Given that Bitcoin records all transactions for posterity, and given the ongoing rise of "big data" analytics, I'd say Bitcoin is likely to be harder, in the long run, to use for shenanigans. A government currency has forms in which transactions create no paper trail. Bitcoin does not.
Really the big disruption Bitcoin could cause if it becomes well established, is to act as a stable reference frame against which the other currencies can be compared (versus now, where they all float against each other). No government owns the Bitcoin printing press. It cannot be used as an instrument of fiscal policy, and it weakens the ability to use government currency as an instrument of fiscal policy.
>Given that Bitcoin records all transactions for posterity, and given the ongoing rise of "big data" analytics, I'd say Bitcoin is likely to be harder, in the long run, to use for shenanigans. A government currency has forms in which transactions create no paper trail. Bitcoin does not.
I did some research on anonymity (mentioned in that document); I find it hard to project how private Bitcoin will be in future.
Our impression was that currently many users were careless, and that many identities (in the form of publicly disclosed Bitcoin address ownerships) were linked to meaningful transactions; such that with basic network analysis it was possible to passively observe semantically meaningful transactions, like "the person who owns this twitter account, which seems to be a real person, donated to wikileaks" or "this account which is a public organisation donation address is linked to an address that transferred bitcoins to that other organisation".
We speculated that if Bitcoin became widely used, without changes in usage patterns, then a large e-commerce site (someone like Amazon accepting payments in Bitcoin - leaving questions of scalability aside) could passively observe much of what was going on on the network, because they had so many known identity-address pairs to start with (e.g. shipping addresses).
But the other argument is that its probably relatively easy for usage patterns to change.
I think you have to assume that end-users will always be careless. We see this in almost every security setting. So it doesn't matter whether its possible for sophisticated users to guard their privacy, if you don't get privacy by default.
But people could build overlay systems which are backed onto Bitcoin. A lot of the wallet services are like this already, and are not readily amenable to the blockchain level analysis (although of course you then you are trusting your wallet service with your privacy and money).
Alternatively core or client developers could add protocol-level or low-level Bitcoin mixing (again, with an overhead cost, so there might be scalability concerns), or develop client interfaces which encourage more privacy by default.
Its too early to tell how observable/analyzable it'll be in steady state, if it builds traction. I think its possible the system will end up much more observable, for casual users, than cash or even credit cards currently are, but I don't think that's inevitable.
EU has released a report on digital currencies recently where they talk about Bitcoin as well, and they worry it would threaten the central banks (an obvious one):
Totally agreed, but I think it's worth pointing out that you could technically "own" the Bitcoin "printing press" if the $BTC distribution is skewed drastically to a particular majority (who could then corrupt the protocol/subsequent block chains). This is why initially, many people were told to use different mining pools or exchanges, as I recall there were a few majority cases a year or so ago (even Mt. Gox still handles > 50% of trading volume every day [1]).
That being said, assuming that everyone plays fair, uses common sense, and keeps the Bitcoins distributed fairly evenly, there shouldn't be a problem (after all, that is how Bitcoins were designed).
This would only be true if the owner of every address within the bitcoin network could be determined by a government entity. Since bitcoin is international, this is impractical if not impossible depending on the relationship between the nation of the owners where the coins have gone through and the nation trying to determine the source/destination of the funds.
Really the big disruption Bitcoin could cause if it becomes well established, is to act as a stable reference frame against which the other currencies can be compared
What would make it any more (or less) stable than the traditional reference currencies of gold, ammo, and canned baked beans?
> It cannot be used as an instrument of fiscal policy, ...
Other than reserve requirements for lending bitcoins, accounting regulations for considering earned bitcoins as either cash income or accrued income, underwriting requirements for bitcoin-denominated loans, excise taxes on bitcoin transactions, and so forth.
Issuing currency is not the goverment's major control on the money supply.
Unless I misunderstand Bitcoin more than I think I do, this is flat-out wrong (~1/3 of the way through the document):
(U) What Users Can Do To Increase Anonymity
...
• (U) Combine the balance of old Bitcoin addresses
into a new address to make new payments.
Combining balances just means you have a bunch of disparate nodes in the network which may not be related, and you are intentionally connecting them. So if you combined anonymous nodes A-Y with Z which was linked to you, A-Y are now logically linked to you because Z tainted the whole pool. (edit: or at the very least, all the money in A-Y)
Yeah, there are ways to make it true/er, but I'm arguing against the principle of the suggestion. And I have doubts that combining (only your) addresses will ever increase anonymity.
Actually, I think the suggestion in the report is correct.
I think that what they are getting at here, is the following scenario:
Imagine that you have several addresses, with different balances, in the same wallet. If you do a payment using the normal client, which requires the total balance from all those addresses, this will create a transaction with all those addresses as inputs. In the Bitcoin protocol this provides unambiguous proof that the input addresses are all controlled by the same user. (With some provisos: obviously wallet services overlaid on the network complicate this; as do some other more sophisticated uses of the protocol; but in general, at a protocol level, this is true).
So, that then shows any passively listening third party that all those addresses were under control of a single user. This knowledge can then be applied transitively, to consolidate ownership of large quantities of accounts. (We tried explain this in our paper: http://arxiv.org/pdf/1107.4524v2.pdf Fig 1.6)
What the report is probably getting at, is that an alternative thing to do, would be to instead send all the payments to a new account, in separate transactions. This would introduce a lot more ambiguity for a passive attacker - passive ownership assumptions become a lot less clearcut. You can still try make deductions, but its going to be much larger to do at large scale, and require more statistical assumptions.
Its not completely obvious that this is what the paper is suggesting, but thats my reading of it, and I think that makes sense.
It makes it a little harder to prove. If you do something sketchy and get bitcoins in wallet 1, and then buy something from wallet 1, people will see that the same wallet that did something sketchy also bought something.
On the other hand, if you move bitcoins from wallet 1 to wallet 2, then do the buying from wallet 2, there's some separation and people aren't sure if it's the same person.
> Since Bitcoin does not have a centralized authority, law enforcement faces difficulties detecting suspicious activity, identifying users, and obtaining transaction records
Yeah. Difficulty obtaining bitcoin transaction records. Good on you, FBI.
Nice document. It shows well the way of thinking of our governments.
"detecting suspicious activity, identifying users,
and obtaining transaction records is
problematic for law enforcement." - That must deeply hurts FBI people :)
"Despite the virtual nature of Bitcoin, users
value the currency for many of the same
reasons people trust Federal Reserve notes:
they believe they can exchange the currency for
goods, services, or a national currency at a later
date."
People do not trust "Federal Reserve notes" (or any other official currency) - they are forced to use it, since they must pay taxes in it.
But it is good, that at least some people realize that there is no such a thing like US dollar, only those "notes" printed by Ben Bernanke and his pals.
If one day Bitcoin gets truly popular governments will be in trouble. How to tax that beast? I wonder if there is any other solution then poll tax.
> FBI assesses with high confidence that [...] malicious actors can [...] use botnets to generate bitcoins.
As far as I understand bitcoin (which isn't too far, admittedly), the generation of bitcoins is actually encouraged, and only possible within some well-defined boundaries which basically just ensures that bitcoins are put into circulation up until it hits the fixed limit. Maybe someone could clear that up for me? In that case the "malicious actors" would actually be performing a useful service for the bitcoin ecosystem.
Interestingly botnets are probably a month away from being unprofitable for mining Bitcoins, in fact GPUs will be unprofitable for mining Bitcoins all-together. ASIC devices are being shipped over the next six months which will increase the mining difficulty substantially.
Yes they would be performing a useful function for the bitcoin ecosystem.
No, it's not acceptable to hijack thousands of computers through malware and use their processing power and electricity to mine bitcoin for you. That's why they're malicious, the computers they're using aren't theirs.
The malicious part is because the resources to mine the computers (physical hardware and electricity costs) are born by someone else (the owner of the infected computer).
If an attacker controls more than 50% of the Bitcoin network's computing power, they can manipulate transactions. Also, an attacker can fill the network with clients controlled by him, which might be helpful in the execution of other attacks.
The particular phrasing of "assesses with low confidence" took a bit of twisting to understand, though. Its just a convention you have to get use to in these kind of reports, I guess.
This is always a contested subject because economics has so many competing branches, many of them with more or less overt ideological overtones.
IMHO, you should listen to economists that (a) emphasize looking at the operational realities of what actually happens in the monetary system, and (b) tell you that banks matter for what happens in the economy.
(If you find it hard to believe that a majority of economists ignore banks in their models of the economy, good for you and your common sense!)
More generally, "endogenous money" is an important keyword to look out for, because our monetary systems are endogenous in the sense that money is mostly created by banks, not by the government.
If you venture into online economics resources, you will run into a lot of (economic) Austrians. I believe this is mostly because of the Mises institute, which is well funded by people with an ideological ax to grind. It's good to reflect on their messages occasionally, but they should be taken with a grain of salt. (And since they are hardcore gold bugs, they don't get endogenous money, which means that much of what they say simply doesn't apply to our current economic framework.)
Another part of the global anti-cybermoney-publicity-campagne that we can see right now starting is a study of the European Central Bank on "Virtual Currency Schemes", Oct. 2012.
I suspect you may be overreacting with the tinfoil-hattery. Obviously those institutions like the ECB and the FBI are interested in virtual and new currencies. That's part of their job!
But if you actually read those publications, you'll notice that they aren't very urgent at all. Their stance is basically that they want to keep up with the development, but don't see a reason to act right now.
Thank you very much for the direct pdf link, I hate does sites that try to simulate ell established office tools like a pdf viewer in a browser, fail with this and still want to collect your data like email address to give you the real thing. Unfortunately too many people out there are using this crap sites.
Unclassified/For Official Use Only. Basically means that it's not Secret, but still can't be distributed without permission. Different organizations have different discipline structures around leaking FOUO material, but I don't think there are any legal implications.
"In July 2011 FinCEN revised the definition of money transmission service to mean the acceptance of
currency, funds, or other value that substitutes for currency from one person and the transmission of currency,
funds or other value to another location or person by any means."
Sounds like if you make a market for gift cards you need to be a licensed money transmitter FYI.
Nodes can see which IP address sent them the transaction. Usually, this is a "supernode" connected to hundreds of others which received the transaction from someone else.
However, if you have your own supernodes and can see which node first broadcast that transaction, and you know either they sent it or are more connected to the original sender than you are.
It's a bit harder for someone to take over your computer to create cash.
It's pretty hard for someone to hijack your wallet with a Trojan and if they do get into your bank account that way then the police and the bank might take an interest.
I know this is a meme in the BTC community - any criticism of BTC as a payment method is met with the claim that "it's just like cash" and any criticism of weaknesses of BTC as a currency is met with the claim that "it's a payment method and a commodity". To me it pretty much fails at all of the above.
There's no doubting it's good for purchasing contraband though.
Bitcoin does share some those properties with cash. That's the whole point.
Cash (in volume) is currently treated with suspicion for criminal activity, and is the center of attention for policing crime/drug money, financial fraud and money laundering. So bitcoin should be as well.
And it can be regulated in the same way as cash - you can ask financial institutions to report any bitcoin deals above $xxx (as they do for cash), you can regulate any intermediaries/payment services to follow the existing money laundering laws also for bitcoin - a core provision is know-your-customer, i.e., no anonymous customers allowed.
[+] [-] JulianMorrison|13 years ago|reply
Really the big disruption Bitcoin could cause if it becomes well established, is to act as a stable reference frame against which the other currencies can be compared (versus now, where they all float against each other). No government owns the Bitcoin printing press. It cannot be used as an instrument of fiscal policy, and it weakens the ability to use government currency as an instrument of fiscal policy.
[+] [-] feral|13 years ago|reply
I did some research on anonymity (mentioned in that document); I find it hard to project how private Bitcoin will be in future.
Our impression was that currently many users were careless, and that many identities (in the form of publicly disclosed Bitcoin address ownerships) were linked to meaningful transactions; such that with basic network analysis it was possible to passively observe semantically meaningful transactions, like "the person who owns this twitter account, which seems to be a real person, donated to wikileaks" or "this account which is a public organisation donation address is linked to an address that transferred bitcoins to that other organisation".
We speculated that if Bitcoin became widely used, without changes in usage patterns, then a large e-commerce site (someone like Amazon accepting payments in Bitcoin - leaving questions of scalability aside) could passively observe much of what was going on on the network, because they had so many known identity-address pairs to start with (e.g. shipping addresses).
But the other argument is that its probably relatively easy for usage patterns to change.
I think you have to assume that end-users will always be careless. We see this in almost every security setting. So it doesn't matter whether its possible for sophisticated users to guard their privacy, if you don't get privacy by default.
But people could build overlay systems which are backed onto Bitcoin. A lot of the wallet services are like this already, and are not readily amenable to the blockchain level analysis (although of course you then you are trusting your wallet service with your privacy and money). Alternatively core or client developers could add protocol-level or low-level Bitcoin mixing (again, with an overhead cost, so there might be scalability concerns), or develop client interfaces which encourage more privacy by default.
Its too early to tell how observable/analyzable it'll be in steady state, if it builds traction. I think its possible the system will end up much more observable, for casual users, than cash or even credit cards currently are, but I don't think that's inevitable.
[+] [-] mtgx|13 years ago|reply
http://www.dgcmagazine.com/bitcoin-the-european-central-bank...
http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyscheme...
[+] [-] Breakthrough|13 years ago|reply
That being said, assuming that everyone plays fair, uses common sense, and keeps the Bitcoins distributed fairly evenly, there shouldn't be a problem (after all, that is how Bitcoins were designed).
[1] Bitcoin Charts, "Exchange volume distribution." http://bitcoincharts.com/charts/volumepie/
[+] [-] conroe64|13 years ago|reply
[+] [-] tbrownaw|13 years ago|reply
What would make it any more (or less) stable than the traditional reference currencies of gold, ammo, and canned baked beans?
[+] [-] Daniel_Newby|13 years ago|reply
Other than reserve requirements for lending bitcoins, accounting regulations for considering earned bitcoins as either cash income or accrued income, underwriting requirements for bitcoin-denominated loans, excise taxes on bitcoin transactions, and so forth.
Issuing currency is not the goverment's major control on the money supply.
[+] [-] Groxx|13 years ago|reply
Yeah, there are ways to make it true/er, but I'm arguing against the principle of the suggestion. And I have doubts that combining (only your) addresses will ever increase anonymity.
[+] [-] feral|13 years ago|reply
I think that what they are getting at here, is the following scenario:
Imagine that you have several addresses, with different balances, in the same wallet. If you do a payment using the normal client, which requires the total balance from all those addresses, this will create a transaction with all those addresses as inputs. In the Bitcoin protocol this provides unambiguous proof that the input addresses are all controlled by the same user. (With some provisos: obviously wallet services overlaid on the network complicate this; as do some other more sophisticated uses of the protocol; but in general, at a protocol level, this is true).
So, that then shows any passively listening third party that all those addresses were under control of a single user. This knowledge can then be applied transitively, to consolidate ownership of large quantities of accounts. (We tried explain this in our paper: http://arxiv.org/pdf/1107.4524v2.pdf Fig 1.6)
What the report is probably getting at, is that an alternative thing to do, would be to instead send all the payments to a new account, in separate transactions. This would introduce a lot more ambiguity for a passive attacker - passive ownership assumptions become a lot less clearcut. You can still try make deductions, but its going to be much larger to do at large scale, and require more statistical assumptions.
Its not completely obvious that this is what the paper is suggesting, but thats my reading of it, and I think that makes sense.
[+] [-] sp332|13 years ago|reply
On the other hand, if you move bitcoins from wallet 1 to wallet 2, then do the buying from wallet 2, there's some separation and people aren't sure if it's the same person.
[+] [-] sneak|13 years ago|reply
Yeah. Difficulty obtaining bitcoin transaction records. Good on you, FBI.
[+] [-] jarman|13 years ago|reply
[+] [-] kybernetikos|13 years ago|reply
[+] [-] piokoch|13 years ago|reply
"detecting suspicious activity, identifying users, and obtaining transaction records is problematic for law enforcement." - That must deeply hurts FBI people :)
"Despite the virtual nature of Bitcoin, users value the currency for many of the same reasons people trust Federal Reserve notes: they believe they can exchange the currency for goods, services, or a national currency at a later date."
People do not trust "Federal Reserve notes" (or any other official currency) - they are forced to use it, since they must pay taxes in it.
But it is good, that at least some people realize that there is no such a thing like US dollar, only those "notes" printed by Ben Bernanke and his pals.
If one day Bitcoin gets truly popular governments will be in trouble. How to tax that beast? I wonder if there is any other solution then poll tax.
[+] [-] bencoder|13 years ago|reply
[+] [-] johnyzee|13 years ago|reply
As far as I understand bitcoin (which isn't too far, admittedly), the generation of bitcoins is actually encouraged, and only possible within some well-defined boundaries which basically just ensures that bitcoins are put into circulation up until it hits the fixed limit. Maybe someone could clear that up for me? In that case the "malicious actors" would actually be performing a useful service for the bitcoin ecosystem.
[+] [-] ewillbefull|13 years ago|reply
[+] [-] Scaevolus|13 years ago|reply
Other ways of profiting off botnets include renting out DDoS and spam capabilities.
[+] [-] Nursie|13 years ago|reply
No, it's not acceptable to hijack thousands of computers through malware and use their processing power and electricity to mine bitcoin for you. That's why they're malicious, the computers they're using aren't theirs.
[+] [-] rmc|13 years ago|reply
[+] [-] pdog|13 years ago|reply
[+] [-] willvarfar|13 years ago|reply
The particular phrasing of "assesses with low confidence" took a bit of twisting to understand, though. Its just a convention you have to get use to in these kind of reports, I guess.
[+] [-] wintersFright|13 years ago|reply
[+] [-] saraid216|13 years ago|reply
[+] [-] pirateking|13 years ago|reply
[+] [-] ninetax|13 years ago|reply
Does anyone know of some good resources (online courses, books, etc)?
[+] [-] nhaehnle|13 years ago|reply
IMHO, you should listen to economists that (a) emphasize looking at the operational realities of what actually happens in the monetary system, and (b) tell you that banks matter for what happens in the economy.
(If you find it hard to believe that a majority of economists ignore banks in their models of the economy, good for you and your common sense!)
This means you should read what Steve Keen writes and listen to what he says (he blogs at http://www.debtdeflation.com/blogs/), and what the Modern Monetary Theory crowd write, as they explain such basic things as what role reserves and bonds play, from first principles (start here: http://neweconomicperspectives.org/p/modern-monetary-theory-...).
More generally, "endogenous money" is an important keyword to look out for, because our monetary systems are endogenous in the sense that money is mostly created by banks, not by the government.
If you venture into online economics resources, you will run into a lot of (economic) Austrians. I believe this is mostly because of the Mises institute, which is well funded by people with an ideological ax to grind. It's good to reflect on their messages occasionally, but they should be taken with a grain of salt. (And since they are hardcore gold bugs, they don't get endogenous money, which means that much of what they say simply doesn't apply to our current economic framework.)
[+] [-] yafujifide|13 years ago|reply
* "End the Fed" by Ron Paul
* "Economics in One Lesson" by Henry Hazlitt
* "The Mystery of Banking" by Murray Rothbard
* "What has government done with our money?" by Murray Rothbard
* "Debt: The First 5000 Years" by David Graeber
[+] [-] theycallmemorty|13 years ago|reply
[+] [-] BUGHUNTER|13 years ago|reply
Read it: http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes20121...
Edit: BTW, if you are interested in international monetary policy you can find many important publications on the ECB site:
http://www.ecb.int/pub/html/index.en.html
[+] [-] nhaehnle|13 years ago|reply
But if you actually read those publications, you'll notice that they aren't very urgent at all. Their stance is basically that they want to keep up with the development, but don't see a reason to act right now.
[+] [-] mazsa|13 years ago|reply
[+] [-] BUGHUNTER|13 years ago|reply
[+] [-] Tyr42|13 years ago|reply
[+] [-] natep|13 years ago|reply
[+] [-] count|13 years ago|reply
[+] [-] ecito|13 years ago|reply
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] gscott|13 years ago|reply
Sounds like if you make a market for gift cards you need to be a licensed money transmitter FYI.
[+] [-] politician|13 years ago|reply
How are IP addresses linked to the block chain?
[+] [-] cwkoss|13 years ago|reply
However, if you have your own supernodes and can see which node first broadcast that transaction, and you know either they sent it or are more connected to the original sender than you are.
[+] [-] TazeTSchnitzel|13 years ago|reply
[+] [-] Monotoko|13 years ago|reply
[+] [-] sturadnidge|13 years ago|reply
[+] [-] Nursie|13 years ago|reply
It's pretty hard for someone to hijack your wallet with a Trojan and if they do get into your bank account that way then the police and the bank might take an interest.
I know this is a meme in the BTC community - any criticism of BTC as a payment method is met with the claim that "it's just like cash" and any criticism of weaknesses of BTC as a currency is met with the claim that "it's a payment method and a commodity". To me it pretty much fails at all of the above.
There's no doubting it's good for purchasing contraband though.
[+] [-] PeterisP|13 years ago|reply
Cash (in volume) is currently treated with suspicion for criminal activity, and is the center of attention for policing crime/drug money, financial fraud and money laundering. So bitcoin should be as well.
And it can be regulated in the same way as cash - you can ask financial institutions to report any bitcoin deals above $xxx (as they do for cash), you can regulate any intermediaries/payment services to follow the existing money laundering laws also for bitcoin - a core provision is know-your-customer, i.e., no anonymous customers allowed.