Bitcoin’s Success Brings Bad Guys and Opportunities


Date: 01.03.2018

When you talk to people who are new to Bitcoin, they’ll often ask why you support a form of currency that’s been used by terrorists and criminals seeking to avoid detection and utilize the “private” nature of Bitcoin transactions.

Although you can remind them that dollar bills, checking accounts, money laundering and financial Ponzi schemes have been occurring for years within the current dollar denominated system, there’s some truth in this criticism of bitcoin.

Bitcoin and Crime

In 2014, it was reported that ISIS blogs were discussing how to use bitcoin for illegal means.  Since that time, there have been reports that ISIS has been using and stockpiling bitcoin for their terrorist activities.  After the Paris attack, it was discovered that the terrorist group had a bitcoin wallet with over $3 million in the virtual currency.

Bitcoin has also been used for ransoms, and most recently a hacker seized control of the Hollywood Presbyterian Medical Center’s computer systems and demanded a $17,000 ransom in bitcoin to be paid. 

The use of bitcoin for illicit means has not been lost on governmental agencies.  The Federal Bureau of Investigation produced a case study that cautioned that the inherent option of anonymity in every bitcoin transaction would make it prone to illegal activity.  The case study points out that “cyber criminals may increasingly use bitcoins to purchase illegal goods and services and to fund illegal activities.”

One of the best known examples of how Bitcoin was used for criminal means was the case of Ross Ulbricht and his use of Bitcoin on his Silk Road website which allowed for purchases of drugs and many other illicit goods.  Ulbricht is now serving a life sentence in federal prison for his involvement with Silk Road.

Critics will point to the anonymous nature of Bitcoin as a big reason why Ulbricht’s evil ways were allowed to occur for so long.  However, Ulbricht’s arrest (as well as that of Mt. Gox’s leader, Mark Karpeles) occurred because of good police work that recognized that the anonymous nature of bitcoin is actually a misconception.

How Bitcoin Criminals Are Brought to Justice

Whenever a Bitcoin transaction occurs, it creates a permanent record on the ledger which resides on the Blockchain.  Although a transaction doesn’t record names and locations, the reality is that these transactions reside on a ledger that can potentially track and trace the movement of every Bitcoin.  Of course, the sheer amount of daily Bitcoin transactions make this a difficult and nearly impossible task.  However, this was ultimately how Ulbricht was brought to justice.

Former FBI Special Agent Ilhwan Yum was able to document a trail of 700,000 bitcoins using Ulbricht’s unencrypted laptop and by creating from it a record of Ulbricht’s transaction which ultimately created the case against him that led to his conviction.

Despite the success of Special Agent Yum to track Ulrbicht’s bitcoin trail, the reality is that although possible, following the huge number of bitcoin transactions on a daily basis and correlating them to specific users is not an easy job.

There's a number of companies that are addressing the ability to more easily track bitcoin transactions.  One is a blockchain startup called SABR, which is working on software that will be able to complete the task of tracking bitcoin transactions in a short period of time.  

According to Brave New Coin, the European Cybercrime Centre (EC3) has partnered with a blockchain company called Chainalysis, which was an official investigator for the creditors of Mt. Gox, to provide the law enforcement agency with access to software which detects suspicious activity in real-time, alongside other investigation tools.

It seems that like any form of currency, there will always be criminals using it for illicit means, but the good news is that there's always good guys trying to thwart their efforts.  Those working to do so related to blockchain technology will do much more than finding the bad guys.

 They'll protect the credibility of Bitcoin and Blockchain technology.

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