Liberty Reserve Founder Arrested, Site Shuttered

https://krebsonsecurity.com/2013/05/reports-liberty-reserve-founder-arrested-site-shuttered/

by samweinberg • 13 years ago

113 99 13 years ago

rdl9• 13 years ago

E-Gold round 47, I guess?

It's unclear how predictive the raid on Mt Gox (which appears to be FinCEN MSB registration related, but possibly with more behind it) and LR (which appears to be due to the use of LR by child porn and other illegal activities, ultimately) are for future USG vs. Bitcoin exchangers and other market participants.

(also, sigh, he's getting DoSed; using Prolexic, who are usually pretty decent at mitigating these attacks, but it takes a long time to load.)

dariusm5• 13 years ago

Cached version: http://webcache.googleusercontent.com/search?q=cache:krebson...

hackerboos• 13 years ago

I'm surprised they managed to skirt the law for so long when they actively promoted very shady HYIP programs.

jtome3• 13 years ago

Costa Rica has some wacky banking laws which allowed this to go on for as long as it did

DanielBMarkham4• 13 years ago

My opinion on e-currency is evolving the more I see how it's actually working in the real world.

Ignoring the fact that bad people many times use e-currency for repulsive things like child slavery, the lesson over the past month or two seems very clear: any form of e-currency is a huge tool for governments to monitor and control economic activity.

We think of e-currency as being much easier to move around than printed currency, but it's actually much easier to track and control than printed currency. Yes, it begins as an anonymous and cryptographically-secure form of value representation, but once government adds just a little enforcement tweaking (many times without even having to pass a law) it becomes a big lead weight around the owner's neck. Best-case, it's all tracked down to the penny. Worst-case, you lose all your value.

I remain a skeptical fan, though. Here's hoping the community works through these issues.

gbrindisi3• 13 years ago

> Ignoring the fact that bad people many times use e-currency for repulsive things like child slavery

Source?

rdl9• 13 years ago

E-Gold got used for carders (a lot), HYIPs/moneygames, and, most regrettably, child pornography (this is all in court documents; I consulted for E-Gold and worked on an affiliated project back in 1998-1999, about a decade before the prosecution). It was funny running into Carol Van Cleef, a lawyer from Patton Boggs, who defended E-Gold after they were convicted (in implementing the agreement), at the Bitcoin 2013 conference (she knew my name from docs, but we'd never met).

E-Gold actually was helping prosecutors vs. the carders/cp people, and maintaining files on them/actively working with law enforcement, but when it became a criminal case about E-Gold, that information was used as evidence the system itself supported these activities.

LR is probably in the same position; I know they have essentially the same market positioning.

the_mitsuhiko• 13 years ago

You don't even need a source for this, it should be obvious that it's used for that.

rdl9• 13 years ago

This is why I think something blinded is essential; your unlinkability (and thus anonymity) are essentially as strong as cryptography, vs. policy.

I'm still trying to figure out if Zerocoin or another decentralized system can work, or if it will require just having a large number of redundant small-but-individually-centralized blinded currencies. You can make each pretty resilient (hidden behind tor or message pools/offline, k of n threshold cryptography, etc.), but if there are 1000 USD currencies, you can hedge and accept the loss of a few and lose only a small percentage of assets.

DanielBMarkham4• 13 years ago

Yeah, whatever the solution is, I think it has to be something massively decentralized and blinded.

I've been speculating that a distributed double-blind commodities ownership system might fit the bill. Some people buy commodities and hold them, then distribute ownership cryptographically. Owners never know holders, only the definition of what they own. Ownership is transferred cryptographically.

Still needs a lot of work, though, even as a blue-sky idea.

lawnchair_larry• 13 years ago

I think it's clear that anything that can "work" will be deemed illegal. Because "terrorists" and "money laundering".

yuvadam• 13 years ago

> bad people many times use e-currency for repulsive things like child slavery

Do people not use fiat currency, as well, for repulsive things like child slavery?

shocks2• 13 years ago

Hehe, I came here to point this out as well. People are all too quick to jump on the "e-currency is for bad things!" band wagon thinking their precious pounds and dollars are squeaky clean.

rdl9• 13 years ago

Physical cash is decentralized and used for a lot of bad stuff. However, it's not digital/online, so there are a lot of ways it's not useful, and it's also easier to investigate in some ways (bulk currency smuggled out of the country can be tracked the same way drugs coming in are tracked.)

Bank/etc. operated payment systems, at least the above-board ones, at least pay some level of attention to AML, anti other criminal activity, etc. It's not uniformly effective, sure, but it's hard to operate a large child-porn-for-Visa merchant, and visa/card issuers/gateways tend to cooperate fully with various government agencies in both stopping the activity and in catching/prosecuting the offenders.

wslh• 13 years ago

>> bad people many times use e-currency for repulsive things like child slavery

>Do people not use fiat currency, as well, for repulsive things like child slavery?

Or do they use computers, and weapons, and, and, and...?

stuaxo• 13 years ago

The ZeroCoin extension to bitcoin addresses this, perhaps it should be taken up

http://blog.cryptographyengineering.com/2013/04/zerocoin-mak...

gizmo686• 13 years ago

As it stands now, zerocoin is infeasible for practical use. A single proof averages 40kb, and takes about to two seconds to verify. Still, it was the first attempt at such a ptotocal, so hopefully we will see improvement.

dedward• 13 years ago

Online transaction providers, like Liberty Reserve, Paypal, credit card processors, your bank's website, and so on, are really not digital currencies at all... they are transaction processors.

Bitcoin, and things resembling it are actual cryptocurrencies and something we could truly call an e-currency. It's about as trackable as cash (in that it can be tracked but it takes very significant effort, and it can be traded like cash.. it's much more than a number in some database.)

andyakb• 13 years ago

Cash doesn't have a public record of (nearly) all transaction

rdl9• 13 years ago

The ultimate lulz issue for fully anonymous and resilient payments is probably the Jim Bell/Tim May "Assassination Politics" model:

http://en.wikipedia.org/wiki/Assassination_market http://www.outpost-of-freedom.com/jimbellap.htm http://www.cypherpunks.to/faq/cyphernomicron/cyphernomicon.t...

Essentially I could say "I bet $100k that Marcus Badperson will die on the morning of 15 June 2013"; best way to collect is to do the deed yourself (or subcontract.)

The terrifying thing is not so much that someone might be willing to pay $100k to kill someone, but that 1mm people might each be willing to pay $0.10. Not so much kickstarter as kickender.

(this whole thing was my first contact with the federal court system, since I hosted a mailing list archive for the cypherpunks list on which a lot of this was discussed, when Jim Bell got prosecuted back in 1997 for attacking an IRS office. I was so glad I was running a really mediocre mailing list archive where anyone who sent mail directly to the list address on the machine could inject messages, and by picking the right message id, overwrite...and for getting the world's most awesome attorney on retainer...)

aptwebapps• 13 years ago

A child could have hacked my system, your honor, a child!

asdkl234890• 13 years ago

I bet $100k that Marcus Badperson will die on the morning of 15 June 2013"; best way to collect is to do the deed yourself (or subcontract.)

But don't you need someone else to take the other side of the bet?

You can't just bet X and get more. You can only get what Y bets in opposition. Assuming no one else agrees with you and makes the same bet, because then you'd have to share what Y put down.

And who's going to be the opposing side in these bets?

I happen to know Marcus Badperson is a janitor for the federal serve and will spend all day on June 15th cleaning the gold bars inside the safest safe in the world. So I bet a billion dollars he does NOT die between the hours of 9am and 5pm on June 15th. Unless someone else bets more than a billion, the best I can do is simply collect the same billion I put down.

I was hoping to find an elaboration of who could be the counter party in the Wikipedia page, but nope nothing there.

I think the assassination market is very probable if you completely skip the question of who's the counter party. Or if you have no idea how betting and payouts work in the first place. Otherwise this "assassination market" is total bullshit.

belorn2• 13 years ago

When discussing e-currencies, I find myself asking what the incentives are in using them. What I find is that the biggest reason to use e-currencies is not any intrinsic benefit of the e-currencies itself.

Rather, it's the current banking system that has drawbacks which pushes myself and, I assume, others, to look for alternatives. For example, thanks to the move of digital cash over physical, banks has gone from being a care taker to a service provider. That might not sound as a big change, but it has a huge impact on the power balance of the bank vs the consumer. I personally am no longer in control my own money. If I wanted today to take out my own money from the bank here in Sweden, I would have to go down there and ask for permission. If I then give them a reasonable argument why I should be allowed to take out my cash from the bank, then they might allow me to come back in a few weeks and take out the cash. If they do not like my argument for taking out the cash, then they are perfectly legally allowed to deny me access to my money.

And that's only about access to my own money. We also have the personal information derived from transactions I make. That data is not even remotely under my control, as it is given out to be data mined by anyone within EU or who has a EU treaty for data sharing (like US). It can also be sold, or data mined by the bank itself, and the bank could claim copyright ownership on it.

Therefore, a major benefit of e-currency is that it removes the negative aspects of the current system. It doesn't really need to be anonymous or a cryptographically-secure form of value representation. It just need to be digital and in control of the individual who "owns" the cash. Those priorities might not sound as attractive for criminals, but for me it sound as the way e-currency will grow.

notahacker• 13 years ago

Unless there's some esoteric Swedish law that gives banks special privileges that I'm missing, the bank doesn't have any right to refuse you your money except according to published limits on the timing of withdrawals (and its obligation to freeze accounts under criminal investigation). These limits always can and have existed, and in fact were much worse when the bank genuinely was worried about having to redeem everyone's assets in physically limited gold or currency, instead of being able to pay your money into another account electronically and balance their reserve shortfall with electronic interbank lending and automatically approved loans from the central bank. They've got a lot less motivation to deny access to your funds and little chance of getting away with it, unlike an anonymous overseas intermediary in the trade of some digital asset which is intangible unregulated and not legally recognised as having any monetary value.

0x0• 13 years ago

To transfer bitcoin anonymously and without adding to the immutable & public blockchain history, couldn't one just exchange the wallet for an account containing exact amount of BTC, "out of bounds" (via email, pgp, whatever), instead of performing a BTC transaction on the network?

rdl9• 13 years ago

You have to then fully trust your counterparty to not have retained a copy of the key to do his own BTC transaction on the network, later, forever.

You could probably use trusted computing/smartcards with a wallet inside them to do some kind of awesome self-attesting "no one has seen my key yet" physical payment token. Sort of like those Casascius coins, but without the need to trust the maker so much.

epscylonb2• 13 years ago

Define "anonymously".

Hypothetically someone steals a lot of money from somebody else, if the amount is large enough the victim may be willing to do a lot of detective work in order to trace the funds.

This detective work might include...

* Blockchain analysis

* Offering money to bitcoin mixers in return for information

* Traditional private investigation

Cash has the same problem, bills can be tracked if the parties involved are motivated enough. Cash does go a long way to providing privacy though, for example in days gone by a husband might have bought a pornographic magazine with cash and the wife would be unaware.

This will annoy the libertarian crowd, but a truly anonymous and untraceable medium of exchange is not only most likely impossible, but also undesirable. The failed war on drugs aside, a lot of the things people want to do completely anonymously are illegal for good reasons (CP, human trafficking, etc).

It remains to be seen if bitcoin can offer the same kind of privacy that cash does, if bitcoin adoption continues I expect blockchain analysis to become very sophisticated.

brownbat• 13 years ago

I'm increasingly worried that the features of crypto-currencies sought by cypherpunks (like me) are basically identical to the features ideal for money laundering.

Maybe we need to ask something fundamental (which might sound absurd): "Should money laundering be considered illegal, or a natural human right?"

As loaded as that sounds, I don't think it's that easy. There's a pretty clear prima facie case to be made on each side.

An avid fan of Satoshi could reasonably abandon unregulated currencies in fear of the social ills they enable (a la the argument from the author of "The End of Money" that we stop printing 50s and 100s, since they are disproportionately used in support of crime, while the rest of us use plastic for large transactions [1]).

On the other hand, I could see someone concluding that the world would be better off on net if we don't worry as much about crime, but simply ensure there's a simple way to quickly and anonymously transfer value across long distances.

It would be a serious blow to police (and the Woodward/Bernstein's out there) to lose the ability to "follow the money." But there are also compelling economic arguments that lubricating capital flows makes everything better [2, 3].

I remain a skeptical fan too, but the mounting cognitive dissonance is not for the faint of heart.

1. http://www.slate.com/articles/business/cashless_society/2012...

2. Ferguson's Ascent of Money, http://en.wikipedia.org/wiki/The_Ascent_of_Money

3. Maybe various stock European Community arguments pro-liberalization of capital flows, though some of them look weak right now, and it's odd to use these to argue for a new currency...

DanielBMarkham4• 13 years ago

"Money laundering" is a very recent crime. Didn't have it 40 years ago. Back then people just moved money around as they wanted.

I don't know about others, but I find it very difficult to get upset about a crime that's new, that doesn't impact me, and that the world got along just fine with for centuries.

(Of course that doesn't mean that I support crime in general. I'm just taking a side: the social benefit to money-laundering laws is not as much as the social downside, at least in 2013. In 1995 I might have easily weighed it the other way)

You have to ask yourself a serious question: are these laws being used to protect us from crime? Or are they being used to protect the financial system itself from us?

mcantelon• 13 years ago

One thing for everyone to keep in mind is that money laundering is a big part of the economy and brings a lot of business to conventional banks. As the recent HSBC scandal shows, banks make a lot of money by looking the other way.

temphn• 13 years ago

Here is an easy answer: sum up the value of all the money laundering crime that (say) the Cyprus government protected its people from. Now sum up the value of how much the government stole from citizen bank accounts.

We've outsourced our personal and financial security to large and unresponsive governments; on net we are more rather than less victimized by criminals. The only difference is that these criminals wear suits and have names like Draghi and Bernanke.

mindcrime2• 13 years ago

I'm increasingly worried that the features of crypto-currencies sought by cypherpunks (like me) are basically identical to the features ideal for money laundering.

I don't see the problem. Living in a free world is dangerous, and undesirable things (might) happen. But how is it justified to restrict the freedom of one individual, because of something somebody else did (or worse, might do)?

Money laundering is just a sequence of voluntary transactions between consenting individuals. No reason that should be illegal and there's no reason the government needs to be able to trace every financial transaction back to its source.

Organized crime? Feh... government (or what passes for government these days) is organized crime.

Eliezer• 13 years ago

> Ignoring the fact that bad people many times use e-currency for repulsive things like child slavery

[citation needed]

SCdF• 13 years ago

> Yes, it begins as an anonymous

That's the thing though right, it's actually never anonymous?

There is a good chance I'm misunderstanding this, but Bitcoin at the very least is pseudononymous, and all that really means is that it's not tied to your legal name-- it's not anominity. What's worse is that (again, maybe I'm misunderstanding) every transaction you make is essentially public knowledge, by virtue of this knowledge having to exist somewhere, and Bitcoin being intentionally designed without a central secret holder.

That makes Bitcoin to me a secondary currency: a tool to make once-off transactions that are obscured e.g, you want to support Wikileaks but all the banks aren't letting you, use some tool to NZD->BitC (presumably into a new wallet so as to be untrackable) and then give those BitC to Wikileaks.

Which is why I'm confused when people ask regular services whether or not they'll support Bitcoin. Why would anyone buy the Humble Bundle using Bitcoins? What possible advantage does that give them?

Like parent I'm a skeptical fan, mostly because I think it's technically cool, and almost certainly useful in less stable regions of the world (in the same way Twitter was arguably very helpful), but I still can't see why I would ever want to use it (except in the once-off style example above).

duphenix• 13 years ago

The thing with every unit of a currency being trackable is it attacks the root of modern banking. There is no excuse for fractional reserve banking if the fungibility excuse is nullified by the ability to track every unit.

pvnick• 13 years ago

Mirror: http://archive.is/heI1J

xSwag• 13 years ago

Does not surprise me at all. Almost every cyber crime forum (Damagelab, exploit.in, Darkode, carder.pro, opensc etc) used Liberty Reserve (LR) to receive payments for malware, credit cards, personal information and other illegal content. This used LR because the payments could not be reversed and because the company did not comply with law enforcement.

Not to worry though, Bitcoin seems to be getting more and more popular among these forums and will probably take over.

gbrindisi3• 13 years ago

opensc is not a cyber crime forum. Greyhat at most.

jtome3• 13 years ago

webmoney seems to be alot more popular among these types than bitcoin

bluetooth• 13 years ago

The central hub of script kiddies, Hackforums, recently moved to bitcoins as soon as word of the feds getting hold of LR went out.

cpursley3• 13 years ago

This is what I kept trying to say on here but always get downvotes.

Nation states will fight hard and dirty against digital currencies, as it completely undermines their fiat currency inflationary economies.

betterunix2• 13 years ago

You keep getting downvotes because you are wrong. Alternative currencies -- digital or not -- in no way threaten fiat currencies. The reason is well-understood by economists: law-abiding citizens and businesses have frequent interactions with the government, which demands payment in a fiat currency. The vast majority of businesses that accept Bitcoin payments, even on the black market, do so only because they ultimately convert Bitcoin into fiat currency (hence the popularity of Bitcoin payment processors that do this automatically).

cpursley3• 13 years ago

I'm not wrong because of the above example. Nation states have begun coming down on digital currency and this trend will only increase.

ars3• 13 years ago

> Nation states will fight hard and dirty against digital currencies, as it completely undermines their fiat currency inflationary economies.

Is that supposed to be a bad thing?

cpursley3• 13 years ago

No, inflationary fiat policy steals from the frugal, savers and fixed income people and rewards the people at the top of the pyramid (financial institutions) who get cheap money from the central banks.

Having alternative currencies ensures accountability and honest money. Nation States don't want this, as it restricts their expansion.

PeterisP• 13 years ago

They will fight against e-currencies not because of protecting fiat currency but because of fighting anonymous payments.

Providing anonymous payments currently is illegal in pretty much all of the world; No matter how you design an e-currency, it has to be either (1) non-anonymous, (2) insignificantly small so that noone cares, or (3) temporary, since any payment service providing businesses will be closed down.

In essence, if you can send me money to be forwarded to person X; then that is heavily regulated, and unless I apply for special protection and licencing, I will (a) be completely liable for the transferred amount if the money "is criminal" - even if you/someone else stole it, and I "just" forwarded it; and (b) be fined for providing such services without the many mandatory consumer protections, such as having capital/bonds to guarantee full payment to everyone even if I go bankrupt.

user1251• 13 years ago

Most popular currency for money laundering, terrorism supporting, child pornography and drugs selling is ... USD DOLLAR!

zalew• 13 years ago

> USD DOLLAR!

http://en.wikipedia.org/wiki/RAS_syndrome

jtome3• 13 years ago

Probably a good time to invest in bitcoin, although my poor and quick analysis of bitcoin charts doesn't seem to indicate much activity in reaction to this that couldn't be attributed to bitcoin's usual volatility. Webmoney, another shady online payment processer will probably be the greatest beneficiary of this. It's funny that bitcoin isn't used more by botnet owners and their ilk. They seem to be slow adopters of new technologies (notice how they dont use tor either).

stcredzero• 13 years ago

It's, "New Forms of Cybercrime Fun-Time!" where we think of new ways to structure criminal enterprises to break existing laws and prosecutorial organizations.

I call this one, "The Virtual Un-syndicate."

You take a small, cohesive group of criminal hackers working out of the same room, and have them simulate the operation of a virtual criminal syndicate staffed by freelancers around the globe. However, instead of using entirely fictional pseudonyms for these freelancers, real identities are hired to be used as pseudonyms. Likewise, a real person's identity is used as a "mastermind" figurehead. The purpose is to hack the standard behavior of prosecuting government organizations. If played correctly, the "mastermind" figurehead and the "freelancers" will take the fall and the prosecutors will be satisfied that they have done their jobs. In the meantime, the criminal hackers have already moved on to establishing their next "Virtual Un-syndicate."

socillion• 13 years ago

Wow, that is awful timing... Anyone know if they'll be doing any refunds for legitimate transactions?

Just got a bit over 2k LR a few weeks back, who'd have guessed I'd lose more money keeping it in LR instead of immediately buying bitcoin.

edit: looks like if e-gold is anything to go by it'll be several years at best. sigh.

Liberty Reserve Founder Arrested, Site Shuttered

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