Bitcoin is not anonymous

The public image of the Bitkoina, which nurture the media, is the currency sent by international criminals – an anonymous means of washing income acquired that cannot be traced. This led to a convincing inch columns, but the opposite is true. Bitcoin is, in fact, the most transparent payment method ever developed and has the potential to become a powerful tool in the fight against financial crime.

On the ninth day of the Rossa Ulbricht trial, the Prosecution called on its key witness: Ilhwan Yuma, the FBI Special Agent and cyber security experts. Ulbriht was arrested in the public library in San Francisco fifteen months earlier and accused that the owner and operator of the road silk, the world’s largest online illegal market. Using Bitcoin as the only means of payment, page operators hoped to keep the anonymity of their users, who primarily dealt with buying and selling illegal drugs. Over $ 1 Billion transactions were performed on the course of silk between February 2011. and July 2013. years, and operators earned almost 80 million dollars commission – everything in Bitcoins.

‘Bitcoin transactions are all just not anonymous’

Identities can connect to the pseudonym

The Testimony of the FBI FBI was provided by a clear and prominent illustration of what they have already known the technical understanding of the digital currency – that Bitcoin transactions were not all just anonymous. Until this point of trial, Ulbrig’s defense claimed that he did not silk operator and that he was only created before he handed him to others. Yum provided a smoker in the form of undeniable evidence that in a period of 12 months more than 700,000 Bitcoin were transferred from the Bitkoin Wallet Silk Road directly into the wallet on the Rossa Ulbricht.

To understand how this connection can be done, we need to look in more detail how Bitcoin transactions work. To send or receive Bitcoins, you need a bitcoin address – a number of letters and numbers. This address is an analog e-mail address: you can send bitcoins to Bitcoin address in the same way as you can send email to email address. Basically Bitcoina is a public, internet book that records every single transaction, so that everyone can see, known as Blockchain. Agent Yum simply searched Bitcoin BlockChain for transactions involving bitcoin addresses found in silk wallet and those on the laptop of Rossa Ulbricht – and Bingo, found transactions directly between them.

‘In many cases identities can be linked to Bitcoin addresses’

Now, of course, BlockChain does not record everything – the identities of the Parties in the transaction have not been recorded. So Bitcoin is a pseudonym, not anonymous – your alias (Bitcoin address) was recorded, but your identity is not. However, in many cases, identities can be linked to Bitcoin addresses – and it is usually much easier than seizing one’s laptop.

Each Bitcoin transaction with a foreign that knows your identity leaks information that can be used to identify your activities, past and future, on Blockchain. For example, if you transfer Bitcoins to the online seller, the exchange office, or many other services that take user identity information, allow them to connect that identity with your blockchain alias, potentially revealing other transactions in which you are part.

Bitcoin therefore provides the ultimate paper trace for law enforcement agencies, tax authorities and compliance experts. This traceability also makes Bitcoine stealing far less attractive venture. In the past few years, Bitcoins were stolen from the exchange office and the wallet service worth several tens of millions of pounds, but the thief could have done very little with these stolen funds, because in most cases identified on the block. The chain and forever “tainted” – the digital equivalent of bloody banknotes of fifty pounds.

Of course, washing tools appeared, known as ‘mixers’ or ‘tamblers’. These services try to break a paper trace by exchanging one setcoin set for another with different addresses and history of transactions. However, these services have serious restrictions – usually do not work well for large quantities and the wash process itself can often be identified in the block chain.

‘We need to protect the right to preserve user privacy’

We are just beginning to scratch the surface that information can be extracted from the open book of transactions in the heart of Bitcoins. As criminals develop more sophisticated washing techniques, thus will others develop more powerful tools to extract identification information from the block chain and tracking payments.

This also has serious implications on user privacy – we are all satisfied with entrust our financial information to banks, but opening this history of transactions so that everyone can see the blocks of blocks can be too much for many. The wash techniques used by criminals may not be different from completely justified benefits of Bitcoin users to cover their activity – but we must protect the right to maintain this privacy.

What is clear is that regulators and law enforcement agencies should not be afraid of this technology, but to accept it. Transparency of digital currencies makes them uncomfortable home for income acquired crime.

This article first appeared on the Respublica website.