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Internal FBI risk assessment of Bitcoin network [pdf]

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Re: Internal FBI risk assessment of Bitcoin network [pdf]

#121
post #118
post #108

Earlier quoted context omitted.

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 thr…

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.

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#122

Given that Bitcoin records all transactions for posterity, and given the ongoing rise of "big data" analytics, I'd say Bitcoin is likely to be harder , in the long run, to use for shenanigans. A government currency has forms in which transactions create no paper trail. Bitcoin does not. Really the big disruption Bitcoin could cause if it becomes well established, is to act as a stable reference frame against which th…

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#123
post #120
post #64

Earlier quoted context omitted.

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 hav…

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…

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#124
"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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#125
post #120

Earlier quoted context omitted.

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…

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?

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#126

Given that Bitcoin records all transactions for posterity, and given the ongoing rise of "big data" analytics, I'd say Bitcoin is likely to be harder , in the long run, to use for shenanigans. A government currency has forms in which transactions create no paper trail. Bitcoin does not. Really the big disruption Bitcoin could cause if it becomes well established, is to act as a stable reference frame against which th…

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?

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#127

"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?

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#128

Earlier quoted context omitted.

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#129
post #125

Earlier quoted context omitted.

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?

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.

Re: Internal FBI risk assessment of Bitcoin network [pdf]

#130
post #125

Earlier quoted context omitted.

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.

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