This is the issue. It can become a never-ending wild-goose chase. The thieves can continue to move the funds around until they're no longer tracked, or far enough ahead that from the trackers (assuming there's any enforcement or penalties or laws relating to accepting stolen Bitcoin - which there aren't currently) or just spend them if they're not being tracked or if there's no enforcement in place.

The thieves will move funds around at little cost in order to try to gain the value from the Bitcoin they stole.

The problem with Bitcoin is that because there's no fee associated with them, there's no money or resources being made available or directed towards policing and following of these thieves.

Edit: And it's not particularly fair to use the rest of society's resources to do this policing, when they're not contributing to the system - they're avoiding contributing, to a partially corrupt and currently inefficient system, yes - but it'd be better to fix these inefficiencies and deal with the corruption.

Eventually all addresses will contain coin from all other addresses, if they are spent. It's the Kevin Bacon rating for currency.

In the short term, referencing Blockchain transaction over a given period of time, a destination address could be assigned a lower karma value for having a relationship with a bad actor address. The karma could be measured in amounts taken from other bad karma addresses.

While your wallet may contain trace amounts of bad karma money, it eventually gets diluted over time. Maybe we could utilize a days destroyed karma as well.

"Bad coin" diluted into legitimate users just means the people who were thieves got away with spending the money. That's bad.

> The problem with Bitcoin is that because there's no fee associated with them, there's no money or resources being made available or directed towards policing and following of these thieves.

How do you know that? Given the amount that was stolen, I would be very surprised if some victims are not employing considerable resources to find the thieves. Also given the amount, many layers and private investigators are probably willing to do speculative work on commission. It would just be silly for them to advertise such efforts.

The relevant amount lost is the amount lost by the person who is hiring said lawyer/private investigator, not the overall amount.

Let's say there are 2 categories of addresses involved with these coins; addresses that have been sufficiently analyzed (so you don't care anymore about tracking them) and addresses that have not been sufficiently analyzed.

Following the second category is roughly instantaneous, it's all on the block chain. So in some ways, the chase gets easier over time.

It would be helpful to know the costs of tracking these transactions, and how they may grow or be maintained over time.

Wouldn't, in this high profile clustereff, somehow tracking down those bitcoins cause bitcoin in general more harm than good? Would it not highlight that one way or another, either by fault of bitcoin or human error, that like Tor it is not bulletproof in terms of anonymity and susceptibility to being taken back from someone, whether that someone is a good or bad guy?

Taken back? Finding a person is one thing - you need a lot of resources to track a person down - then trying to find where they may have hidden the keys needed to use the Bitcoin is another. People who have stolen millions of real dollars are still able to just hide the cash or money in off-shore accounts. Similar problems exist, though it doesn't start off anonymously. It's not really good or bad, it just is. We need to manage for best case scenario, and structure systems to provide best case scenarios. Controlled or rather fully-manageable ecosystems are the best, though they have the ability to be badly managed and through political lobbying, etc. cause a whole series of problems in a society.

To be clear, Bitcoin is not supposed to be anonymous. The centerpiece of its design is a publicly view-able log of every transaction ever made.

From what I understand, tracing them is also hard because (generally) there isn't any annotation on the blockchain to indicate who actually had them or what they were used for. So its hard to tell what point is just another place they laundered them, or someone who just got them in a transactions and then reused them elsewhere.

Let's assume eventually they will be 'spent' somewhere- its going to be damn near impossible to track them down unless they transfer all of them into a single wallet with their name/address in the comment.

I wouldn't be that pessismistic.

If people manage to identify people behind the blockchains, I strongly suppose that law enforcements, depending on countries where the theift physically is, can force the thieft to give it back without any modifications to existing laws.

I think we can catch him when he is going to want to laundry his bitcoins.

Expect Reddit and 4Chan to spend weeks tracking the wrong transactions and the finally identifying a poor sap whose only fault was once buying coins from mtgox years ago. Which is not much different than being audited by the irs...

At least Reddit and 4Chan can't haul you off to prison nor freeze your bank accounts.

I think I'd rather be hauled off to prison than be the target of such ire.

Lol.. you've clearly never been to jail, much less prison.

I'm a middle class male.

If 4chan gets pissed off at me, my available recourse involves scouring all data traces I've made across the Internet and then hoping I did it fast enough before the pain train begins. At best, I could post some kind of apology or concession and pray they lose interest.

If the government wanted to put me in jail, my available recourse starts with a reasonably well documented legal system interested in fairly representing and judging me and extends all the way to, well... asking 4chan for help.

Maybe if I were black or female or gay, I'd prefer 4chan's treatment, but only maybe.

I'd say that the best recourse to a 4chan character assassination is to simply stop using the reddit/facebook/4chan for a week or two.

I think you're imagining that 4chan would stop with my internet presence. That's not historically true.

You've clearly never been on the receiving end of 4Chan.

Don't bitcoin tumbling services pretty much make it logistically impossible to follow the path of bitcoins if they cycle it enough? Also I wouldn't rely on the governments to do much to return people's investments in a currency they already distrust. In fact, considering the historic and contemporary roles the US and the IMF have had in deliberately destabilising and undermining international economies/currencies, you'd be naive to remove first world governments from the list of suspects. The incentive is even higher for them than normal thieves -- not only do they already have an established system for laundering stolen money, but they don't even need to remove the money to profit, they just need to steal it and render it inaccessible. The credibility of Bitcoin as an extranational, anonymous currency has been dealt a serious blow and, if you consider bitcoin a threat to the current institutions, then that has a value far greater than the few hundred million that they'd wind up with in pocket. I'm not throwing around any conspiracy theories here because there's no evidence for it so far, but I don't think there's anyone foolish enough to pretend that the US/UK/etc governments haven't already been in this ethical sphere of operations for decades. The first question was whether they have the werewithall to operate on this level technologically (confirmed by Snowden), and the second is whether they consider bitcoin a threat.

>I don't think there's anyone foolish enough to pretend that the US/UK/etc governments haven't already been in this ethical sphere of operations for decades.

You underestimate fools.

The community really needs to choose one of two messages:

a) Bitcoin is pseudonymous enough that you can safely buy drugs with it

b) Large thefts of bitcoin can be traced; it's not pseudonymous enough for massive frauds

Those two messages are not incompatible. It could be pseudonymous enough to buy drugs with it safely because the resources required to actually unravel identities is so much greater than the value of catching the drug purchaser (this assumes there is any value of catching the purchaser over the seller for purposes of argument).

At the same time, the value of solving large thefts like this makes expending substantial resources to solve it much more reasonable.

It's like stealing someone's iPhone with a ski mask on while a camera catches you vs. robbing a bank with a ski mask on with a camera catching you. Both thefts begin with the same amount of evidence, but the latter is infinitely more likely to have resources devoted to it.

So far, the Silk Road busts have nothing to do with Bitcoin. Everyone should assume that all BTC transactions are trivially traced, forever. Just make sure you aren't tying any identity you care about to dangerous transactions. That's the only (and of course difficult) trick.

If a drug buyer in a BTC transaction got the coins anonymously (say, sent a self-destructing robot to drop off cash in exchange for BTC), then that part is fine. They can go use those coins anonymously. If they ship drugs to their house, well... that alone sort of undoes it all.

The drug sellers that were caught from Silk Road were caught due to things like making a huge amount of trips to post offices, getting the attention of postal workers. That may be a parallel construction, but it seems legitimate enough. Buy drugs from large seller, look at the postmarks for patterns. Then go gumshoeing around and wait 'til you see the same car or people going to the same post offices over and over and over. You can probably pull this attack off without even having government capabilities.

But tracing bitcoins through the blockchain is largely a computational problem. Compute only gets cheaper. Identifying a robber in a ski mask is in a different problem domain.

I had never really thought about the consequences of a public blockchain and the decreasing cost of analyzing that blockchain.

I seem to recall a news story about how people who spied against US in the 40's and 50's were caught later in the 70's and 80's because the intercepted cipher texts had been kept for decades until technology was able to break and decrypt them. Looking at the blockchain reminds me of that feat. Of course, that could have also been a poorly written thriller I'm remembering instead...

The "value" to prosecutors of catching a drug seller could be considerable, especially if they're selling a lot.

Those two options are not mutually exclusive.

If you use it correctly, then bitcoin itself is anonymous.

.. which would imply that fraud was untraceable?

It would not imply that.

So, if I am induced into sending bitcoins into an address, and subsequently find out that I'm defrauded (e.g., if I were a gox customer), can I trace the fraudster?

Actually, I was being optimistic.

I wanted to add the possibility of law enforcement from various countries tracing the alleged perpetrators. This is actually the most worrisome scenario, because a large portion of this would be unrecoverable from the law enforcement, due to the immense confusion stemming from authorities not knowing who has jurisdiction and the laws surrounding crypto-currencies.

This might be an acceptable situation for the customers but would be bad for the customers as over 6% of BTC would be almost permanently removed from circulation.

i thought the leak had been happening for years? wouldn't they already be laundered?

and hasn't this happened already? someone did steal coins and was tracked for a while. how did that work out?

Really paranoid thieves could choose to lose a large number of the keys, making the chances good that investigations will run into dead ends. But al most no one is that paranoid. They'll just keep moving the bitcoins around.