> But if I was a local drug kingpin in Baltimore, or a corrupt mid-level CCP official, or a Cypriot corporate money launderer, then Bitcoin deanonymization is probably a small risk in the scheme of things. Certainly orders of magnitude less risk than using the traditional banking system.

... for now.

The thing is, 2-3 tx/sec is basically snail mail. That's such a small number of transactions that there's not even a forest to hide within.

As the analytics tools improve the de-anonymization will be faster and more automatic, and that "tens of millions" figure will dwindle down to pennies. State actors can easily combine that data with actual fiat, and you'll be in court before you know it.

The problem is you're committing a ledger of your criminal activity to the cloud forever, and CCing your attorney general, smirking that they'll never figure it out. Of course they will. Either they'll figure it out or ban it. Or both.

> ... for now

It bears repeating explicitly I think: you're not working against today's analysis tools, you're working against whatever analysis tools exist far into the future, since everything is recorded for eternity.

I don't think many people become drug dealers by worrying about the hypothetical effects their decisions might have on them in 10 years.

They do if they want to stay tf out of prison.

From what I've seen, success in this industry is predicated upon planning, caution, and constantly thinking of ways that people are going to screw you over.

If your first thought when making decisions was "what won't send me to prison" you probably wouldn't be engaging in criminal enterprise in the first place.

Most people who break the law do so because they either don't consider the consequences or accept the rewards as justifying the risks. And plenty of criminals go to prison because they judged wrong. That those who are successful for long periods of time buck this trend is just survivor bias.

Well, it's true that the official manual contains mostly short-term, actionable recommendations, but some of them do have the goal of avoiding long-term consequences.

https://m.youtube.com/watch?v=ZYb_8MM1tGQ

> whatever analysis tools exist far into the future

only as far as statute of limitations. figuring out the crime after that point is not a risk ... but it does put a target on your back

These can be changed and you can be charged under other crimes which may have different statue of limitations. When the government decides they want you in prison, it doesn't particularly care how it does so. Tax evasion, drug trafficking, funding terrorism, CSA changes, weapons smuggling, or RICO or country equivalent, they'll use which ever seems easiest to get you.

For a buyer, this isn't as big of a deal because you won't have that level of target on your back, but for anyone running a marketplace I don't think statute of limitations will protect you once they figure out who you are.

Even in the ancient Silk Road you could sell contraband effectively using internal, offchain transactions only. The customers pay using offchain transactions using the market, and the vendor can cash out via some trader in the same market.

Like Hawala?

No, not at all.

Basically, if you dont want to deal with the onchain transactions, you could sell the risk of that to someone else and only deal in internal offchain transactions. Dont know if this actually happens though.

Bitcoin Mixers are really effective against even state actors. Especially decentralised mixers.

Are they effective against this technique?

https://www.wired.com/story/bitcoin-blockchain-fifo-dirty-co...

You might find that the mixer, rather than washing your bitcoin, unexpectedly taints them.

Are you sure you understand the content of the link you shared? It’s talking about a hypothetical legal framework, not actually concretely descrambling the input and outputs of a mixer service.

It doesn't matter how good your technical solution is if the law says that the scrambling doesn't matter.

The threat being considered in this thread is a future crackdown on bitcoin and how the blockchain may be used against bitcoin owners. Legal threats seem very relevant.

I don't think people appreciate the fact that government agencies have the cheat codes to the server of life.

While some will try to do everything the legal way, the the wily people who believe they are getting away on some kind of technicality sometimes find themselves charged with a different crime, or maybe just unlucky after a pre-dawn police raid or traffic stop goes south.

So let's say your name is Paul. In this scenario, I steal your bitcoin. I go over to a gold seller named Peter and use your bitcoin to buy gold. You report your bitcoin stolen. The guy who sold me gold owes you bitcoin, but I don't. Effectively I have simply robbed Peter.

Nah in the real world code isn't law. They'll do what they do with stolen cash. They confiscate it, and create a liability on the person who gave it to you. Or squeeze you both.

But you don't know who gave it to you, because it's obfuscated. Which is the whole problem this law was supposed to solve.

My read on the article is that they're considering two different frameworks: one where everything that comes out of the mixer is considered fractionally dirty based on the inputs. Or, randomly picking an output and tainting it 100% under the "FIFO" method.

The idea isn't necessarily to de-anonymize the transactions here but to disincentivize people from using mixers. Either a haircut kills a portion of your value, or you lose it all, the idea is you won't do that again.

That doesn't change that legally it still kills all your money, and creates a liability on the person who put in the dirty money. If you figure out who they are it's all you, you're welcome to sue them. If not, you've learned a hard lesson.

I'm fine with either.

Again, the whole problem is that the bad actor can pass off their stolen bitcoin before anyone knows its tainted. So it doesn't matter if you didn't use a mixer, if that bitcoin ever went through a mixer it could potentially be a live hand grenade. People could just mix large numbers of bitcoin periodically so everything is suspect.

You're not solving the problem, you are just introducing new problems that affect other people in the hopes that the entire system becomes unworkable.

I would argue that solves the problem, just not in a way that you are a fan of.

In much the same sense that you could abandon your house when you have termites: you're not solving the problem, you're just avoiding it in an incredibly inefficient manner.

Still if you are a corrupt mid-level CCP official you can just say send a bitcoin to account xyz and there's no way of knowing who owns that unless the money is transferred out to something identifiable. It's like Satoshi's bitcoins. There they are on the chain but you can't tell who controls them from that.

Bitcoin transactions don't have to be on-chain

https://en.wikipedia.org/wiki/Lightning_Network

Bitcoin transactions do, LN transactions have completely different characteristics, including having to settle back on-chain for security.

The Lightning Network literally exchanges Bitcoin transactions that are withheld from being broadcasted on-chain until channel closure. Bitcoins exchanged via the Lightning Network are just Bitcoins. Saying they are a different kind of "IOU" or token is a lie often employed by alt-coiners trying to push a "Layer 1-only"-Bitcoin fork (e.g. BSV).

The security in the Lightning Network doesn't come from settling on-chain after a transaction happened but from signing over all your money in a Lightning Network channel to the other party should somebody catch you cheating.

The real lie is saying that LN transactions are "just Bitcoins".

They are unconfirmed transactions and there are many ways of losing your funds compared to confirmed ones. Such as having your harddrive corrupted and your node trying to propagate an old state.

Unconfirmed Bitcoin transactions are still Bitcoin transactions, with the advantage that on the Lightning Network you have a built-in protection against doublespends in contrast to accepting 0-conf tx.

You are correct that funds in a Lightning Network wallet are at higher risks than those in a cold wallet, but this applies to all "hot" crypto wallets. Most LN wallets supports "Static Channel Backups" which you only create and store once after setting up a channel. In case your phone goes up in flames, you can use it to safely close your channels and receive your balance.

From the perspective of (black) market participants, the characteristics of LN are preferable. Including privacy aspects.

Or you could just hand someone the private key to your address that contains $100. Let them figure out how to obfuscate their stuff.

Nobody is going to accept this as payment for something illicit. They know you've seen the private key. They have no reason not to assume you have something set up to sweep the wallet as soon as they accept the "payment."

“Opendime is a small USB stick that allows you to spend Bitcoin like a dollar bill. Pass it along multiple times. Connect to any USB to check balance. Unseal anytime to spend online. Trust no one.”

https://opendime.com/

That's not the same as just "handing someone your private key."

It involves either buying or creating a tamper resistant device and a reputation for authenticity.

It's significantly more complicated.

You can put the money in an off chain escrow like Lightning for things like this though.

> Bitcoin deanonymization is probably a small risk in the scheme of things

its really not.

unlike cash or bearer bonds, _all_ transactions are recorded in perpetuity. That's literally the entire selling point of bitcoin, the ledger is opensource and universal.

Given that virtually all money going into and coming out of bitcoin is through establishments that have financial licenses, its perfectly trivial to trace the flow of money from its first exchange of real cash for bitcoin, to when its used for illicit purposes.

You're currently labouring under the impression that tracing cash flows in the real world is hard. its not, especially for a government. what is hard is proving that its illicit. cash is fungible, as in each unit of currency has no ID. so its much harder to prove that this $1 came from a drug sale.

with bitcoin, you have a public wallet, and a clear lineage of transactions from start to end.

If the currency is acquired through mining, then it doesn't have to flow through an establishment that has a financial license. It can still be traced, but identifying the individual is much more difficult.

And there are other ways to make things hard to trace. Buy for cash on localbitcoins. Go via a privacy coin. Go via a sketchy exchange.

Miners still have to record the BTC they've added to the blockchain if am not mistaken.

The miner reward is sent to a bitcoin address. Anyone can create a bitcoin address without going through any 3rd party so it’s totally anonymous until you spend it.

Okay. So basically useless. And not exactly anonymous since to use it in any way would ultimately defeat the purpose.

Is there a use case for unspent bitcoin?

Is there a use case for unspent dollars?

>cash is fungible, as in each unit of currency has no ID

This may seem nitpicky to point out that it does, but since it does, I'm not sure of your point.

"A unique combination of eleven numbers and letters appears twice on the front of the note. Each note has a unique serial number"

https://www.uscurrency.gov/denominations/bank-note-identifie...

yes, the physical currency does. but as soon as its in a bank, thats lost.

moreover we are assuming that cash is ID at entry and exit, which its not, unless someone suspects something.

Isn't that the exact same way crypto works? It has a unique identifier, but as soon as you own it indirectly, on an exchange or something, then that clear link no longer exists. I'm wondering why it wouldn't be a parallel?

Cash is rarely verified. Sure they might do spot checks to see if its a fake. but its rarely tied directly to a deposit.

So when a cash machine gives you money, the ID of the currency not be tied to your account. When you spend that money in a shop, those notes will not be attached as having come from you as a customer.

With bitcoin, that all comes for free, we know when money left your wallet, what addresses it passed through to get to someone's else's. the whole selling point of bitcoin is that you can trace the provenance of each transaction right back to when that coin was originally mined.

For example, if I was to use bitcoin as a bank account replacement, everyone would know my employer, they would know how much money I give to my spouse each month. They would know who I invest with. They would know when I do my shopping at the super market. They would know when I'm having work done at the house. They would know if I got a bonus, and how much.

Some of those things I'm ok with, but a lot of things, I'm not

How do you trace funds through international exchanges that have throwaway wallets for the purposes of the transfer?

I'm curious too. At a guess, probably similar to attacks on Tor. In this analogy, those exchanges are like tor exit nodes.

Bearer bonds aren't really legal in most jurisdictions anymore due to the obvious potential for misuse. It's mostly a hollywood trope now. There are still companies where ownership is determined by bearer shares, usually found in tax havens and such.

> as in each unit of currency has no ID

If you mean physical units of currency that is no longer the case, most notes have serial numbers. In principle quite a lot of tracing can be done.

can be done, but often isn't. It requires someone to be suspicious to trigger the various institutions to start tracking it.

there is lots of scope for laundering by giving the cash to third parties, before it gets to the banks.

Laundering inside bitcoin is pretty futile, because we can trace from mining to current wallet. we don't even need to trace all bitcoins.

All you have to do is pay for something illicit, and you can trace the flow of money from wallet to wallet, until its either converted into real cash, or held as a "reserve"

I often see this argument as though in the future some advance technology can go back through the ledger and de-anon people.

Outside of some exchange link keeping a name = address record, the public wallet doesn't really expose you as there's no link between an address and a person.

Also, that $1 can be charged with crime and sized directly. Good luck siezing a brainwallet etc.

It sounds like to me that the argument isn't that an advanced technology will go back through the ledger and identify people. It's that once people have been identified/linked to a public wallet, it's really easy to determine how they spent bitcoin because the record is public and permanent.

I agree, but there are people who create bank accounts (and I'm sure Coinbase accounts) with fake ID and use them for illegal proceedings. So while we can trust that the transactions log is accurate, it doesn't always prove a link to an actual person. My concern is someone having their identity stolen (or even just impersonation), used for KYC, then being linked to crimes without any deniability at all.

Edit: like IP address and torrent lawsuits etc.

Plenty of Bitcoins have been sized. People don’t memorize their private keys, they store them somewhere. It’s quite hard to minimize the attack surface of your crypto currency without also risking the coins being lost.

Then that is entirely on them.

> Outside of some exchange link keeping a name = address record

"Outside of" is doing a lot of work here.

That's why mixing services exists. Other than that darknet is using Monero AFAIK.

> Bitcoin can be traced by sophisticated nation state actors at the cost of tens of millions per intercepted target.

Please... Bitcoin transactions can be traced by whoever has a laptop and internet. If you want to stay anonymous, there is nothing worse than Bitcoin. Do yourself a favour and switch to Monero and similar which offer some level of privacy. But there is nothing better than the good old bank notes. Anyway, please educate yourself https://en.wikipedia.org/wiki/Bitcoin

How is a guy with a laptop and internet know that the start/end address at e.g. an exchange is connected to me specifically? Sure, they can trace all the transactions of an address but you need more than that to connect the address to a specific person.

Of course, Monero is a better option but even with BTC it's not as trivial as you claim.

It doesn't by itself, but it's a much better start. You can simply match up addresses with activity from other digital systems. That link is present in a global, transparent, up to the minute, cheap to ingest data source (the blockchain).

Comparing that to any other payment system (or combination of) where there is due process in collecting this information (hopefully accurate and valid) you're going to have a much easier time developing tools to detect and alert with Bitcoin.

So you need is a financial institution to give you unrestricted access to their records. And it can't be just any financial institution, it has to be the one used by the person you are targeting. And you don't know what financial institution that is because you are still trying to identify who the address belongs to. So really all you need is unrestricted access to many financial institutions' records.

If it were easy to trace, the identity of Satoshi Nakamoto would be known, wouldn't it?

Once “he” moves his coins, it very well may be.

wouldn't that be more reason for nation states to track monero?

It's not. All of the DNMs have switched to Monero already. Ransomware is also changing to Monero. Anyone using Bitcoin for illegal stuff at this point will be caught.

Correction: Anyone running a large business using bitcoin for illegal stuff is likely to be caught at this point.

Correction: Anyone running a large business using bitcoin for illegal stuff that isn't based some place like Russia is likely to be caught at this point.

+1 nice correction.

Even the 1Feex wallet that has the stolen Mt. Gox funds (now worth $5B) hasn't been touched. Bitcoin has been radioactive for illegal stuff for a while.

Or the owner might just have died or might be in prison. I'm pretty sure that the reason for not moving those coins is because BTC is radioactive. It might be partly a reason, but surely not the only reason. If you really needed the money you could try several methods to launder them.

You could try, but miners aren't going to include a transaction from that address in a block, especially not to some sort of mixing service.

It takes something pretty extreme to get the consensus of enough miners to matter, but the hack of Mt. Gox was that extreme.

This is not true.

We'll probably never find out, but there are plenty of blacklisted addresses miners won't touch. Ignorance of this is revealing.

What miners are blacklisting addresses? $623m in hacked Bitfinex funds were moved today without issue.[1]

[1] https://www.coindesk.com/623m-in-bitcoin-from-2016-bitfinex-...

Transactions are broadcasted well before they are included in a block, so we'd know immediately if it happened.

I am deeply familiar with these systems. Maybe there are miners out there doing this, but it's not widespread enough to have any impact.

>All of the DNMs have switched to Monero already.

This is bullshit. WHM switched to Monero, not "all of the DNMs"

Had to Google

DNM == Dark Net Market WHM == White House Market, a large DNM

«As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin»

That is completely unsubstantiated. You have no evidence for that.

It’s a fair inference given the size and rate of known Bitcoin black market busts. In one search, I found a paper that estimates $76B worth of Bitcoin is used in illegal trade per year.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3102645

I remember this paper. A major flaw that was pointed out to the authors (and never corrected) is that Bitcoin tumbling services—popular among illicit users—artificially increase the transaction volumes. So if tumbling services puts the BTC on average through 10 transactions, then this will multiply by 10-fold the volume. In other words there wouldn't be $76B transacted annually, but only $7.6B.

Tumbling also makes some of their other figures unbelievable. For example in table 2 they report "181.82%" of all users transactions attempt to use tumbling services... I have little confidence in this paper being accurate.

Russian darknet market Hydra, which is probably the biggest darknet market in the world, uses only Bitcoin for everything.

OP doesn't or you doesn't ? OP appears to have plenty.

Darknet markets almost universally advise against using BTC that hasn't been explicitly anonymized, a process that costs money and effort and requires knowhow to do properly. Mixers, tunneling through a private cryptocurrency, or other methods almost all involve transaction fees. Few people are seriously engaging in trading contraband without this overhead.

It can be pretty anonymous too. You can use fiat to buy mining hardware and then it's pretty hard to connect an identity to a wallet if you're careful.

Don't you eventually need fiat? Yes, so you have someone sell NFTs to those untraceable wallets and now you have a legit income stream as an artist. Pay the tax in the place you want your money to end up and you really only need like one person in your destination country to clean as much as you'd like.

You pretty much need to go through a Know your customer(KYC) process to really trade in crypto. At least here in western Europe i had to upload a Id doc, I don't mind it because saving money costs me money, buying satoshis earns me money.

Given cryptos nature of being a public ledger and there more then enough compute power available everything can probably be traced and backtracked in real-time.

Only in the destination country. Let's say someone in China wanted to move $$$$ out of China for whatever reason. They could use yuan to purchase mining hardware and use that to generate clean wallets with no identity attached. A good friend of this person is an artist in the UK. The artist cashes in the ETH, properly reports taxes from income, and now has a completely clean and clear source of cash. Now if the Chinese person wants to get out of China in a hurry, they can visit their close friend in the UK.

Being generous you can mine ~$10 of crypto per day with a 3080 based on its hashrate, zero electricity cost.

So to transfer $1 million out over 3 years, you'd need to run mine ~$900 of crypto per day, ie. run 90 RTX3080s 24/7/365.

Also note that this would draw around 20kW.

[1] https://www.nicehash.com/profitability-calculator/nvidia-rtx...

NiceHash shows a profitability of $9/day (1) given $0.08/kwh which is average in China (2). So to get a positive return on your investment assuming a cost of $700 per card, it takes less than 80 days. Never before have you been able to launder and invest your money at the same time.

The questions of number of cards and electricity usage are pretty secondary and easy enough to hide. Go off grid, setup a similar legitimate company, lots of options to hide it.

This is backed by the fact the vast majority of hash power for BTC comes from China (3). There are world wide shortages for sha asics and gpus. I'm not describing a hypothetical.

(1) https://www.nicehash.com/profitability-calculator/nvidia-rtx...

(2) https://www.globalpetrolprices.com/China/electricity_prices/

(3) https://www.statista.com/statistics/731416/market-share-of-m...

Googling I see the price of a 3080 is 700 dollars, so this would cost 700 * 90 = 63,000. Plus electricity, which, maybe you can get cheap somehow in China if you have the right friends. Seems like an amount this size is pretty small compared to what you're moving. If you think bitcoin will go up long term then the cost might work out to be negative.

> Googling I see the price of a 3080 is 700 dollars

assuming you're able to buy them and have the money upfront and are able to hide the purchase.

"What this person could be doing with 90 3080, I wonder" asks the Chinese government employee that checks your bank transactions.

https://www.techradar.com/news/nvidia-rtx-3080-shortage-coul...

Training facial recognition models for the CCP of course.

I'm sitting here more like how can I get money into China and access their markets, like pretty much every western capital institution at the moment, that's the the whole thing about the trade deal phase 1 how can black rock like institutions carve up a bigger piece of the China pie. Wouldn't be surprised if the US is using its mainstream media machine to sabotage the EU-China deal, so they can also claim up EU part of the China pie.

Its like kind of like the unequal treaties but now china can fight back and as small concession for less aggressive approach, offered a small piece of the China pie for the outsiders to fight over. Let the outsiders fight among themselves instead of letting them fight together against you.

Isn't the cap like $25k/year/person that's like top 5~10% of the global citizens that can save up like $25k per year.

Western govs are going to let greedy capital pour into China and thus monetarily support the CCP finishing the civil war against the Taiwanese people in a couple of years?

Once the US and EU if/have succeeded in building their own semi conductor supply lines, Taiwan will just be disposed off like some old used condom.

Taiwan's silicon shield and western semi conductor independence are contradicting objectives, sacrificing Taiwan for a bigger piece of the Chinese market is more then worth it from a realist/Mercantilism perspective.

Yeah but the CCP then controls that first island chain and easily squeeze off Japan and SK. US carriers are kept far away by stationing missiles on Taiwan. Thus they can continually stake out control.

The US investing in the Chinese "pie" is useless because they're just feeding the CCP more. CCP will use the power to take over the world. US companies would get eaten by the Chinese companies and US gov would be taken over from within, once mainstream and social media is taken over by CCP hands.

See the US losing is not really my problem, the current cold war was started some years ago and only the future will tell how this will end. Taiwan will hardly add to the Chinese ant ship missile shield, putting more space assets in the region will offer a more accurate kill chain. I wouldn't be surprised that South Korea is already in the Eurasian camp or at least neutral there's a reason they are not part of the quad. Don't listen to words look for the actions of each player, because words are cheap but actions aren't.

But don't be afraid of China taking over US cyberspace, I wouldn't be surprised that the Anglo-Europeans will build their Hadrian fire wall. To keep the Eurasian troll armies out of their part of the cyber world. This might all grow out of the clean network initiative.

Ok but if the CCP is authoritarian and takes control of everything, it will be your problem. Unless you are part of the CCP, or just a troll.

The king is dead, long live the King...

For most non westerns nothing will really change if the king sits in Washington or Beijing. If you think it does you have been drowned in US propaganda. Maybe the biggest historical difference is that Beijing builds, and Washington bombs cities in the global south.

Hah, you clearly don't have a balanced view. US doesn't install pure puppet oligarchs and mass surveillance tech. CCP does whatever it takes to expand economic influence and tighten their autocratic control.

TLDR: CCP doesn't answer to the people. US gov at least has open elections.

I agree that at this moment, a poor person in central africa should not care 1% between US and CCP. But for their descendants, yes they should care.

I believe this is how it works at the beginning, and I consider it as the main use of crypto in China. It was actually easier when exchange was legal in China, you can just buy bitcoin. Even now, you can use AliPay, WeChat and bank transfer to do P2P crypto transaction.

it looks pretty complicated for a person who wants to send money (illegally) out of China and clean it up.

The easiest thing for China would be monitor crypto transactions and stop them from happening.

But suppose you are Chinese and have a good friend in UK who's going to report as legit income the result of your criminal activity in China (criminal as in simply hiding the money from the government, for whatever reason) on your behalf.

Why should you set this complex scheme up when you could simply fly to UK to visit your artist friend, buy one of his artwork with your yuan and you're done?

Or better yet, invite your UK friend to China and give him the money, that he can then deposit on his account.

Purchasing mining hardware or artworks with your money that can be trace back to you it's the exact same thing.

> Why should you set this complex scheme up when you could simply fly to UK to visit your artist friend, buy one of his artwork with your yuan and you're done?

> Or better yet, invite your UK friend to China and give him the money, that he can then deposit on his account.

China has capital controls and dual currencies to prevent these common scenarios. The yuan that the Chinese resident can get from a Chinese bank is devalued outside of China, and it is forbidden to move large quantities anyway (much less than the 1M USD mentioned in the thread).

https://statrys.com/blog/cnh-vs-cny-differences-chinese-renm...

> China has capital controls and dual currencies to prevent these common scenarios

that's why you buy stuff in yuan and sell the stuff for dollars/euro or other currencies

BTW we are talking about criminal activities here (money laundering), of course there's a price to pay and that price usually is in the 20-40% range (I've checked CNY and CNH and they are being traded at very similar rates right now [1][2])

there's no need to buy hundreds of GPU to mine crypto to do what the OP intended to do

unless OP meant btc it's a cheaper and safer way to launder money, which is a good reason why people could think it's a scam

[1] https://www.bloomberg.com/quote/USDCNY:CUR

[2] https://www.bloomberg.com/quote/USDCNH:CUR

> You pretty much need to go through a Know your customer(KYC) process to really trade in crypto

KuCoin? Binance?

Binance is a great example because you can just keep creating new accounts to circumvent their KYC limits heh. I'm sure they have no idea.

You just have to take it up with the government in whatever country they're domiciled in. Like any legitimate company, they simply won't tell anyone which country that is, of course.

A more local crypto exchange, when I started buying bitcoin it was harder to get euros in and out of Binance. Seeing how I'm not really a dissident or a rebel and I'm lazy so I'm not going to jump through multiple hoops.

So I don't mind the KYC process so I don't have to jump through hoops, but I do see how nations can use lawfare to attack/monitor crypto currencies, its not that hard to see. You have a open ledger, you have wallet addresses connected to personal identities. They can probably use social media connection graphs to fill in the gaps of unknown wallet addresses. Its a real time financial monitoring tool like the current system, just packaged up as some libertarian/tech bro nirvana escape hatch. Brilliant marketing if you ask me, but I'm just using it as an inflation hedge.

Yeah literally, is it not just a connected graph of transactions? Sounds like smart people can split and roll and all this stuff to their main transaction to try to obfuscate it. But with the proper tool, couldn't the FBI use powerful computers to fill the graph in with human links and deduce a lot from it?

XMR I don't know though.

I don't know enough, but the moment I saw I needed to go through a Know your customer process I knew block chain privacy is compromised.

Wouldn't be surprised if there are ways to obfuscate your bitcoins. Something like wrapped bitcoins or something.

For the time being you already have block chain analytics companies that can trace and back trace transactions. Hell maybe they can even do it cross chain.

I wouldn't be surprised if a NSA or other nat sec organization can hack something together in a weekend.

> As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin. The fraction of black market participants who are revealed on the basis of "chain analysis" is still a rounding error.

Some bold statements there. Do you have any evidence to provide?

If I was a local drug kingpin I could reduce risk with cash. At some point I’d need to sell my Bitcoin and that’d appear in my bank.

As a local drug kingpin you can employ somebody to spend all day trading bitcoin to strangers for cash at the mall foodcourt and avoid the banking system entirely.

Instead of just having the cash in the first place?

The bitcoin allows you to participate in E-commerce.

cash doesn't scale, it becomes difficult to store, hard to move, and is easily discovered.

That also sounds like Bitcoin

I'll carry two BTC, you carry $120k USD, we'll see who gets to the finish line first!

Is the finish line spending any of this money on a car? Or a house?

Sure!

House: https://finance.yahoo.com/amphtml/news/first-tesla-now-rent-...

Car: https://www.tesla.com/support/bitcoin

But with cash you'd have an inflation tax on everything you earn.

And depending on where you live you wouldn't be able to make big purchases in cash (in France I think the maximum cash transaction allowed is about 3000€).

BTC or cash you would have to launder your money to make it look like legit and be able to buy a house etc

Of course the other problem of BTC is that transactions are stored forever (as long as the BTC network operates) so it might bite you decades later.

> But with cash you'd have an inflation tax on everything you earn.

This has to be the worst reason a drug dealer would avoid dealing in cash ever. Inflation is literally 2% per annum. Drug dealers pay 20%-50% to launder their money. C'mon now.

With BTC you would need to pay transaction fees, and in practice, anonymization fees (e.g. for mixing services, tunneling through a private cryptocurrency) for many transactions. These would amount to far more than inflation for USD, EUR, etc.

Switching to monero would incur you, what? 0.1% fee total even when you add all the transaction fees? Doesn't seem like much of a problem.

The problem isn't just the transaction fees but markups by exchanges (BTC -> XMR, XMR -> BTC) that each take a cut. Last time I calculated this, even after shopping around for cheaper exchanges it was well over 1% in total fees and probably something closer to 3%, but I'll have to double-check.

I'm beginner, but if both ExchangeA and ExchangeB is investigated by law enforcement, ExA knows sent address and ExB knows received address. So it's not perfect unless you add intermediate private XMR wallet between A and B, isn't it?

Why would you buy BTC at all in this scenario? If you are going to an exchange you can just buy fiat-XMR and XMR-fiat.

Deposit money to Binance, covert to XMR, withdraw XMR is well under 0.1% total in fees.

I wouldn't. As you mentioned, I would just find an exchange that supports fiat <-> XMR. I'm just responding to the top-level comment that specifically referred to Bitcoin as the preferred currency for these transactions.

Sure, at small scale, not much of a problem. But start moving $$millions, and you'll simultaneously move the market, paying more as you buy and receiving less as you sell.

There is no such thing as a free lunch.

> But with cash you'd have an inflation tax on everything you earn.

Yes, there are risks involved in doing criminal business, inflation is not one of them

Why not someone else's bank...?

That thinking is quite shallow.

Sure so now you’ve paid it to their account what happens? They will be investigated for unknown wealth. At some point they’ll need to move that money to the drug dealer - either by cash or another bank transfer.

You show up at their house and escort them to the bank where they withdraw the money and give it to you?

The only difficult to trace transactions in Bitcoin is from transactions which occur purely in btc and don’t touch anyone with a financial license.

Think drug dealers/gangs recirculating bitcoins mined years ago. Now the tricky part of this is that it would only take knowledge of a few transactions in the networks identity, complete with purpose to start identifying everyone. I’m sure an AG is looking forward to the largest RICO case in history at that point.

I’m sure that folks looking to anonymize are aware of this and take further precautions, I’m also sure that there is someone in the network who is dumb.

If I was in law enforcement I’d make btc address collection a top priority.

The information is there but law enforcement hasn't widely used it for mass arrests -- just not yet. There is also wide evidence of crime on Facebook messages that goes unnoticed but that doesn't mean it is private.

> Bitcoin can be traced by sophisticated nation state actors at the cost of tens of millions per intercepted target

Do you have a source for that number, or did you just pull it out of thin air?

I have a friend who works at local police in Europe, and they already regularly use commercial tools to analyze the blockchain and find what service people used to get the names and so on. This is a mid sized town in Europe, not some major department.

Funny how in the hack space some people explained how to buy drugs with bitcoin, others showed how they can track you anyways.

What are the features of the problem that make you think deanonymization is computationally impractical for non-nation states?

non-nations states don't have access to the exchange logs

Here is a link to a very high level layman explanation: https://en.wikipedia.org/wiki/Cryptocurrency_tumbler

Why does it cost anything to de-anonymise anyone? Aren’t all transactions observable in the public ledger? Then all you need to do is to observe one transaction and follow the money, or catch the identity of the person when going through a regulated exchange. Am I missing something?

There are ways to get Bitcoin that avoid centralized exchanges.

Anonymously buying in cash/something else via p2p. Mining. Are there any others?

History shows that reducing costs of computing, and the availability of on-demand large scale computing, will make is exponentially cheaper to do such tracing as time goes.

I would not be surprised if there will be agencies that will bid on tracing services.

Looking at how my nation state is moving to tax even more despite having world highest tax rates, I'd say evading taxes and capital controls is going to be a feature for me as well in the not so distant future. Citizens evading getting taxed to financial death is a pretty legit - surely not legal - use of technology.

> As far as I can tell,

Sources?

Lol classic Bitcoin price goes up and HN goes on attack. Whats with it with this site?

They hate bitcoin here

Imagine if you were a drug dealer smuggling in a million dollars of cocaine into Chicago from Mexico. Great, you got the drugs in, now how do you get the money back out? You'll still have to find a way to move a million dollars all the way, through air, land, and sea. It's so much easier to hide a pen drive or a laptop.

Except it's not hidden in a laptop. Your balance and your entire transaction history is on the blockchain for everyone to see.

Imagine a tumbler, where fractions of bitcoins are taken in (say 100 bitcoin split into 1000 pieces each) then from 1000 people (including you and you're "illicit" 100 bitcoin) and then you get back 100000 pieces, passed on to another tumbler until eventually you get back 100000 randomized pieces = 100 bitcoin. Where did all those pieces come from and why? How do you connect that in the blockchain ledger to prove the income is illicit?

Is bitcoin tumbling feasible anymore?

First problem: transaction fees are currently over $10 per transaction.

Second problem: max transactions per block (2k?). Wouldn’t a single tumbling instance of 100k pieces completely fill 50 bitcoin blocks, effectively browning out the system?

What happens if the tumbler "loses" your bitcoins?

Same thing that happens when a bookie "loses" your bet. Probably nothing. There are illicit activities which use systems of trust based on past behavior just like in the "legal" world and there are usually consequences.

Coinbase, shockingly, violated trust on both sides and is still being hyped. Doesn't take much to understand what a terrible investment that is.

You still need to deposit cash to crypto. Since those things are mostly not bought with crypto.

> Imagine if you were a drug dealer smuggling in a million dollars of cocaine into Chicago from Mexico

Now imagine I smuggled in from Mexico to Chicago this[1] but I don't know how to take back this[2]

What kind of genius/idiot criminal would I be?

[1] https://www.gannett-cdn.com/-mm-/6d0c827943b8dc8c2c7449974d0...

[2] https://www.cbp.gov/sites/default/files/u6097/CBP-AMO%20-%20...

It does look to be about double the work, which is less bad than a larger multiple, but still well worth optimizing.

> but still well worth optimizing

are we still talking about criminals?

I don't think something that make it worth optimizing for but is intended to optimize criminals activities is really desirable.

Anyway, there's no advantage with crypto, the smuggler didn't smuggle 1 million dollar worth of cocaine from Mexico, cocaine is moved in much larger volumes, if a few pounds are lost, it's part of the business risks, criminals understand it and sometimes facilitate it, so that police can make big splash announcements and everybody is happy.

money is another thing entirely.

that million dollar worth of cocaine has been cut in hundreds of smaller doses, that are being paid mostly in cash.

so now every corner dealer has a pile of cash that use to pay the bigger dealer and so on.

first of all, you can't buy crypto with cash. You should go through another person who already owns enough to sell them to you, which means another breadcrumb that could lead back to you in case that other person is caught.

also, cash has some disadvantages over a usb pendrive, but one big advantage is that it's harder to lose a briefcase than a usb drive and they don't break as easily.

so the smaller dealers have no incentive to do it.

the average dealer has no incentive on buying crypto to pay the larger dealer, because he gets rid of the cash pretty fast and keeps his cut that invests into criminal but legal activities so that the facade is clean.

the larger dealers have now a pile of cash that need to handle anyway, they can't ignore it and make it disappear just because it takes too much space.

let's go back to the smuggler (probably a cartel man) that moved cocaine from Mexico to Chicago

they have bank accounts in Panama and don't care about moving large sum of money anonymously or through perfectly clean American front men.

The system already works, there was an article the other day on front page titled "The war against money laundering is being lost" (https://news.ycombinator.com/item?id=26786810), so why change it for an asset that has not even a stable value?

I guess they tried at one point, but there's too much attention on them now, so criminals with capital C dropped them and let only their kids play with it so they can pay for their college expenses.

We are still talking about criminals. By "well worth optimizing", I meant worth to them.

I'm not defending that Bitcoin is a solution to moving money, I'm attacking what I perceived to be an argument that it's not a problem for dealers because they can just do to cash as they do to drugs.

What if you bought physical assets with it? Exchanged with an escrow account.

> hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin

The same applies with fiat. This is a tired argument against cryptocurrencies.

It seems that HN has been upvoting anti-bitcoin content for the past few days now.

> The same applies with fiat. This is a tired argument against cryptocurrencies.

Yes, but the difference is that for fiat this amounts to a small percentage.

Possibly not if you're talking about €500 notes.

>As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin

What a hilarious claim. Everything else you've said just confirms you've fallen for the "BTC bad" narrative. I wonder how you feel about you-know-who printing unlimited toilet paper money for their own benefits.