Bitcoin limitation?

Building on this, it’s already illegal to knowingly receive proceeds of a crime (with some exceptions). It seems when you can track the history of every Bitcoin, you could also make it illegal to spend any Bitcoins that were the proceeds of a crime. This would greatly cut Bitcoin’s utility in crime. Doing so is largely a matter of political will with a few added procedural due process considerations.

You know that drug dealers - or anyone using bitcoin - don’t have to do transactions with the same wallet. Most just create a unique wallet for a single individual transaction. So no, this will not work at all.

Now, yes, at the endpoints - that drug dealer is probably going to send all the bitcoins in all the wallets he has using a script to someone who will trade him cash in some form for the bitcoins. If you manage to get ahold of that entity’s records - who is probably in a foreign country and beyond the reach of casual law enforcement, you either use the CIA, the NSA, or you need an international warrant. None are easy. So if you bought some drugs from a known drug dealer, and you see the entity that the drug dealer is using to cashout, and you manage to seize that entity’s records, and the entity kept records of every transaction done with that particular drug dealer, then yeah, you can then trace those transactions to the individual buyers.

Except, now, each buyer bought bitcoins using another entry point. So you need to seize their records. And even this isn’t enough - now you need to arrest the drug dealer and get the home addresses of the drug buyers, and then get a warrant to raid each one. Highly unlikely, most drug busts I read in the news, the authorities focused this level attention on larger dealers. They catch individual users generally only incidentally, as part of a foot or vehicle search or a house search for other reasons.

And at any point, if either endpoint *or *the drug dealer scrubbed their records - and they have a good legal reason to do this, it means they can’t easily be charged as an accessory to the no doubt countless crimes committed using bitcoins each day - it’s over.

Now, yeah, eventually I think most civilized governments are going to crack down on bitcoins. They are going to require detailed records kept of every transaction, buying or selling, and at which point the bitcoin’s use as a crime currency will be over. It’s happened to several previous crime currencies before. The value of the coins would plummet to nothing when that happens.

Ok, I read the article. It strongly reinforces my point. The article is here.

Two key quotes : I started by giving her the Bitcoin addresses associated with our account on the popular Bitcoin wallet service Coinbase–information that could in theory be obtained by any investigating law enforcement agency that sends Coinbase a subpoena.

Like I said, endpoints. If coinbase doesn’t keep records or isn’t conveniently inside the USA, that’s the end of the road.

*Once our bitcoins had been mixed up with other users’ bitcoins in the Silk Road’s 40 bitcoin account, it became impossible to track them further. *

Online cybercrime markets do this as a minimum - sure, if someone bought something illegal from a casual random person who doesn’t use a major cybercrime marketplace, yeah, it’s easy to trace. But who would do that? The cybercrime markets offer a reputation system similar to ebay, so that drug and other illegal goods buyers have a high chance of getting what they paid for.

And, finally :

  • If we had taken the extra consideration of shuffling our bitcoin expenditures through other addresses created with desktop-based wallet software, or gone to the further effort of sending them through a bitcoin “laundry service” such as Bitlaundry, Bitmix or Bitcoinlaundry, tracing them would have become much harder or even impossible.*

Even if governments start requiring all endpoints - buyers and sellers of bitcoin - to basically give the database login right to law enforcement - laundering is another serious issue. A coin laundry can be run from anywhere in the world, it’s just a server. It need not keep any records past a few days, and it could be in any country under any legal jurisdiction. So maybe bitcoin has a longer life as the currency of choice for crime than we think.