, the law could just require you to reveal to the authorities where you got your wealth from.

by M4v3R 13y ago

travisp 13y ago

This is true, and does provide some anonymity, but there are several situations, at least in the US, in which you can basically be considered guilty until proven innocent where the burden is on you to prove that everything is legal (tax evasion and asset forfeiture). If you can be linked with either side of the mixing service, the fact that nobody can tell where the money went (or came from), might not protect you. For example, suppose your standard of living suddenly improves and you start buying cool expensive toys, but you don't report increased income with the IRS. As I understand it, the IRS can audit you and ask you to prove to them where the money came from. Similarly, if you get stopped with a large pile of "anonymous" cash in your car, you may be asked to prove that the cash was obtained legitimately, and they may hold the cash until you can prove otherwise.

jlgreco 13y ago
Money laundering has two parts. Obscuring the money, and making the money look legitimate. If you are dealing with cash, the first is more or less done for you (though if you are dealing with counterfeit cash, you still need to worry about the first). Mixers do the first and don't advertise themselves as services for the second. Mixers basically put you in the same position as organized crime is traditionally in before laundering, lots of cash that isn't really tied with a crime, but has no good reason to be in your possession.

cLeEOGPw 13y ago

If it is not possible to link X and Y, how do bitcoin network recognize Y as a valid address with bitcoins, if there is no history of bitcoins arriving to the address?

tempestn 13y ago
Presumably as well as facilitating this transaction with you A->X...Y->B they are also facilitating this with someone else: C->Y...X->D (In reality they would probably have many addresses and not just orchestrate simple pairs like that, but the idea is that the transactions balance out.) So they only need to seed each address with a bit of initial capital, then balance out the transactions.

quasque 13y ago

The paper mentions mixing services but suggests that they are unsuitable for large-scale laundering due to their relatively low volume. That is, if someone wanted to cash out thousands of bitcoins, it would not be possible to disconnect the block chain trail as the value of bitcoins being transferred would dwarf the rest of the transactions being mixing in.

cube13 13y ago

Unless the service maintains a log of all the transactions, which I would imagine they would have to do to ensure that the BTC was properly transferred, and that the transaction has been properly executed. So you're still just a subpoena away from it getting revealed.

tokenizerrr 13y ago
For all the reasons you mentioned the logs can be deleted after the process has been completed, if logging is necessary for that.
- sirclueless 13y ago
  This isn't a trustworthy arrangement. It may be true for a short time that a company holds true to its promise to delete logs, but especially in the US the government can and does issue subpoenas that require companies to keep all logs, and also prevent them from disclosing that they have received such orders.
rlpb 13y ago
Mixing services can be anonymous, and their physical location or corresponding legal entities unknown. As others have said though, the law could just require you to reveal to the authorities where you got your wealth from.