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How to launder Bitcoins

175 points by oleganza 13y ago

JSZZHlmumeUE 13y ago
The issue with money laundering in the real world isn't the technical difficulty. It's easy as pie to launder cash if you ignore the laws surrounding it. I'd imagine that if Bitcon becomes prevalent, governments would ask you to "voluntarily" declare your "salary" wallet. And then if they spotted any sort of suspicious laundering-like activity happening from that wallet, they would very quickly obtain warrants and show up at your door asking for an explanation.
- oleganza 13y ago
  Government would still have to set up a center of "approving" unknown money coming from other sources into local economy. These centers, as you can expect, will be massively bribed by everyone who needs to launder their tainted coins. Also, governments will be much more limited in power when they can't print their money at will and do any "deficit spending".
  - JSZZHlmumeUE 13y ago
    unknown money coming from other sources into local economy These centers actually exist even today. I personally know places where you can buy dollars using the local currency for something like a 10% discount on the market rate. They are obviously very shady and aren't used by anyone close to being respectable. If you use them and are big enough to matter, expect to be screwed over by law enforcement pretty much the instant they feel like getting you. governments will be much more limited in power when they can't print their money at will I believe printing money is actually a good thing. But let's not get into an economics argument here. And governments can easily take over the bitcoin network tomorrow if they wanted to, simply because the ability of Intel, IBM, AMD/GF, NVIDIA and the big semiconductor manufacturers to build really efficient mining ASICs vastly outstrips that of everyone else. And companies like Intel have nothing to lose and everything to gain by keeping the US government happy if they requests come in from the top. Again the analogy with cash is relevant. There is really very little technically difficult about printing counterfeit cash. I mean there's not even cryptography involved - it's just security by obscurity! The reason people don't do it is because governments clamp down on this activity very hard through law-enforcement mechanisms. Similarly, if the governments thought bitcoin was important enough to regulate, they'd be able to do it in an instant simply they have guns and we don't.
    - badinker 13y ago
      "I believe printing money is actually a good thing. But let's not get into an economics argument here." This, is where I stopped reading.
      - keeganpoppen 13y ago
        This is where the comma should be in that sentence. (nowhere)
        eagsalazar2 13y ago
        Very useless pov. Thanks for sharing. Nothing is more irritating in the middle of a good conversation than someone who rebuts by nitpicking grammar.
        icebraining 13y ago
        "This is where I stopped reading ” is never good conversation.
    - oleganza 13y ago
      > I believe printing money is actually a good thing. But let's not get into an economics argument here. You are confusing ethical argument with an economical one. I was talking economics, not ethics. Governments get a lot of power from ability to print money and censor transactions. Bitcoin removes these sources of power to a high degree regardless of whether it's good or bad. Like, when the internet got huge, moral question of whether people should be exposed to "evil books" or not becomes irrelevant. If one wants to read a book you think is not appropriate, he will do so anyway. Governments printing ASICs to spam the network... That's the most expensive way to attack Bitcoin. If anyone ever gets to it, it simply means that BTC is already established in many places and widely used and very valuable. Governments would love to extract that BTC for their spendings instead of killing it. Like it happened with gold: in theory, gold is superior to printed fiat currency, but it isn't killed, it's confiscated and used as a hard currency among those who can afford keeping it secure: governments and banks, not you and me.
  - dinkumthinkum 13y ago
    So is this like in reality or a fantasy?
- sliverstorm 13y ago
  How would that help? You declare your "salary" wallet, your salary flows from your day job. You run your underworld schemes in another wallet, and ne'r the two do meet.
  - wdvh 13y ago
    How do you propose to spend money from your underworld wallet to buy real things - say to buy a car - without revealing your identity to the merchant? And once your identity is out in the open, how do you propose to evade the undisclosed income investigation that will be inevitably follow.
    - sliverstorm 13y ago
      It depends on how much your underground wallet holds. There was that guy who was successful for many years, laundering dollar bills in person. If you buy a BMW, your identity will be noted and the transaction recorded. If you buy a bagel sandwich, the clerk will forget about you by noon the next day. So if it's small potatoes, you could be fine. If you have a ton of cash to move, you are right- in person becomes a bad option. That's when you go back to the basics- you launder the money, like every big-time criminal in history.
    - raldi 13y ago
      Same way the mafia does it: with a front. "Oh, sure, some guy came in and placed a huge catering order. $10,000 worth of food. Paid in BTC. I never saw him again."
- deleted 13y ago
  [deleted]
nwh 13y ago
Pretty much just CoinJoin, which is in development. https://bitcointalk.org/index.php?topic=279249.0 https://bitcointalk.org/index.php?topic=279249.0
- oleganza 13y ago
  I mentioned explicitly why it's not like CoinJoin. CoinJoin leaves a trace of "structuring money", while perfect mixing needs to leave no such trace. All transactions must look like regular payments, statistically indifferent from any other payment. Also, CoinJoin in present form requires a trusted operator who can mark all transactions as "laundering". CoinJoin is better for making Bitcoin look good in the eyes of law enforcement. You can get your privacy with it from everyone, except law enforcement. Lawful citizens and cops must be both happy and not fear that Bitcoin will be used for "terrorism".
  - nwh 13y ago
    If you're doing it persistently you just end up flooding the blockchain with useless information. At least with CoinJoin you're reducing the number of payment TXs that need to be stored and validated. The blockchain is already getting annoyingly large (20GB+ with indexes) without adding fluff like that. If you really want to hide your tracks without hiding your tracks, just use any service with a shared wallet.
    - oleganza 13y ago
      You pay for transactions. Don't tell people what to do with their money. Most of the transactions wouldn't be mixed at all. Just using new addresses with small balances is good enough for daily purchases. Mixing is needed only in certain cases like before and after big consolidating transactions. CoinJoin is nice too, but it does not look well in the eyes of "anti-structuring" laws. Shared wallet is an FBI honeypot unless proven otherwise (which is impossible to do). The best way is to have as big pool of random nodes as possible participating in the laundering. Like with Tor: the more users join it, the safer you are from some malicious entities.
a3_nm 13y ago
There are other approaches for laundering which do not rely on insurance contracts, such as http://zerocoin.org/ http://zerocoin.org/
- oleganza 13y ago
  Zerocoin is interesting, but Bitcoin in its current form has two practical advantages: 1. Cryptographic primitives used in Bitcoin are old and well-tested. There's no crypto code in Bitcoin that was invented by Satoshi and could have been badly broken in a subtle manner. Zerocoin's commitment scheme requires years of testing, attempts to crack it and fixing may be impossible. If the problem is discovered, the whole thing may lose all value overnight. 2. Bitcoin is more friendly in the eyes of the law enforcement. Bitcoin looks like a traceable, compatible with "tracking all citizens" policy. It gives it a green light from the governments. Of course, in reality, you can launder bitcoins and hide yourself quite well, but that's extra work and complexity. Meanwhile, like a Trojan horse, Bitcoin comes to the legal scene as a nice instrument that allows to track "bad" guys. Not relevant in the long term, but important in the short term to get legality and massive adoption.
  - nwh 13y ago
    > There's no crypto code in Bitcoin that was invited by Satoshi and could have been badly broken in a subtle manner. Read up on the history of the client. Satoshi was innovative but could certainly not code securely to save themselves. Most of the script OP codes are still disabled because they introduced huge vulnerabilities. You could spend anybodies coins in Satoshi's client, or create integer overflows that created billions of coins in a transaction. The client is a lot better now, but to say it's perfect because it was there from inception is a huge mistake.
    - oleganza 13y ago
      Which only proves my point. It's really hard to make it right in v0.1 and you have to make it right, otherwise the whole thing is forever broken. Even then, there were two huge bugs: one with integer overflow that created billions of bitcoins in one transaction. Another was with OP_RETURN that allowed to spend bitcoins from any transactions without any effort. Bitcoin wins over more complex schemes because it has less moving parts. Fortunately, the parts that were enabled work fine and give us awesome possibilities. Otherwise, they'd be disabled too.
cheesylard 13y ago
I'm starting to get sick of these Bitcoin posts.
- shadowOfShadow 13y ago
  Starting, eh? The author basically says the bitcoin handler at the coffee shop will know how much you have unless you go through a massive scheme (which is probably borderline illegal for decent reasons) to gain back any sense of normalcy. This is what happens when people take their own ball to go play in their own yard. If it's going to take the amount of time, energy, and expertise to barely make bitcoin usable, how does the cognitive dissonance not overwhelm the coinbugs?
  - nwh 13y ago
    That's generally not the case. You might be able to see some of my funds, but certainly not the entire contents of my wallet unless you're using very broken ones. I've hundreds of different inputs in my wallet, and you'd only be seeing one of them.
    - epscylonb 13y ago
      I think the danger of the public nature of the blockchain is way overstated. It's fairly trivial to introduce reasonable doubt into your transaction history, blockchain analysis is nowhere near as useful to law enforcement as some people think. The situation I worry about more is when someone is operating outside of the law, for example if you legitimately but unknowingly end up with some coins that were previously stolen, and then some guys with baseball bats turn up at your house.
      - oleganza 13y ago
        That's why you split the coins repeatedly as you mix them. You don't want more than 0.1% of someone's "dirty" history. Client-side statistical analysis allows each node to decide which coins are good for them personally. (So that all coins are "far" away from each other.)
Ihmahr 13y ago
Something I wonder about is whether an isp or peer nodes could detect the transactions are coming from you.
- oleganza 13y ago
  There's Tor. In addition, your ISP never sees transactions coming to you. You can later spend your newly received coins from some other network.
  - nly 13y ago
    I'm not sure about that. P2P bloom filters were introduced to reduce bandwidth consumption for SPV clients some time ago. I think this feature can potentially leaks information about what transactions you're interested in. https://en.bitcoin.it/wiki/BIP_0037 https://en.bitcoin.it/wiki/BIP_0037
- nly 13y ago
  The Bitcoin protocol isn't encrypted (it can't be, nodes have no identities in the network), and doesn't attempt to mask itself in any way. An ISP can absolutely log every transaction relayed by their customers... of course, it's still impossible to determine whether that person actually created that transaction
hershel 13y ago
How do you implement anonymous peer discovery against someone who can tap the whole internet ?
- oleganza 13y ago
  Tor works somehow and NSA admits that it's a pain in the ass even for them. When someone targets you specifically, you have little chances, but when the whole network routinely mixes coins it's much easier to hide in the woods.
  - JSZZHlmumeUE 13y ago
    Is that really true? I believe a global passive adversary can easily use timing attacks to deanonymize tor.
    - oleganza 13y ago
      I'm not an expert in Tor. In one of Snowden's documents NSA admitted that Tor is hard to infiltrate even for them. I myself don't want to live in a world where you need to actively hide from huge adversaries. I'd prefer a more careless world with smaller adversaries. Hopefully, widespread adoption of Bitcoin will take a lot of power from governments, so we won't have massive money wasting TLAs that create misery all around the world. Edit: I meant "don't want to live", not "don't live".
      - JSZZHlmumeUE 13y ago
        I interpreted the NSA documents to mean that Tor is harder than no-Tor. They already know who you are if you don't use Tor, but if you do, they probably have to do some analysis to figure it out. Let's work this out though. What do we know about the NSA programs? 1. They collect metadata on packets originating from computers connected to pretty much all the US ISPs and many other countries' ISPs. 2. The list of Tor entry and exit nodes is public and you can bet your ass the NSA knows what this list is at all points in their logging history. 3. Most websites are based in the US, and so it's highly likely that the paths from the Tor exit nodes to these websites have some intermediate point on which traffic is logged by the NSA. 4. The NSA has access to a large training dataset of how traffic entering and leaving the Tor network looks because a whole bunch of federal authorities use Tor. Given 1-4, I think it's likely trivial for the NSA to train a learning algorithm that will correlate packets leaving a Tor exit node with those entering an entry node. They probably can't do this all the time because it is more expensive than just a database lookup like in the unencrypted case, but it seems me to that if they had the motivation to get you, it wouldn't be too hard for them.
zapt02 13y ago
I might have missed something, but how can we be sure that malicious nodes do not just steal your money?
- oleganza 13y ago
  Insurance deposits. Both nodes lock up much more money than being "promised". If one node does not deliver, another node will automatically destroy both deposits. Nodes thus are motivated to follow the protocol and not cheat. Since the process is automated, there's no one to play extortion games. The insurance contract is a special type of transaction that I invented: http://blog.oleganza.com/post/58240549599/contracts-without-trust-or-third-parties http://blog.oleganza.com/post/58240549599/contracts-without-...
  - Nevermark 13y ago
    I like your transaction idea and have an improvement. The trick is to reduce the costs of one-time punishment. This makes transactions less risky for contract keepers and more risky for contract breakers: Terminology: I would call a contract where both parties lock up funds to be released on successful contract completion a "co-investment contract". Then I would add third parties we can call "co-investment insurers". A co-investment insurer could be any party with a solid reputation of their own to keep, and who has a long term relationship with you (your bank for instance). For a small fee, (1%?) the co-investment insurer agrees to cover your investment loss if a contract fails. Then the economics work like this: 1) People will not be afraid to lock up co-investments when their investment is insured because the worst that can happen if a contract is broken is they are out the small insurance fee. 2) Any party who gets insurance will still be incentivized to complete the contract successfully, so as not to harm their reputation with their long term co-investment insurer. (Who could increase their insurance fee or cancel their account if many transactions failed.) 3) Not everyone needs to buy co-investment insurance for this to have a big impact. The mere possibility of insurance makes punishment a stronger threat and therefore contracts more reliable. 4) As the systems's reputation for reliably punishing contract breakers increases, the insurance costs go down, making it even more affordable. This further increases the system's reliability for punishing contract breakers. Given that all this can be automated, and reinforces incentives to keep contracts, I would think that insurance fees of only 1% or even less would become possible.
dobbsbob 13y ago
Bitcoin wiki tells you exactly what you need to do. Generate addresses offline or proxied through Tor or JonDonym. Use different addresses for every input. Use CoinControl program to send coins https://bitcointalk.org/index.php?topic=144331.0 https://bitcointalk.org/index.php?topic=144331.0 Never post your bitcoin address anywhere you can be identified, such as a msg forum signature, or directly to an exchange for withdrawal/deposit. Use addresses not linked to you (OPSEC). Stay away from the exchanges that want piles of ID and use P2P trading on IRC or in person.
- sliverstorm 13y ago
  Managing addresses seems like the easy part, to me. The real challenge is getting money in & out of BTC, at least until you can spend it just about anywhere.
  - sturmeh 13y ago
    It'll get significantly easier soon enough, but at the moment it's no easier to load your PayPal with money.
jamhan 13y ago
That is not what structuring is at all. Structuring is conducting transactions in a way that will avoid triggering reporting requirements. If the legislation in your country requires financial services providers to report any cash transaction greater than or equal to say, $10,000, and you go and deposit $9500 five times with the sole purpose being to avoid these reporting requirements, then you are in breach of structuring laws. That's it. It has nothing to do with the legality or otherwise of the source of your money. Also, money laundering is not about forbidding buying bad things. In fact, it's entirely the opposite. It's about buying legal things to hide the proceeds of crime.
- pmorici 13y ago
  Structuring laws are pretty shitty there have been plenty of examples of people being screwed over by the government w/o legal due process for just conducting legitimate businesses that happen to receive a lot of cash payments from customers. Just one recent one... http://overlawyered.com/2013/09/institute-justice-tackles-structuring-forfeiture-case/ http://overlawyered.com/2013/09/institute-justice-tackles-st...
  - jamhan 13y ago
    This seems to me to be more a problem of rampant abuse of forfeiture laws rather than a failure of structuring laws. The many stories I have read recently of "forfeiture corridors" in the USA would seem to reinforce that.
- oleganza 13y ago
  The financial regulations are pretty complicated and can be interpreted or retroactively changed as guys in your government want. Especially in US. There are already "anti-hidden compartment laws": http://www.aei-ideas.org/2013/11/america-heres-your-war-on-drugs-a-felony-drug-arrest-in-ohio-for-not-trafficking-drugs/#mbl http://www.aei-ideas.org/2013/11/america-heres-your-war-on-d... So if you want to hide your bitcoin traces, it's better to make them completely diffused in the rest of the blockchain history to avoid attracting any extra eyes.
eriksank 13y ago
All this talk about "the" government does not make sense. Which one of the 200+ governments? With more than 50% of the hashrate sitting behind the Great Chinese Firewall (GCF), the question is whether the NSA really wants to provoke the Chinese government into re-targetting their thermonuclear warheads on New York and Washington DC. As soon as the NSA crosses the GCF with their shenanigans, God knows that the Chinese will repay the insult in kind. Same for the Russians. They will not take any bullshit. All of us know that respect eventually rests on the fear for reprisals. With the arrogance going way to far now, it has become time for the Chinese and the Russians to clarify a thing or two and to retarget their thermonuclear warheads on New York and Washington DC.
nullc 13y ago
::Yawn:: The insurance contract approach is lame as it makes you lose your funds if the other party suffers an honest failure (e.g. they get hit by a bus). Better protocols are possible: https://bitcointalk.org/index.php?topic=321228 https://bitcointalk.org/index.php?topic=321228 (CoinSwap) Describing it as "laundering" is more than a little hopeful-eyed. These sorts of things are privacy mechanisms, which make Bitcoin's privacy a bit closer to traditional banking... but they don't provide an apparent legitimate origin of the funds, so they aren't themselves useful for money laundering.
drakaal 13y ago
Complex and won't work. Assumes none of your "insurers" are bad neighbors. If one of your washers is a government shill you are caught.

175 points by oleganza 13y ago

The issue with money laundering in the real world isn't the technical difficulty. It's easy as pie to launder cash if you ignore the laws surrounding it. I'd imagine that if Bitcon becomes prevalent, governments would ask you to "voluntarily" declare your "salary" wallet. And then if they spotted any sort of suspicious laundering-like activity happening from that wallet, they would very quickly obtain warrants and show up at your door asking for an explanation.

oleganza 13y ago
Government would still have to set up a center of "approving" unknown money coming from other sources into local economy. These centers, as you can expect, will be massively bribed by everyone who needs to launder their tainted coins. Also, governments will be much more limited in power when they can't print their money at will and do any "deficit spending".
- JSZZHlmumeUE 13y ago
  unknown money coming from other sources into local economy These centers actually exist even today. I personally know places where you can buy dollars using the local currency for something like a 10% discount on the market rate. They are obviously very shady and aren't used by anyone close to being respectable. If you use them and are big enough to matter, expect to be screwed over by law enforcement pretty much the instant they feel like getting you. governments will be much more limited in power when they can't print their money at will I believe printing money is actually a good thing. But let's not get into an economics argument here. And governments can easily take over the bitcoin network tomorrow if they wanted to, simply because the ability of Intel, IBM, AMD/GF, NVIDIA and the big semiconductor manufacturers to build really efficient mining ASICs vastly outstrips that of everyone else. And companies like Intel have nothing to lose and everything to gain by keeping the US government happy if they requests come in from the top. Again the analogy with cash is relevant. There is really very little technically difficult about printing counterfeit cash. I mean there's not even cryptography involved - it's just security by obscurity! The reason people don't do it is because governments clamp down on this activity very hard through law-enforcement mechanisms. Similarly, if the governments thought bitcoin was important enough to regulate, they'd be able to do it in an instant simply they have guns and we don't.
  - badinker 13y ago
    "I believe printing money is actually a good thing. But let's not get into an economics argument here." This, is where I stopped reading.
    - keeganpoppen 13y ago
      This is where the comma should be in that sentence. (nowhere)
      - eagsalazar2 13y ago
        Very useless pov. Thanks for sharing. Nothing is more irritating in the middle of a good conversation than someone who rebuts by nitpicking grammar.
        icebraining 13y ago
        "This is where I stopped reading ” is never good conversation.
  - oleganza 13y ago
    > I believe printing money is actually a good thing. But let's not get into an economics argument here. You are confusing ethical argument with an economical one. I was talking economics, not ethics. Governments get a lot of power from ability to print money and censor transactions. Bitcoin removes these sources of power to a high degree regardless of whether it's good or bad. Like, when the internet got huge, moral question of whether people should be exposed to "evil books" or not becomes irrelevant. If one wants to read a book you think is not appropriate, he will do so anyway. Governments printing ASICs to spam the network... That's the most expensive way to attack Bitcoin. If anyone ever gets to it, it simply means that BTC is already established in many places and widely used and very valuable. Governments would love to extract that BTC for their spendings instead of killing it. Like it happened with gold: in theory, gold is superior to printed fiat currency, but it isn't killed, it's confiscated and used as a hard currency among those who can afford keeping it secure: governments and banks, not you and me.
- dinkumthinkum 13y ago
  So is this like in reality or a fantasy?
sliverstorm 13y ago
How would that help? You declare your "salary" wallet, your salary flows from your day job. You run your underworld schemes in another wallet, and ne'r the two do meet.
- wdvh 13y ago
  How do you propose to spend money from your underworld wallet to buy real things - say to buy a car - without revealing your identity to the merchant? And once your identity is out in the open, how do you propose to evade the undisclosed income investigation that will be inevitably follow.
  - sliverstorm 13y ago
    It depends on how much your underground wallet holds. There was that guy who was successful for many years, laundering dollar bills in person. If you buy a BMW, your identity will be noted and the transaction recorded. If you buy a bagel sandwich, the clerk will forget about you by noon the next day. So if it's small potatoes, you could be fine. If you have a ton of cash to move, you are right- in person becomes a bad option. That's when you go back to the basics- you launder the money, like every big-time criminal in history.
  - raldi 13y ago
    Same way the mafia does it: with a front. "Oh, sure, some guy came in and placed a huge catering order. $10,000 worth of food. Paid in BTC. I never saw him again."
deleted 13y ago
[deleted]

nwh 13y ago

Pretty much just CoinJoin, which is in development. https://bitcointalk.org/index.php?topic=279249.0 https://bitcointalk.org/index.php?topic=279249.0

oleganza 13y ago
I mentioned explicitly why it's not like CoinJoin. CoinJoin leaves a trace of "structuring money", while perfect mixing needs to leave no such trace. All transactions must look like regular payments, statistically indifferent from any other payment. Also, CoinJoin in present form requires a trusted operator who can mark all transactions as "laundering". CoinJoin is better for making Bitcoin look good in the eyes of law enforcement. You can get your privacy with it from everyone, except law enforcement. Lawful citizens and cops must be both happy and not fear that Bitcoin will be used for "terrorism".
- nwh 13y ago
  If you're doing it persistently you just end up flooding the blockchain with useless information. At least with CoinJoin you're reducing the number of payment TXs that need to be stored and validated. The blockchain is already getting annoyingly large (20GB+ with indexes) without adding fluff like that. If you really want to hide your tracks without hiding your tracks, just use any service with a shared wallet.
  - oleganza 13y ago
    You pay for transactions. Don't tell people what to do with their money. Most of the transactions wouldn't be mixed at all. Just using new addresses with small balances is good enough for daily purchases. Mixing is needed only in certain cases like before and after big consolidating transactions. CoinJoin is nice too, but it does not look well in the eyes of "anti-structuring" laws. Shared wallet is an FBI honeypot unless proven otherwise (which is impossible to do). The best way is to have as big pool of random nodes as possible participating in the laundering. Like with Tor: the more users join it, the safer you are from some malicious entities.

a3_nm 13y ago

There are other approaches for laundering which do not rely on insurance contracts, such as http://zerocoin.org/ http://zerocoin.org/

oleganza 13y ago
Zerocoin is interesting, but Bitcoin in its current form has two practical advantages: 1. Cryptographic primitives used in Bitcoin are old and well-tested. There's no crypto code in Bitcoin that was invented by Satoshi and could have been badly broken in a subtle manner. Zerocoin's commitment scheme requires years of testing, attempts to crack it and fixing may be impossible. If the problem is discovered, the whole thing may lose all value overnight. 2. Bitcoin is more friendly in the eyes of the law enforcement. Bitcoin looks like a traceable, compatible with "tracking all citizens" policy. It gives it a green light from the governments. Of course, in reality, you can launder bitcoins and hide yourself quite well, but that's extra work and complexity. Meanwhile, like a Trojan horse, Bitcoin comes to the legal scene as a nice instrument that allows to track "bad" guys. Not relevant in the long term, but important in the short term to get legality and massive adoption.
- nwh 13y ago
  > There's no crypto code in Bitcoin that was invited by Satoshi and could have been badly broken in a subtle manner. Read up on the history of the client. Satoshi was innovative but could certainly not code securely to save themselves. Most of the script OP codes are still disabled because they introduced huge vulnerabilities. You could spend anybodies coins in Satoshi's client, or create integer overflows that created billions of coins in a transaction. The client is a lot better now, but to say it's perfect because it was there from inception is a huge mistake.
  - oleganza 13y ago
    Which only proves my point. It's really hard to make it right in v0.1 and you have to make it right, otherwise the whole thing is forever broken. Even then, there were two huge bugs: one with integer overflow that created billions of bitcoins in one transaction. Another was with OP_RETURN that allowed to spend bitcoins from any transactions without any effort. Bitcoin wins over more complex schemes because it has less moving parts. Fortunately, the parts that were enabled work fine and give us awesome possibilities. Otherwise, they'd be disabled too.

cheesylard 13y ago

I'm starting to get sick of these Bitcoin posts.

shadowOfShadow 13y ago
Starting, eh? The author basically says the bitcoin handler at the coffee shop will know how much you have unless you go through a massive scheme (which is probably borderline illegal for decent reasons) to gain back any sense of normalcy. This is what happens when people take their own ball to go play in their own yard. If it's going to take the amount of time, energy, and expertise to barely make bitcoin usable, how does the cognitive dissonance not overwhelm the coinbugs?
- nwh 13y ago
  That's generally not the case. You might be able to see some of my funds, but certainly not the entire contents of my wallet unless you're using very broken ones. I've hundreds of different inputs in my wallet, and you'd only be seeing one of them.
  - epscylonb 13y ago
    I think the danger of the public nature of the blockchain is way overstated. It's fairly trivial to introduce reasonable doubt into your transaction history, blockchain analysis is nowhere near as useful to law enforcement as some people think. The situation I worry about more is when someone is operating outside of the law, for example if you legitimately but unknowingly end up with some coins that were previously stolen, and then some guys with baseball bats turn up at your house.
    - oleganza 13y ago
      That's why you split the coins repeatedly as you mix them. You don't want more than 0.1% of someone's "dirty" history. Client-side statistical analysis allows each node to decide which coins are good for them personally. (So that all coins are "far" away from each other.)

Ihmahr 13y ago

Something I wonder about is whether an isp or peer nodes could detect the transactions are coming from you.

oleganza 13y ago
There's Tor. In addition, your ISP never sees transactions coming to you. You can later spend your newly received coins from some other network.
- nly 13y ago
  I'm not sure about that. P2P bloom filters were introduced to reduce bandwidth consumption for SPV clients some time ago. I think this feature can potentially leaks information about what transactions you're interested in. https://en.bitcoin.it/wiki/BIP_0037 https://en.bitcoin.it/wiki/BIP_0037
nly 13y ago
The Bitcoin protocol isn't encrypted (it can't be, nodes have no identities in the network), and doesn't attempt to mask itself in any way. An ISP can absolutely log every transaction relayed by their customers... of course, it's still impossible to determine whether that person actually created that transaction

hershel 13y ago

How do you implement anonymous peer discovery against someone who can tap the whole internet ?

oleganza 13y ago
Tor works somehow and NSA admits that it's a pain in the ass even for them. When someone targets you specifically, you have little chances, but when the whole network routinely mixes coins it's much easier to hide in the woods.
- JSZZHlmumeUE 13y ago
  Is that really true? I believe a global passive adversary can easily use timing attacks to deanonymize tor.
  - oleganza 13y ago
    I'm not an expert in Tor. In one of Snowden's documents NSA admitted that Tor is hard to infiltrate even for them. I myself don't want to live in a world where you need to actively hide from huge adversaries. I'd prefer a more careless world with smaller adversaries. Hopefully, widespread adoption of Bitcoin will take a lot of power from governments, so we won't have massive money wasting TLAs that create misery all around the world. Edit: I meant "don't want to live", not "don't live".
    - JSZZHlmumeUE 13y ago
      I interpreted the NSA documents to mean that Tor is harder than no-Tor. They already know who you are if you don't use Tor, but if you do, they probably have to do some analysis to figure it out. Let's work this out though. What do we know about the NSA programs? 1. They collect metadata on packets originating from computers connected to pretty much all the US ISPs and many other countries' ISPs. 2. The list of Tor entry and exit nodes is public and you can bet your ass the NSA knows what this list is at all points in their logging history. 3. Most websites are based in the US, and so it's highly likely that the paths from the Tor exit nodes to these websites have some intermediate point on which traffic is logged by the NSA. 4. The NSA has access to a large training dataset of how traffic entering and leaving the Tor network looks because a whole bunch of federal authorities use Tor. Given 1-4, I think it's likely trivial for the NSA to train a learning algorithm that will correlate packets leaving a Tor exit node with those entering an entry node. They probably can't do this all the time because it is more expensive than just a database lookup like in the unencrypted case, but it seems me to that if they had the motivation to get you, it wouldn't be too hard for them.

zapt02 13y ago

I might have missed something, but how can we be sure that malicious nodes do not just steal your money?

oleganza 13y ago
Insurance deposits. Both nodes lock up much more money than being "promised". If one node does not deliver, another node will automatically destroy both deposits. Nodes thus are motivated to follow the protocol and not cheat. Since the process is automated, there's no one to play extortion games. The insurance contract is a special type of transaction that I invented: http://blog.oleganza.com/post/58240549599/contracts-without-trust-or-third-parties http://blog.oleganza.com/post/58240549599/contracts-without-...
- Nevermark 13y ago
  I like your transaction idea and have an improvement. The trick is to reduce the costs of one-time punishment. This makes transactions less risky for contract keepers and more risky for contract breakers: Terminology: I would call a contract where both parties lock up funds to be released on successful contract completion a "co-investment contract". Then I would add third parties we can call "co-investment insurers". A co-investment insurer could be any party with a solid reputation of their own to keep, and who has a long term relationship with you (your bank for instance). For a small fee, (1%?) the co-investment insurer agrees to cover your investment loss if a contract fails. Then the economics work like this: 1) People will not be afraid to lock up co-investments when their investment is insured because the worst that can happen if a contract is broken is they are out the small insurance fee. 2) Any party who gets insurance will still be incentivized to complete the contract successfully, so as not to harm their reputation with their long term co-investment insurer. (Who could increase their insurance fee or cancel their account if many transactions failed.) 3) Not everyone needs to buy co-investment insurance for this to have a big impact. The mere possibility of insurance makes punishment a stronger threat and therefore contracts more reliable. 4) As the systems's reputation for reliably punishing contract breakers increases, the insurance costs go down, making it even more affordable. This further increases the system's reliability for punishing contract breakers. Given that all this can be automated, and reinforces incentives to keep contracts, I would think that insurance fees of only 1% or even less would become possible.

dobbsbob 13y ago

Bitcoin wiki tells you exactly what you need to do. Generate addresses offline or proxied through Tor or JonDonym. Use different addresses for every input. Use CoinControl program to send coins https://bitcointalk.org/index.php?topic=144331.0 https://bitcointalk.org/index.php?topic=144331.0 Never post your bitcoin address anywhere you can be identified, such as a msg forum signature, or directly to an exchange for withdrawal/deposit. Use addresses not linked to you (OPSEC). Stay away from the exchanges that want piles of ID and use P2P trading on IRC or in person.

sliverstorm 13y ago
Managing addresses seems like the easy part, to me. The real challenge is getting money in & out of BTC, at least until you can spend it just about anywhere.
- sturmeh 13y ago
  It'll get significantly easier soon enough, but at the moment it's no easier to load your PayPal with money.

jamhan 13y ago

That is not what structuring is at all. Structuring is conducting transactions in a way that will avoid triggering reporting requirements. If the legislation in your country requires financial services providers to report any cash transaction greater than or equal to say, $10,000, and you go and deposit $9500 five times with the sole purpose being to avoid these reporting requirements, then you are in breach of structuring laws. That's it. It has nothing to do with the legality or otherwise of the source of your money. Also, money laundering is not about forbidding buying bad things. In fact, it's entirely the opposite. It's about buying legal things to hide the proceeds of crime.

pmorici 13y ago
Structuring laws are pretty shitty there have been plenty of examples of people being screwed over by the government w/o legal due process for just conducting legitimate businesses that happen to receive a lot of cash payments from customers. Just one recent one... http://overlawyered.com/2013/09/institute-justice-tackles-structuring-forfeiture-case/ http://overlawyered.com/2013/09/institute-justice-tackles-st...
- jamhan 13y ago
  This seems to me to be more a problem of rampant abuse of forfeiture laws rather than a failure of structuring laws. The many stories I have read recently of "forfeiture corridors" in the USA would seem to reinforce that.
oleganza 13y ago
The financial regulations are pretty complicated and can be interpreted or retroactively changed as guys in your government want. Especially in US. There are already "anti-hidden compartment laws": http://www.aei-ideas.org/2013/11/america-heres-your-war-on-drugs-a-felony-drug-arrest-in-ohio-for-not-trafficking-drugs/#mbl http://www.aei-ideas.org/2013/11/america-heres-your-war-on-d... So if you want to hide your bitcoin traces, it's better to make them completely diffused in the rest of the blockchain history to avoid attracting any extra eyes.

eriksank 13y ago

All this talk about "the" government does not make sense. Which one of the 200+ governments? With more than 50% of the hashrate sitting behind the Great Chinese Firewall (GCF), the question is whether the NSA really wants to provoke the Chinese government into re-targetting their thermonuclear warheads on New York and Washington DC. As soon as the NSA crosses the GCF with their shenanigans, God knows that the Chinese will repay the insult in kind. Same for the Russians. They will not take any bullshit. All of us know that respect eventually rests on the fear for reprisals. With the arrogance going way to far now, it has become time for the Chinese and the Russians to clarify a thing or two and to retarget their thermonuclear warheads on New York and Washington DC.

nullc 13y ago

::Yawn:: The insurance contract approach is lame as it makes you lose your funds if the other party suffers an honest failure (e.g. they get hit by a bus). Better protocols are possible: https://bitcointalk.org/index.php?topic=321228 https://bitcointalk.org/index.php?topic=321228 (CoinSwap) Describing it as "laundering" is more than a little hopeful-eyed. These sorts of things are privacy mechanisms, which make Bitcoin's privacy a bit closer to traditional banking... but they don't provide an apparent legitimate origin of the funds, so they aren't themselves useful for money laundering.

drakaal 13y ago

Complex and won't work. Assumes none of your "insurers" are bad neighbors. If one of your washers is a government shill you are caught.