Internal FBI risk assessment of Bitcoin network [pdf](wired.com)
wired.com
Internal FBI risk assessment of Bitcoin network [pdf]
http://www.wired.com/images_blogs/threatlevel/2012/05/Bitcoin-FBI.pdf
17 comments
>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.
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.
It seems that to do shenanigans with Bitcoin would require the same care to avoid information leakage that would be required to do similar things with global digital payment networks and banks.
The key would be to begin by considering any address linked to an identity that is you or related to you "dirty," and to be careful about avoiding linkage to any of those dirty addresses. To really be careful I think you'd have to delve into graph theory and data mining a bit yourself, or follow the precautions of someone who knows what they're talking about. You'd also have to take care to pay attention to network addresses under the protocol, using Tor or similar proxying systems and considering any address that's been used from an IP that can be linked to you similarly "dirty." Use of VPSes that accept anonymous payment would also be an option, though again... don't SSH to them from your house! Use Tor or smurf the data around by way of proxies and drop sites and such.
Laundering money would require extreme caution to avoid such contamination, and would present many of the same challenges as money laundering in the fiat currency world. BTC/fiat conversions would be very risky. In-person BTC/fiat conversions are vulnerable to old fashioned gumshoe police work: "hey, that BTC you exchanged on localbitcoin... you happen to remember what that guy looked like?" These are also only feasible for small quantities. Large quantities would present a huge challenge.
What this really means is that Bitcoin is not intrinsically an instrument for villainy as some lazy press articles make it out to be. In fact, criminal use of Bitcoin requires orders of magnitude more technical sophistication, which the vast majority of criminals do not have. A highly educated or sophisticated criminal or intelligence network could surely pull off shenanigans with Bitcoin, but I doubt your average thug or child porn wanker is going to even comprehend the stuff I wrote above. So at the very least, Bitcoin is only a criminal tool for very geeky high-IQ criminals.
The key would be to begin by considering any address linked to an identity that is you or related to you "dirty," and to be careful about avoiding linkage to any of those dirty addresses. To really be careful I think you'd have to delve into graph theory and data mining a bit yourself, or follow the precautions of someone who knows what they're talking about. You'd also have to take care to pay attention to network addresses under the protocol, using Tor or similar proxying systems and considering any address that's been used from an IP that can be linked to you similarly "dirty." Use of VPSes that accept anonymous payment would also be an option, though again... don't SSH to them from your house! Use Tor or smurf the data around by way of proxies and drop sites and such.
Laundering money would require extreme caution to avoid such contamination, and would present many of the same challenges as money laundering in the fiat currency world. BTC/fiat conversions would be very risky. In-person BTC/fiat conversions are vulnerable to old fashioned gumshoe police work: "hey, that BTC you exchanged on localbitcoin... you happen to remember what that guy looked like?" These are also only feasible for small quantities. Large quantities would present a huge challenge.
What this really means is that Bitcoin is not intrinsically an instrument for villainy as some lazy press articles make it out to be. In fact, criminal use of Bitcoin requires orders of magnitude more technical sophistication, which the vast majority of criminals do not have. A highly educated or sophisticated criminal or intelligence network could surely pull off shenanigans with Bitcoin, but I doubt your average thug or child porn wanker is going to even comprehend the stuff I wrote above. So at the very least, Bitcoin is only a criminal tool for very geeky high-IQ criminals.
If they were to automate some big system that cycles money among new addresses throughout the network while preserving ownership, then any address connected with someone would be instantly emptied and its money mixed in with numerous unknown addresses.
Unless you intend to prosecute everyone who spends BTC that was ever connected with a "known, even address" (which could very well be an option they take!), anonymity and laundering capability is preserved.
Unless you intend to prosecute everyone who spends BTC that was ever connected with a "known, even address" (which could very well be an option they take!), anonymity and laundering capability is preserved.
No, such a simple approach would be vulnerable to "big data" mining, it would show up as an unusual cluster all connected to itself. Non-laundering transactions splay out quickly.
You mean, connected to a constant stream of new addresses. And wouldn't finding such a cluster be NP-complete?
Finding clusters in graphs is a big research interest in the research group I'm part of.
When we started looking at Bitcoin we thought that we would have to use such sophisticated algorithms to uncover interesting structure, but it turned out to be much easier than we expected to find structure and meaning, so we never got too sophisticated.
There's a very active field of research on these cluster finding algorithms - the term to search with is 'community finding algorithms' - http://en.wikipedia.org/wiki/Community_structure has a reasonable introduction.
>And wouldn't finding such a cluster be NP-complete?
That isn't a problem, in practice.
Finding the maximum clique in a graph is an NP complete problem, which you might be thinking of - but 'clique' is a stricter definition than most people would use for 'community', (in that a clique requires all nodes to be connected to each other), and even then very good heuristic clique finding algorithms exist in practice (E.g. the Bron Kerbosch algorithm).
Some community finding algorithms have objective functions which are NP complete to maximise, but again, often fast heuristics are available.
Consequently, there are many good community finding algorithms out there that will quickly find clusters on networks the size of the Bitcoin graph - we ran some, but we didn't do much with their output.
Its difficult to dig into such problems without a ground truth, and again, we could uncover a lot of meaning using simpler techniques.
When we started looking at Bitcoin we thought that we would have to use such sophisticated algorithms to uncover interesting structure, but it turned out to be much easier than we expected to find structure and meaning, so we never got too sophisticated.
There's a very active field of research on these cluster finding algorithms - the term to search with is 'community finding algorithms' - http://en.wikipedia.org/wiki/Community_structure has a reasonable introduction.
>And wouldn't finding such a cluster be NP-complete?
That isn't a problem, in practice.
Finding the maximum clique in a graph is an NP complete problem, which you might be thinking of - but 'clique' is a stricter definition than most people would use for 'community', (in that a clique requires all nodes to be connected to each other), and even then very good heuristic clique finding algorithms exist in practice (E.g. the Bron Kerbosch algorithm).
Some community finding algorithms have objective functions which are NP complete to maximise, but again, often fast heuristics are available.
Consequently, there are many good community finding algorithms out there that will quickly find clusters on networks the size of the Bitcoin graph - we ran some, but we didn't do much with their output.
Its difficult to dig into such problems without a ground truth, and again, we could uncover a lot of meaning using simpler techniques.
Thanks for the explanation!
I think the benefit of this cycling, though, is in the size, not the obscurity. That is, if 60% of the users (and 99% of the addresses) are cycling money to obscure connection to a person, then either:
- You have to accept that "Joe spent a bitcoin that was once in a crime" is insufficient evidence Joe had any connection whatsoever to it, since "most users have touched that bitcoin too"; or
- You have to make it a crime to be a part of such a cycler altogether, which would effectively require an outright ban on Bitcoin.
These conclusions follow no matter how much structure to the trades you can detect.
I think the benefit of this cycling, though, is in the size, not the obscurity. That is, if 60% of the users (and 99% of the addresses) are cycling money to obscure connection to a person, then either:
- You have to accept that "Joe spent a bitcoin that was once in a crime" is insufficient evidence Joe had any connection whatsoever to it, since "most users have touched that bitcoin too"; or
- You have to make it a crime to be a part of such a cycler altogether, which would effectively require an outright ban on Bitcoin.
These conclusions follow no matter how much structure to the trades you can detect.
Determining whether a thing's a single stream would be down to finding where it touched down in the world of either fiat currency exchange, or purchasable stuff.
I don't know if it's NP complete. But my guess is no. I can immediately think of algorithms (maybe crude ones, I am no statistician) that could be used to attack it, and they require a lot of iteration, not an explosion of recursion.
I don't know if it's NP complete. But my guess is no. I can immediately think of algorithms (maybe crude ones, I am no statistician) that could be used to attack it, and they require a lot of iteration, not an explosion of recursion.
What about bitcoin tumbling services?
They obscure transactions quickly and cheaply.
They obscure transactions quickly and cheaply.
As long as they don't keep records - the mixer knows everything. And I'm not aware of any running instances of a decentralized mixer like e.g. described here: http://blog.ezyang.com/2012/07/secure-multiparty-bitcoin-ano...
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):
http://www.dgcmagazine.com/bitcoin-the-european-central-bank...
http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyscheme...
http://www.dgcmagazine.com/bitcoin-the-european-central-bank...
http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyscheme...
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).
[1] Bitcoin Charts, "Exchange volume distribution." http://bitcoincharts.com/charts/volumepie/
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/
assuming that everyone plays fair, uses common sense
Big assumption.
Big assumption.
+1 for pointing out the fallacies of human nature... I totally agree, this is probably the most dangerously evil assumption in the underlying Bitcoin implementation.
One I would argue is a necessary evil.
One I would argue is a necessary evil.
I've seen estimates that you could execute a continuous 51% attack for as little as 80 million in hardware. That's quite affordable to any central bank that feels threatened. I think a couple weeks of this would destroy all confidence in BTC.
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?
What would make it any more (or less) stable than the traditional reference currencies of gold, ammo, and canned baked beans?
The supply of bitcoins used as currency is fixed while the supply to all other reference currencies are variable in some way or another.
Fiat is obviously variable on the whims of the issuing government.
Gold may be taken out of circulation to make jewelry or electronics (or another use not yet discovered). Ammo and baked beans can be consumed. Bitcoin has no utility value and cannot be used for anything other than as a currency.
Similarly, the supply of these other items can be expanded. An asteroid full of gold could be mined, a new ammunition factory built, or a bean farm planted. Bitcoin has no physical identity, it cannot be reproduced, counterfeited, or grown outside of the well defined properties laid down in the original protocol.
Bitcoin is truly the first pure reference currency. Manipulative games can still be played with bitcoin markets, but the risk of external non-economic events affecting your money supply is removed. A political party can't decide the world needs more bitcoins, a new vein of bitcoins cannot be discovered, and nor can a new use for bulk bitcoins be invented.
Fiat is obviously variable on the whims of the issuing government.
Gold may be taken out of circulation to make jewelry or electronics (or another use not yet discovered). Ammo and baked beans can be consumed. Bitcoin has no utility value and cannot be used for anything other than as a currency.
Similarly, the supply of these other items can be expanded. An asteroid full of gold could be mined, a new ammunition factory built, or a bean farm planted. Bitcoin has no physical identity, it cannot be reproduced, counterfeited, or grown outside of the well defined properties laid down in the original protocol.
Bitcoin is truly the first pure reference currency. Manipulative games can still be played with bitcoin markets, but the risk of external non-economic events affecting your money supply is removed. A political party can't decide the world needs more bitcoins, a new vein of bitcoins cannot be discovered, and nor can a new use for bulk bitcoins be invented.
Bitcoin prices will be no more stable than conventional currencies, because money supply is a rate (BTC / sec) rather than a total volume (BTC). As commerce using BTC slows down so the money supply decreases. As commerce speeds up so the money supply increases. The exact relationship between the money supply and inflation complicated and somewhat controversial (see Wikipedia for more info), but there is no doubt that if, for instance, all the people currently holding Bitcoins as an investment were to sell them then the value of Bitcoins would drop, because the money supply would increase.
I do wonder if governments will be forced to stockpile heaps of BTC like they stockpile vaults full of gold, to try and manipulate the exchange rate.
> 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.
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):
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.
(U) What Users Can Do To Increase Anonymity
...
• (U) Combine the balance of old Bitcoin addresses
into a new address to make new payments.
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.
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.
Yeah, it's not a clear-cut connection if you do it in multiple steps. Hence the caveat that there are ways to make it (more) true. But what improvement in anonymity does it provide over leaving them separate? If they can't infer that X belongs to you, then if you don't send it to account Y (linked to you) you certainly don't leak that X belongs to you. If you do, it's not proof, but it certainly doesn't improve matters.
Don't take it to extremes - this can clearly be stretched to include running the whole process through mixers and back to a single address while improving anonymity. It doesn't say that. In principle, is combining addresses better for anonymity than not?
Don't take it to extremes - this can clearly be stretched to include running the whole process through mixers and back to a single address while improving anonymity. It doesn't say that. In principle, is combining addresses better for anonymity than not?
I think what you're looking at is something more like, if someone employs this tactic, they can't identify that addresses X, Y, and Z belong to the same person, whether or not they know who that person is.
Linking together abstract pieces like that can be one of the first steps to figuring out a very anonymous network.
Linking together abstract pieces like that can be one of the first steps to figuring out a very anonymous network.
I can't tell if you're agreeing with me or disagreeing...
And yes, those links are basically all you can use in an anonymous network to deanonymize actions. So how is linking things better than not?
And yes, those links are basically all you can use in an anonymous network to deanonymize actions. So how is linking things better than not?
Now I think I'm just confused by the way you're describing things. I'll hope someone else is better able to understand.
Hah, sorry if I am :) Not sure how I can significantly improve things without writing a blog post or something :|
Anyway. Thanks for chiming in :)
Anyway. Thanks for chiming in :)
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.
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.
This is suggesting doing something sketchy with 1 and then moving it and 2 and 3 to 4. You can improve your odds of evading detection by moving things around a bit, yes, but most applications I'm aware of will simply move them all in a single transaction. There have also been some fairly large-scale network analysis papers showing linked accounts and the flow of e.g. one big theft a while back - unless you run it through a mixer, you're only mixing with yourself, which runs the risk of revealing everything if you leak a little too much.
And regardless, if you then use 4 to do anything that's linked to you, it's further evidence that you are linked to all the accounts - in no way better than before, and possibly worse. You also can't use the money from 2 or 3 to do things linked to you, because now they're linked to you and the sketchy 1. If you had left them isolated, observers would only have information on 1, nothing would have changed, and you could use 2 and 3 without leaking any information about 1.
And regardless, if you then use 4 to do anything that's linked to you, it's further evidence that you are linked to all the accounts - in no way better than before, and possibly worse. You also can't use the money from 2 or 3 to do things linked to you, because now they're linked to you and the sketchy 1. If you had left them isolated, observers would only have information on 1, nothing would have changed, and you could use 2 and 3 without leaking any information about 1.
Think about it as cash: if someone knows that serial #AAAA was stolen, and then later you deposit that bill at a bank, they still have no idea if you are the person who stole it. It could have gone through any number of hands. I think I see your point about mixers though.
It couldn't have gone through any number of hands - Bitcoin transactions are public. You can see every hand it has gone through, though you may not (or may!) know the owner of the hand. That's why any large-scale analysis can be dangerous to such actions - if you discover the intermediaries, you can start drawing conclusions about who performed actions.
edit: here's the main article I'm aware of http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-...
edit: here's the main article I'm aware of http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-...
What would stop me from creating a thousand (or a million) wallets, and just randomly shuffling money between them a thousand times per day, creating a visibility of activity?
As long as you control all the wallets, the money is still yours.
As long as you control all the wallets, the money is still yours.
Not much now, but if this becomes the norm, transaction fees will stop you. Or at least discourage heavily - excessive transactions aren't great for the network because they bloat the block chain. Mixers largely bypass this concern because they can deal with larger blocks of money and more people than you can realistically do yourself, so the transaction fees are basically inconsequential.
Also, if you do this, you're likely not forming a new TOR connection each time you do any transaction, so you're leaking your IP address and traffic - easy to gather and be reasonably confident that someone is doing precisely what you described, and since it's all recorded forever, all the actions are essentially tainted forever. If you do form a new connection each time, you'll slow down substantially, and there may be a way to block you at the entry points to the TOR network (I don't remember TOR's details well enough to be sure, though).
edit: also, this will be very easily identified behavior unless people do it all over the place (and then transaction fees are basically guaranteed soon after), so you'd stick out like a sore thumb. I would be willing to bet that while it would give you some anonymity and you might shake off a few addresses, you won't gain complete anonymity, and it'll probably ultimately be worse and slower and harder than just using a few mixers. And if you ever transact them in a way that re-forms those connections (if they're all millionths of a coin, it's unavoidable), you just undid almost all your work.
Also, if you do this, you're likely not forming a new TOR connection each time you do any transaction, so you're leaking your IP address and traffic - easy to gather and be reasonably confident that someone is doing precisely what you described, and since it's all recorded forever, all the actions are essentially tainted forever. If you do form a new connection each time, you'll slow down substantially, and there may be a way to block you at the entry points to the TOR network (I don't remember TOR's details well enough to be sure, though).
edit: also, this will be very easily identified behavior unless people do it all over the place (and then transaction fees are basically guaranteed soon after), so you'd stick out like a sore thumb. I would be willing to bet that while it would give you some anonymity and you might shake off a few addresses, you won't gain complete anonymity, and it'll probably ultimately be worse and slower and harder than just using a few mixers. And if you ever transact them in a way that re-forms those connections (if they're all millionths of a coin, it's unavoidable), you just undid almost all your work.
If I send the money between my wallets, the transaction fees are not an issue - I keep that money, don't I?
Making a new TOR connection per transaction shouldn't be too hard to automate.
Making a new TOR connection per transaction shouldn't be too hard to automate.
They are an issue. Transaction fees are paid to the miner who builds the block which contains a transaction - for your transactions to be valid, they must be included in a block, so you'll have to pay the fees. Unless you mine the block yourself and don't require a fee / recollect it - a possibility, but your odds are abysmal.
Transaction fees are intended to be motivation to be a miner. Since 50 bitcoins per mined block will soon become 25 and eventually nothing, transaction fees will progressively take over to become the majority of miners' income. They're not enforced by the protocol, so there may be some transaction-fee-free miners out there at any given time, but they're not likely to be the majority of the compute power (and will probably diminish as time goes on). You might end up waiting for a long time for your transaction to be confirmed.
Transaction fees are intended to be motivation to be a miner. Since 50 bitcoins per mined block will soon become 25 and eventually nothing, transaction fees will progressively take over to become the majority of miners' income. They're not enforced by the protocol, so there may be some transaction-fee-free miners out there at any given time, but they're not likely to be the majority of the compute power (and will probably diminish as time goes on). You might end up waiting for a long time for your transaction to be confirmed.
If there's 1000 wallets that only transact with each other and never (or rarely) with other wallets, it might be possible to identify them as an island in the transaction graph - see [1] for an example of automatic graph clustering (I think the image is communities in facebook's social graph, but the same algorithm could be applied to a transaction graph)
Of course, whether that behavior would stand out depends on how other users of the system behave.
[1] http://www.ece.umd.edu/~wenjunlu/images/gephi.png
Of course, whether that behavior would stand out depends on how other users of the system behave.
[1] http://www.ece.umd.edu/~wenjunlu/images/gephi.png
You will probably find many of these islands even right now.
Plus, I can divide my 1000 wallets into 20 islands, and only have 1-2 transactions between the islands.
Plus, I can divide my 1000 wallets into 20 islands, and only have 1-2 transactions between the islands.
> 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.
Yeah. Difficulty obtaining bitcoin transaction records. Good on you, FBI.
Difficulty obtaining meaningful transaction records. Transaction are public, but often obfuscated.
By "difficult" the FBI certainly means "we'd have to perform some amount of manual reconciliation because the meaningful data won't just fall into our laps." Pretty standard for the last 15 years.
As for "obfuscation," I was under the impression that the system doesn't attempt to obfuscate what payment addresses are involved in a transaction. It's not pertinent to the network which physical person controls which addresses.
As for "obfuscation," I was under the impression that the system doesn't attempt to obfuscate what payment addresses are involved in a transaction. It's not pertinent to the network which physical person controls which addresses.
The network doesn't automatically obfuscate transactions, but it's easy to do using tumbling services.
If the FBI were following a trail involving my wallet, I would also want to avoid being linked to the tumbling services.
I suppose the question is how recognizable are tumbling services? Do they create new wallets regularly, and does the resulting traffic leave a fuzzy line between what is "in" the service and what is "out"? It could be that using a tumbling service looks fairly similar to giving money to somebody/somebodies who themselves uses the service.
Hang on, aren't the transaction records public and stored by the whole network?
I think that's the point.
Yep.
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.
"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.
> People do not trust "Federal Reserve notes"
Really? There I was thinking foreign governments liked holding their reserves in US dollars...
> 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
Wake up, SHEEPLE!
Really? There I was thinking foreign governments liked holding their reserves in US dollars...
> 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
Wake up, SHEEPLE!
"foreign governments liked holding their reserves in US dollars"
Yes every government has to keep dolar reserve because this is the only currency you can buy oil with. USA managed to force oil suppliers to accept only US dollars.
This is the source of the dollar power and enable FED to print as much dollars as they want. People all over the World must purchase dollars.
Yes every government has to keep dolar reserve because this is the only currency you can buy oil with. USA managed to force oil suppliers to accept only US dollars.
This is the source of the dollar power and enable FED to print as much dollars as they want. People all over the World must purchase dollars.
Minor snark, but 'the Fed', as in 'The Federal Reserve Bank of the United States of America' is an abbreviation, not an acronym. If you really want to use a TLA, 'FRB' (Federal Reserve Bank) might work, but 'FED' is meaningless. This undermines the credibility of your pronouncements on monetary economics.
Ok why do foreign governments also hold Euros, British Pounds, Chinese Yuan, Japanese Yen and Canadian Dollars as reserve currency? You're tinfoil hatting bit too hard here man.
You really do not have a clue how our monetary system works, do you?
So enlighten us all, rather than posting snarky comments.
The last time on HN that I responded to blatant ignorance with a three-paragraph summarization of a complex system, I was called rude because I said, "You don't seem to know how X works."
Obligatory link to Irwin Schiff's 'How an Economy Grows and Why it Doesnt' http://freedom-school.com/money/how-an-economy-grows.pdf
But regarding your original point, foreign govts and banks hold the US dollar because historically it has been strong, stable and accepted everywhere. It has no intrinsic value and recently governments are moving away from solely pegging their currencies to the US dollar as it has weakened relative to other currencies in the past few decades (eg Euro).
Another reason they take the US dollar is that they have no other choice. If China or Saudi Arabia were to say 'we want gold!' or 'we want resources!', trade relations would have stopped a long time ago.
But regarding your original point, foreign govts and banks hold the US dollar because historically it has been strong, stable and accepted everywhere. It has no intrinsic value and recently governments are moving away from solely pegging their currencies to the US dollar as it has weakened relative to other currencies in the past few decades (eg Euro).
Another reason they take the US dollar is that they have no other choice. If China or Saudi Arabia were to say 'we want gold!' or 'we want resources!', trade relations would have stopped a long time ago.
> Wake up, SHEEPLE!
Obligatory XKCD ref: http://xkcd.com/1013/.
Obligatory XKCD ref: http://xkcd.com/1013/.
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.
You would tax Bitcoins in the same way you tax transactions in USD, EUR, and so on. There really is no difference, once you stop to think about it.
Even with the USD, taxation does not work by the government subpoenaing your bank's records. Instead, it is your (or your employer's) responsibility to report your income and related data according to the legal requirements. The same applies to Bitcoin transactions.
Obviously there are some differences in the investigation of tax evasion. But there will still be records somewhere, and prosecution is used to deal with similar problems when transactions are cash-only.
You would tax Bitcoins in the same way you tax transactions in USD, EUR, and so on. There really is no difference, once you stop to think about it.
Even with the USD, taxation does not work by the government subpoenaing your bank's records. Instead, it is your (or your employer's) responsibility to report your income and related data according to the legal requirements. The same applies to Bitcoin transactions.
Obviously there are some differences in the investigation of tax evasion. But there will still be records somewhere, and prosecution is used to deal with similar problems when transactions are cash-only.
>People do not trust "Federal Reserve notes"
I trust Federal Reserve notes. US currency has high barriers to counterfeiting and can be exchanged for goods and/or services with actual rather than virtual anonymity. I may be a cave man, but I'm not alone. US banknotes are the 'gold standard' of black and grey markets around the world.
I trust Federal Reserve notes. US currency has high barriers to counterfeiting and can be exchanged for goods and/or services with actual rather than virtual anonymity. I may be a cave man, but I'm not alone. US banknotes are the 'gold standard' of black and grey markets around the world.
Governments are cracking down on the use of cash in ways that will only help the promotion of Bitcoin. http://www.forbes.com/sites/jonmatonis/2012/10/17/large-cash...
While I am ignorant of the situation in Spain, it is interesting to note that the two other governments detailed in the linked Forbes article have extreme organized crime problems. I am sure this says something about the role of the rule of law in the bootstrapping of trust.
Integrating licit and illicit revenue streams will always be a foundational issue for any illegal enterprise. I have not looked deeply into the implementation details, but Bitcoin does not strike me as a viable money laundering solution. At the point you move large amounts of value out of the ecosystem and into the 'straight' economy, you require the complicity of bankers.
Integrating licit and illicit revenue streams will always be a foundational issue for any illegal enterprise. I have not looked deeply into the implementation details, but Bitcoin does not strike me as a viable money laundering solution. At the point you move large amounts of value out of the ecosystem and into the 'straight' economy, you require the complicity of bankers.
The problem in Spain is this: http://en.wikipedia.org/wiki/Informal_sector
Estimated to be 20% to 25% of GDP compared to an average of 15% to 20% in the neighborhood.
Edit: as an extra fact, "we" (I've never seen one) hold most of 500€ bills that have been printed.
Estimated to be 20% to 25% of GDP compared to an average of 15% to 20% in the neighborhood.
Edit: as an extra fact, "we" (I've never seen one) hold most of 500€ bills that have been printed.
Thank you for the link. An English translation of the referenced title (Hernando de Soto's 'El otro sendero') is available in the extended network of my public library system, and I have placed a hold on it.
At present there isn't much you can buy with BTC. If the day came when EBay, Amazon and your local shops accepted BTC then that would change, especially if the local shops didn't require ID when you bought something.
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.
That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, or why criminals who aren't expecting to pay tax at all still deal in official currency.
That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, or why criminals who aren't expecting to pay tax at all still deal in official currency.
Because it's easy to spend since others accept it. Money itself has absolutely no value at all. It's more a promise that somebody will accept it when you want to buy something with it.
Which is precisely what the FBI report was describing: "they believe they can exchange the currency for goods, services, or a national currency at a later date."
That's the whole point of fiat money, isn't it?
It't the whole point of money, period.
> That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, ...
It is legal tender for debts. Offering currency to a creditor extinguishes the debt, whether or not they accept it.
It is legal tender for debts. Offering currency to a creditor extinguishes the debt, whether or not they accept it.
Exactly. We trust USD to be accepted as legal tender for debts.
LOL.
Most people do trust cash, within certain limits, because they're not crazy libertarians. The value of bitcoin is every bit as illusory and consensual as paper money.
That it's not under central control and has a fixed supply is interesting, but doesn't give it intrinsic value.
Most people do trust cash, within certain limits, because they're not crazy libertarians. The value of bitcoin is every bit as illusory and consensual as paper money.
That it's not under central control and has a fixed supply is interesting, but doesn't give it intrinsic value.
Actually the fixed supply is part of what does give it intrinsic value. Value is fundamentally anything that has utility _and_ scarcity. If the supply of BTC was infinite, it would have essentially no value (or at least it's value would diminish at such a rate that it would be useless for anything).
Value is just what people think something is worth, it's a shared illusion, not an intrinsic property of ... anything much.
Having a static, fixed supply and independence from central control makes something valuable to you, not so much to me.
>If the supply of BTC was infinite, it would have essentially no value
But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are.
edit: Probably not the best example, but either way, value is a perception.
Having a static, fixed supply and independence from central control makes something valuable to you, not so much to me.
>If the supply of BTC was infinite, it would have essentially no value
But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are.
edit: Probably not the best example, but either way, value is a perception.
You misunderstand. Independence from central control has nothing to do with it.
I'm not defining value in the philosophical sense, which as you point out is entirely subjective, but you seem to be arguing against the generally accepted definition of value as applied to a system where something is exchanged in return for something else.
> But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are.
Perhaps you need to re-read my comment. I never said scarcity alone was enough - if no one used it, it wouldn't have utility. You need both, hence my use of the word 'and'.
And thanks for the completely unnecessary downvote.
I'm not defining value in the philosophical sense, which as you point out is entirely subjective, but you seem to be arguing against the generally accepted definition of value as applied to a system where something is exchanged in return for something else.
> But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are.
Perhaps you need to re-read my comment. I never said scarcity alone was enough - if no one used it, it wouldn't have utility. You need both, hence my use of the word 'and'.
And thanks for the completely unnecessary downvote.
> And thanks for the completely unnecessary downvote.
Have another, for whining about it!
Have another, for whining about it!
There are two obvious ways in which expanding the money supply can go wrong.
1) Bernake et al. are feckless idiots and will leave the money presses running long after inflation rears its head, a la Zimbabwe, causing hyper inflation and the destruction of the world economy
2) The economy picks up a bit and they stop printing. However, that huge pool of money they have created is enough to drive inflation so high that they are either faced with allowing a period of high inflation 70's style or breaking the economy again with restrictive monetary policy.
Outside wild conspiracy theories I don't think 1 is plausible and 2 is hardly likely to lead to the huddled masses attempting to warm themselves around a pile of burning trillion dollar notes. So I think confidence in the dollar is safe for the interim.
1) Bernake et al. are feckless idiots and will leave the money presses running long after inflation rears its head, a la Zimbabwe, causing hyper inflation and the destruction of the world economy
2) The economy picks up a bit and they stop printing. However, that huge pool of money they have created is enough to drive inflation so high that they are either faced with allowing a period of high inflation 70's style or breaking the economy again with restrictive monetary policy.
Outside wild conspiracy theories I don't think 1 is plausible and 2 is hardly likely to lead to the huddled masses attempting to warm themselves around a pile of burning trillion dollar notes. So I think confidence in the dollar is safe for the interim.
IMO true hyperinflation is extremely unlikely since the US can also "unprint" money at will due to it being mostly digital debt. They will however continue to inflate as much as they think they can.
Related, "gold bugs" may have had a good decade but I also believe that gold's value comes from nothing more than tradition: you can't eat it and you can't defend yourself with it.
Related, "gold bugs" may have had a good decade but I also believe that gold's value comes from nothing more than tradition: you can't eat it and you can't defend yourself with it.
1) is not plausible unless it happens. Hyperinflations tend to happen only once in a history of a fiat currency.
It sounds a little bit crazy to propose that hyperinflation would happen to one of the really big world currencies (euro, dollar, yen...). But I don't see any technical reasons why it couldn't happen at some point in the future.
It sounds a little bit crazy to propose that hyperinflation would happen to one of the really big world currencies (euro, dollar, yen...). But I don't see any technical reasons why it couldn't happen at some point in the future.
You may be interested in this paper on hyperinflation: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
The tl;dr version: The root cause of hyperinflation has never in history been runaway printing of money. Rather, the root cause is always some mixture of foreign-currency denominated debt, political chaos, and collapse of a country's productive capacity.
To give a bit more detail: This analysis applies to both the Weimar republic hyperinflation (excessive reparations demanded by the victors of World War I denominated in real goods and foreign currencies, combined with a military occupation of Germany's steel and coal industrial center) and the recent Zimbabwe hyperinflation (high USD-denominated government debt combined with a collapse of domestic production due to stupid economic reforms).
The hyperinflation is simply a result of such untenable economic situations. They tend to be "cleansing fires" in some sense: especially in the Weimar republic case, the hyperinflation made it very obvious to everybody that the war debts need to be backed off.
The tl;dr version: The root cause of hyperinflation has never in history been runaway printing of money. Rather, the root cause is always some mixture of foreign-currency denominated debt, political chaos, and collapse of a country's productive capacity.
To give a bit more detail: This analysis applies to both the Weimar republic hyperinflation (excessive reparations demanded by the victors of World War I denominated in real goods and foreign currencies, combined with a military occupation of Germany's steel and coal industrial center) and the recent Zimbabwe hyperinflation (high USD-denominated government debt combined with a collapse of domestic production due to stupid economic reforms).
The hyperinflation is simply a result of such untenable economic situations. They tend to be "cleansing fires" in some sense: especially in the Weimar republic case, the hyperinflation made it very obvious to everybody that the war debts need to be backed off.
> they are forced to use it, since they must pay taxes in it.
Last I checked, people use US Dollars for a fuck load more than paying taxes.
> How to tax the beast.
Cash is and was even more so in the past harder to track than bitcoin and yet somehow the "hooligans" managed to collect taxes.
Last I checked, people use US Dollars for a fuck load more than paying taxes.
> How to tax the beast.
Cash is and was even more so in the past harder to track than bitcoin and yet somehow the "hooligans" managed to collect taxes.
With so few people - in Germany at least - having their assets in Gold etc. but in bank accounts in $,EUR,... I assume most people trust the currency.
Doesn't Germany hold a huge amount of gold? Additionally, the only euro country not collapsing on itself?
€144 billion currently it is assumed, but no one really knows as no one has counted - and weighted - the gold for a long time, at least the Govt didn't. But 144B is not nearly enough to provide any currency stability.
[edit] "But not even the owners are allowed to view their own gold. According to the Federal Audit Office report, the Fed explained that "in the interest of security and of the control process" no "viewings" are possible." http://www.spiegel.de/international/germany/german-politicia...
[edit] "But not even the owners are allowed to view their own gold. According to the Federal Audit Office report, the Fed explained that "in the interest of security and of the control process" no "viewings" are possible." http://www.spiegel.de/international/germany/german-politicia...
The US Dollar area (i.e. the US) has come closer to default than the Eurozone.
If by "default" you mean "voluntary default", perhaps yes, in the context of the debt ceiling debate.
However, since the US government cannot be forced into default - after all, the US government runs the USD system, and all its obligations are denominated in USD - this is all just political posturing.
It's kind of depressing how effective this posturing is. It's a testament to the terrible state of public education about fundamentals of our monetary systems.
However, since the US government cannot be forced into default - after all, the US government runs the USD system, and all its obligations are denominated in USD - this is all just political posturing.
It's kind of depressing how effective this posturing is. It's a testament to the terrible state of public education about fundamentals of our monetary systems.
yep. But can the largest military power really default?
Easier than anyone else, I'd say.
"Hi Everyone, POTUS here. About those treasury bonds a lot of you are holding... we're not going to pay interest on them. Or pay back the princiapl. Ever. On a totally unrelated note, here are some pictures of our 11 carrier strike groups. Impressive, aren't they?"
"Hi Everyone, POTUS here. About those treasury bonds a lot of you are holding... we're not going to pay interest on them. Or pay back the princiapl. Ever. On a totally unrelated note, here are some pictures of our 11 carrier strike groups. Impressive, aren't they?"
Argentina is a serial defaulter yet investors still lend money to the government there.
If the U.S. decided to completely default on it's debt it would be more destructive to the U.S. economy since the majority of the debt is held by U.S. citizens & institutions. Insurance companies & banks would collapse instantly since the a very large percent of their asset bases would be wiped out.
We (meaning U.S. citizens) owe more to ourselves than to any foreign entity. Default is, at least right now, a political non-starter.
If the U.S. decided to completely default on it's debt it would be more destructive to the U.S. economy since the majority of the debt is held by U.S. citizens & institutions. Insurance companies & banks would collapse instantly since the a very large percent of their asset bases would be wiped out.
We (meaning U.S. citizens) owe more to ourselves than to any foreign entity. Default is, at least right now, a political non-starter.
"Hey, POTUS, you got us. BTW, we'll never lend you money again. Or vote for your party again."
The US would never need to default on its debt, since its debt is in USD. Worst case, it would just print more money, leading to inflation.
The US would never need to default on its debt, since its debt is in USD. Worst case, it would just print more money, leading to inflation.
Ask the Germans and the British before the WWII.
They were the largest military power at the time, Germany in land, British Empire(India,Pakistan, Afghanistan, Ethiopia...) on the sea.
They started getting in debt and a little country called United States became the biggest creditor of the world.
They they killed each other in a stupid war trying to reign supreme, and someone else did.
Now this someone else had started thinking their power will be forever. We will see...
They were the largest military power at the time, Germany in land, British Empire(India,Pakistan, Afghanistan, Ethiopia...) on the sea.
They started getting in debt and a little country called United States became the biggest creditor of the world.
They they killed each other in a stupid war trying to reign supreme, and someone else did.
Now this someone else had started thinking their power will be forever. We will see...
Well the European Union is the largest economy by GDP (not sure of eurozone). Can it 'collapse'? If it can collapse, what makes you think the largest military can't?
The only? Greece may be collapsing. To say that other Euro countries are also collapsing would at this point be hyperbole.
Spain's economy is headed for a depression, Ireland's credit is shot after their bailout, Portugal collapsed almost immediately and is suffering high unemployment even after a bailout, Cyprus's credit rating is junk and they've applied for a bailout. So it's not just Greece. Several other countries were headed for trouble but seem to have things under control now: Italy, Belgium, France, the UK, Switzerland, Germany, and Slovenia.
Source: http://en.wikipedia.org/wiki/European_sovereign-debt_crisis
Source: http://en.wikipedia.org/wiki/European_sovereign-debt_crisis
That’s not collapse in any sense of the word.
Even if I were to agree with you on the collapse, that’s not all Euro countries. Germany, for example, had never any problems or trouble that could by any sane person be described as collapse.
Even if I were to agree with you on the collapse, that’s not all Euro countries. Germany, for example, had never any problems or trouble that could by any sane person be described as collapse.
CBS says it's a collapse. http://www.cbsnews.com/8301-505123_162-57406006/spains-colla...
I think describing a recession or even depression as a collapse is wrong.
I am Russian.
Years ago I had strange experience: my friend invited me as unofficial expert.
I was amazed: the guys whom I talked were "right guys". One of them told me: "From the call log I can tell more than a guy think himself" (Excuse me for bad English) M
I was amazed: the guys whom I talked were "right guys". One of them told me: "From the call log I can tell more than a guy think himself" (Excuse me for bad English) M
People arguably trust FRN's since the majority continue to save in FRN's/bank credits (I agree the trust is misplaced).
Nice document. It shows well the way of thinking of our governments.
Yea, it sure does reveal how silly the FBI is. I mean, why would the organization tasked with domestic security & stability analyze the potential threats of Bitcoin? Bitcoin is made of lollipops and rainbows; it could never be used maliciously.
Seriously, analyzing it critically doesn't mean they are afraid of it. It just means it is an unknown that they want to understand.
Yea, it sure does reveal how silly the FBI is. I mean, why would the organization tasked with domestic security & stability analyze the potential threats of Bitcoin? Bitcoin is made of lollipops and rainbows; it could never be used maliciously.
Seriously, analyzing it critically doesn't mean they are afraid of it. It just means it is an unknown that they want to understand.
This was leaked quite some time ago and determined to be genuine.
Wired's original article: http://www.wired.com/threatlevel/2012/05/fbi-fears-bitcoin/
> 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.
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.
The benefit is that the electricity bill goes to the owners of the infected computers.
What does a botnet cost?
What does a botnet cost?
I think the comment is referring to opportunity cost, since botnet's can also be used for other profitable activities, which may bring in more money than bitcoins (such as renting them to interested parties).
Generating Bitcoins is CPU or GPU bound. There's a lot of profitable things you can do with botnets that don't compete for those resources.
There's opportunity cost in using it for yourself instead of selling the use of it to other people.
It's malicious in the sense that infected machine resources are being used to directly turn a profit for the controller.
Other ways of profiting off botnets include renting out DDoS and spam capabilities.
Other ways of profiting off botnets include renting out DDoS and spam capabilities.
Not just turn a profit for the controller, but incur a cost for the victim. I measured my computer the other day; when I start mining, my power draw jumps 160 watts, and I have a fairly efficient machine.
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.
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.
I like the presentation style.
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.
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.
Interesting that they don't address whether there are concerns about it eroding tax revenue or if it is a threat to federal reserve notes.
I'm guessing it's because that's not something the FBI cares about. The FBI is just a police force; it ain't the Federal Reserve.
but you need a police force to enforce fiat :)
You need a police force to enforce contracts and there is no system of exchange that can survive without contract.
No...you need a justice system to enforce contracts: contract law and dispute resolution pre-dates the idea of a police force by hundreds of years. Breaking a contract is a purely civil matter.
The police usually don't investigate tort law, only criminal law. When the police do get involved in civil law disputes it can get quite controversial.
The police usually don't investigate tort law, only criminal law. When the police do get involved in civil law disputes it can get quite controversial.
>> contract law and dispute resolution pre-dates the idea of a police force by hundreds of years.
So does centrally controlled currency...
So does centrally controlled currency...
Impressively crafted document. Found it to be very concise and educational.
I would love to participate in this discussion, but I feel like I don't know enough about the economics of currency to make any real contribution.
Does anyone know of some good resources (online courses, books, etc)?
Does anyone know of some good resources (online courses, books, etc)?
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!)
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.)
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.)
Thanks, I'll take a look. I am definitely more interested in case study, and reality than an idealogical system.
I felt the same way when I discovered bitcoin last year. Here are some books that I read that helped:
* "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
* "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
It would also be beneficial to read what pro-central bank arguments are. The Regional Reserve Banks maintain extensive research & documents to learn how the Fed operates and the underlying argument as to why it should exist.
This wikipedia link could be a good start in addition to the selection of books above: http://en.wikipedia.org/wiki/Federal_Reserve_System
This wikipedia link could be a good start in addition to the selection of books above: http://en.wikipedia.org/wiki/Federal_Reserve_System
I'm no expert either, but http://www.khanacademy.org/ has a lot of great videos on economics.
Thanks, I saw those but none seems specific enough. I've taken courses in macro and micro economics so I'm looking for something deeper, just on currency. I did also see khanacademy's lectures on currency relating to china, but it would be cool to find a reputable book.
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.
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
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
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.
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.
Yeah, sorry about that. I submitted the actual link to the pdf, but HN turned it into a scribd link.
only the [scribd] part is to scribd. the rest of the link goes to the original pdf. this is how hn has handled pdf links for a long time now.
What does the "(U/FOUO)" that keeps showing up mean?
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.
Unclassified / for official use only
[deleted]
"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.
Sounds like if you make a market for gift cards you need to be a licensed money transmitter FYI.
"All Bitcoin transactions are published online and Internet Protocol (IP) addresses are linked to the public Bitcoin transactions."
How are IP addresses linked to the block chain?
How are IP addresses linked to the block chain?
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.
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.
Well, presumably if you infiltrate the P2P network, you can catch the transaction at its source?
Sure, but surely the block chain doesn't contain Source IP Address fields.
That is correct.
"For instance, child pornography and Internet gambling" - So, me playing the UK National Lottery online is illegal? o.o
s/Bitcoin/cash/ and all the negative arguments about propensity for criminal activity are quite amusing.
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.
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.
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.
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.
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.