Sanitizing Bitcoin: This Company Wants To Track 'Clean' Bitcoin Accounts

http://www.forbes.com/sites/kashmirhill/2013/11/13/sanitizing-bitcoin-coin-validation/

by SlipperySlope • 13 years ago

35 29 13 years ago

Essentially ...

"Their plan is to compile a database of the known identities associated with Bitcoin addresses in the hope that Coin Validation will become the one-stop-identity shop for law enforcement when trying to find out who’s doing something nefarious with Bitcoin, while providing a red-flag system for businesses who have customers trying to use Bitcoin that’s associated with illicit use."

vinchuco• 13 years ago

since all Bitcoin transactions are public and pseudonymity given by opaque addresses is our ONLY financial privacy protection, services like this should be considered a direct and malicious attack on Bitcoin system.

icecreampain• 13 years ago

Or they're just a bunch of people trying to make a buck which, unfortunately, makes the world go round.

If they manage to establish themselves as LE's provider of Bitcoin info, then they're got a monopoly and a guaranteed income for the rest of their lives.

VMG2• 13 years ago

I agree.

Good thing that Bitcoin flourishes from malicious attacks, otherwise it would have been dead a long ago or would die soon.

sliverstorm2• 13 years ago

The information is all there, and all public, right from the start. This is no more an attack on Bitcoin, than taking wood from beneath a "Free Wood" sign is theft.

VMG2• 13 years ago

I wonder what the laundering rates will be and what the economy of "dirty coins" will look like.

oleganza2• 13 years ago

In the worst case, white market Bitcoin transactions will be no more tracked than cc/paypal/swift/sepa transactions. On the bright side, people will have much harder money and state will have much less power (no deficit spending whatsoever).

In reality though, the contamination of the market by Bitcoin will happen much faster than anyone could set up a framework of tracking it. Black markets will grow huge. A lot of intellectual work can avoid taxation easily. Especially, when younger generation finds itself in a situation of economic disaster that was created by their parents and grandparents. Teens will be less likely to tolerate all this banking nonsense.

sliverstorm2• 13 years ago

Bitcoin, at least right now, is literally the antithesis of hard money. It has no backing, either political (e.g. Fed) or economic (e.g. gold-backed). Value fluctuates wildly. A week from now it could be worth $1,000 or it could be worth $1.

oleganza2• 13 years ago

1. There's no problem with "backing". Gold is backed by gold. Bitcoin is backed by Bitcoin. Bitcoin is not broken while being in the open for plenty of people to exploit it. Just like anyone interested may try to synthesise gold at a cost lower than the market price.

2. Every early venture is also very volatile. Facebook, Twitter, Google, the web itself and the internet were volatile in the beginning. A lot of uncertainties, legal issues, security issues etc. Only when they reach half of the potential market, they start looking stable and glorious. I bet when gold was started to be used as a currency it was uncertain, competing with previous currencies and prices were fluctuating a lot.

3. Bitcoin can't be suddenly worth 1$ tomorrow for economic reasons. Only for technical reasons (but then it is more likely to become worthless). Economically, no big holder of bitcoin is going to crash the price by cashing out publicly if there is a way to sell steadily and/or privately. Which happens already. SecondMarket's BIT gets all its coins and money purely privately, without anyone noticing much changes.

Since almost no one is holding Bitcoin-denomitated debts, no one is hurt by having Bitcoin price rising unexpectedly. It only boosts interest. So if it stays around $430 for the months or grows to $1000, no one will be hugely disappointed. Even if drops now to $300, only a fraction of holders will suffer losses, while majority of others is still well in profit.

mseebach• 13 years ago

The price of gold is not exactly static either, and many people are predicting its imminent collapse. In the end, despite some inherent value, gold is valued for a unique and rare atomic structure in much the same way Bitcoin is valued for its cryptographic foundation giving it many of the same properties.

rictic• 13 years ago

Am I missing something? Between mixers and single-use addresses - not to mention every mundane transaction that hasn't opted into into this tracking scheme - the odds of them being able to say much about a typical address seem practically nonexistent.

I can see some strong similarities to DRM. There are large organizations that would very much like for a technical impossibility to exist, leading some to step forward to sell a fundamentally flawed patchwork to them whose primary impact is inconvenience for end users.

thwarted• 13 years ago

Has anyone developed the bitcoin equivalent of the "Final Ultimate Solution to the Spam Problem (FUSSP) Response"[0] yet?

[0] http://www.dmuth.org/fussp.html

alexkus• 13 years ago

Ironic given that Bitcoin grew out of the idea of a 'Proof-of-work' token that was proposed as a FUSSP itself.

vdaniuk• 13 years ago

Well, I am sure that bitcoin transactions follow the power law distribution which means that 99% of transaction volume will belong to 1% of addresses[1]. That makes it possible to track and identify large sellers, exchanges, etc.

But tracking p2p transactions? No amount of clever algorithms with their amount of data will thwart anonymization efforts done with,for example, programmatic creation of addresses, random transactions, mixins and offline transactions.

[1]obviously not scientific

nwh• 13 years ago

It's a completely pointless task that will just hurt innocent people.

Bitcoin transactions are by their nature traceable through the blockchain- but ownership of them is not. In it's simplest form I might sell a coin to somebody for cash, the blockchain does not show this change of ownership and an outside observer now thinks that they are still monitoring the same persons transactions. If they were "blacklisted" then suddenly the sold coins are worthless, even though the original seller has had no adverse impact.

It has interesting extensions, where you are able to destroy other people's funds by tainting them with your stolen ones. The Bitcoin system does not, and can not support a system where the user can accept and reject funds. You can ignore inputs, but that gets very messy very quickly.

You end up in a situation where only institutionally "clean" coins are allowed, and the system collapses. How this ever came to fruition I'll never know.

shazow• 13 years ago

The strength of something like this becomes evident in the optimistic future when governments (or at least accountants) decide to help opted-in users to report their taxes from Bitcoin-related transactions.

As others mentioned, it's not practical to try and enforce this on people who want to circumvent it, but there is certainly value in improving convenience of accounting for those who want it.

The Intuit-for-Bitcoin market is still practically non-existent, so expect to see more such announcements as the promise of Bitcoin's legitimacy continues favourably.

1337biz• 13 years ago

weed out ‘bad actors’ – like the Dread Pirate Roberts – from the legitimate Bitcoin business world

People of the world:

For the greater good please send all your Dollar bills and coins that were ever used for illegal activities to my doorsteps.

This is you last chance to win the war on drugs, terrorism, children, religion, or whoever else your demons might be!

bestest• 13 years ago

so, this company is trying to become the bitcoin sanitation authority? as I said before -- it would be a bad thing as there's never a way to know if the stain is valid 100%. and, where there's authority -- there's corruption. I hope it fails.

Fuxy• 13 years ago

I was just wondering given that 75% of US currency is tainted by drug traces we can safely assume it was used in illegal transactions.

So if we compare this to "dirty" bit-coins how do you determine if a coin is dirty. How recent does this transaction have to be for the legitimate organization to refuse it because if a bit-coin is considered dirty forever after being involved in a dirty transaction that wouldn't work.

I'm probably missing some intricacies of how the block-chain works since you can do transactions of any size not necessarily 1 bit-coin.

Tenoke• 13 years ago

I couldn't stop screaming in my head 'THIS COMPLETELY GOES AGAINST THE ANARCHIST-LIBERTARIAN ROOTS OF BITCOIN' while reading this.

krapp• 13 years ago

It occurs to me that Bitcoin can either be an anarchist-libertarian weapon against capitalism, or it can have mainstream success, but probably not both.

jaekwon• 13 years ago

This was bound to happen, and cannot be stopped from happening, given the nature of bitcoin.

It's not the end for bitcoin anonymity. There will always be a market for "dirty" coins, and there won't be one definition of "dirty" either. The countermeasure is a multitude of such tracking tools, each operating on an opt-in basis, each with a different definition of "dirty". Then merchants and users would be able to choose what provenance has what value.

In fact, there is an opening now for someone to build an alternative system that isn't associated with regulators. One that perhaps might help us track stolen coins, like those from Pirate@40. On the other hand as a voluntaryist I happen to believe that DPR (the other pirate) deserved his coins, and I would accept his coins at face value.

If such an open-data solution existed, then I would feel inclined to support merchants and exchanges that reported their bitcoin addresses, knowing that (a) if their funds get stolen, people have the opportunity to reject the stolen coins thus reducing their value and the incentive to steal and (b) the public can perform audits on these bitcoin exchanges. On the other hand I wouldn't feel comfortable with a closed solution where the data gets walled off from the public, which selectively benefits those with access to the data.

The future of bitcoins will be full of unexpected surprises that seem obvious in hindsight. I think this is one of them. To the moon!

bjourne2• 13 years ago

What's so hard about it? Have a public registry of transactions that are deemed illegal or theft. Refuse to accept transactions by bouncing them back. So if you are the receiver of 1 btc from anyone on the blacklist you have to create a transaction that returns the 1 btc to the sender. If the address doesn't do that, then that address is also put on the blacklist. Since all bitcoin transactions are public, it is trivial to verify whether the receiver of the btc complies or not.

It could work almost exactly like Spamhaus which tracks email spammers (which coincidentally also happens to be pseudonymous) and smtp servers relaying spam.

As long as enough people opt in to the blacklists it would make life very hard for thieves. Whoever controls the blacklist would gain a lot of power yes, but since opting in would be voluntary you could always decide to use a different blacklist.

JohnDoe365• 13 years ago

I consider it a good thing to have but also very tempting for central authorities to set every "legit" owner of bitcoins onto this list. It would be very hard to prove for an individual erroneously on such a list, that he/she is actually not a fraudulent transactor. Once a majority respects that list, the whole Bitcoin system would come to a halt.

While such an attempt should increase trust, this mechanism could be used to destroy it.

mynewwork• 13 years ago

1) Perfect for harassment, repeatedly send .000001 btc to someone, to force them to keep sending it back or be blacklisted

2)What happens when someone using blacklist A accepts payment that looks clean, only to find out they are now blacklisted on list B? No one could use bitcoin for something like ebay transactions, for fear that the payment they received might be blacklisted by some list.

bjourne2• 13 years ago

1. It would be trivial to implement feature in bitcoin clients to automatically bounce transactions from blacklisted addresses.

2. The situation is the same as if someone irl where to accidentally purchase stolen goods. Or as if you where accidentally spamlisted because you forgot to secure your smtp server. Your options would be:

a) Return the bitcoins and clear your status. b) Argue your case with the operators of blacklist B. c) Ignore your blacklisting and just don't do business with those who follow blacklist B. If they blacklist addresses for frivolous reasons, more people will ignore their list and it won't matter if you are on it or not.

A decent client could automatically keep the blacklists updated so it would hardly be any burden for normal users.

biff• 13 years ago

The lack of anonymity holds Bitcoin back from being an effective digital equivalent to cash.

I was just thinking about this the other day. If you have one well-meaning blacklist on certain Bitcoins, you could have dozens. Stolen coins, drug coins, "Democrat" coins, coins spent on Sunday. Like anti-spam lists, each Bitcoin user could choose which blacklists to pay attention to when receiving coins, but won't necessarily be privy to all the lists that divvy his seemingly fungible pool of Bitcoin into coins that are more portable and coins that are not.

It's not unworkable to have one list that everybody pays attention to, though even that is contentious. It's the ones that will follow that should really cause concern.

headgasket• 13 years ago

Short form:My BTCs are for sale, the ones I found the password for. I'll be buying some more equities on the US and Canadian markets.

I must be terribly dull, but I fail to see why bitcoins have any store value at the moment. As a medium of exchange, I see their use. But taxes are payable in sovereign currency, and 20% of the worlds economy is taxed by 1 entity accepting only USD. Sovereign entities are not about to relinquish the power of inflating the money supply. And if I want to park money, I want to be able to pay my taxes with it when the time comes.

The p2p currency of exchange I get, as well as the distributed POW that has a reward priced in this currency. But what prevents a network of persons (or trustworthy entities) to clone it into one that has more legitimacy? What does BTC have over litecoins?

As a matter of fact, Litecoins are really more distributed as the proof of work uses a GPU instead of SHA256 that is now mostly computed by ASICs; GPUs are in every modern computer and the POW computation would not benefit from a significant speed up with ASICs. This is a better distribution platform if the breadth and width is what prevents a fork of the blockchain.

And if LTC became too expensive, volatile, etc, as an exchange medium, GPUC could be an alternative, ad nauseum.

Basically the point is: there seem to be a decreasing return on the network effect of a p2p unit of exchange, not the opposite(as for the fax machine, or facebook). This law of diminishing return, IMHO should bring to an end sooner or later this bubble caused by people failing to see the difference between a unit of exchange and an asset.

Flenser• 13 years ago

If bitcoin clients ever adopt the zerocoin protocol then there wouldn't be anything to track:

http://zerocoin.org/

Although they seem to think that the protocol should not allow anonymity for some transactions:

http://zerocoin.org/q_and_a#what-about-money-laundering

Sanitizing Bitcoin: This Company Wants To Track 'Clean' Bitcoin Accounts

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