BTC wallet addresses added to OFAC list- long term implications

[kempchee]

According to recent news the US treasury department has publicized bitcoin addresses related to sanctioned Iranians.  These Iranians are on the OFAC list which means that all US citizens and permanent residents are prohibited from transacting with people on the list.  I am worried about the implications for bitcoin.  If bitcoin is moved from these addresses to an address owned by a US person, the Feds could conceivably prosecute if that US person spends from that address.  Ultimately this could lead to a cascading effect where blacklisted wallets spend bitcoin and end up tainting other wallets that then spend bitcoin and taint yet further wallets.  If the US government ever feels threatened by Bitcoin I suspect this is the avenue they will pursue.

[clrpod]

Given that the people transacting are not aware of who it is that they are transacting with I think they would have a fairly solid defense in that argument. Especially in the case where it's knock on spending. A to B then B to C then C to D. D would not have any idea that those coins were even from A.

[kempchee]

Well the point is that the US government is publishing names and the related addresses that the government has determined to be owned by the sanctioned persons.  So the government could argue that anyone transacting with these addresses could have known who they were transacting with.  I agree that it would be preposterous for the government's position to be that in an A->B->C->D scenario where A is on the OFAC list that C and D should trace the funds back to A and therefore not engage in the transaction.  However, if the government wanted to pass regulations that would threaten bitcoin this is one way to do it short of more overt measures like banning bitcoin.  In fact the government might be forced into such regulations if it wants the original OFAC list to have any teeth.  Otherwise, the sanctioned person can simply created new addresses, transfer funds to those addresses and then engage in transactions.

[geminiboy]

talking about transaction bitcoin is a transaction that uses blockchain, a bitcoin wallet does not have a name and username, it will be very difficult to detect transactions from where it originates, and some bitcoin wallets can be owned by one person, those targeted are sanctioned then they are easily change their wallet with another bitcoin wallet

[avikz]

I believe your main question is related to chain of transactions. If the bitcoin from the blocked address lands up through your wallet through a chain of transactions, will you be held responsible by the government for dealing with OFAC listed persons? Am I understanding correctly?

If this is your question, then the answer is, NO! You won't be held responsible due to the chain of transactions involved in between. It depends on the person you are transacting with so I don't see any long term or even short term implications here!

[dothebeats]

There should be a certain amount of bitcoin involved or transferred to another address before the owner of the said address is prosecuted, otherwise the said Iranians could go and spend a couple Satoshis and turn anyone's address into a recipient of the dirty coins listed on the OFAC. It's quite vague on the Fed's part to really address this issue since sooner or later, a huge chunk of the network would be affected and almost everyone can be prosecuted.

Idk what came to their mind but this is not going to work in the long run.

[kempchee]

There should be a certain amount of bitcoin involved or transferred to another address before the owner of the said address is prosecuted, otherwise the said Iranians could go and spend a couple Satoshis and turn anyone's address into a recipient of the dirty coins listed on the OFAC. It's quite vague on the Fed's part to really address this issue since sooner or later, a huge chunk of the network would be affected and almost everyone can be prosecuted.

Idk what came to their mind but this is not going to work in the long run.

I agree this isn't going to work in the long run.  For one, bitcoin can always add additional security measures.  What I'm worried about is the US government perceiving bitcoin as a threat and then using anti-money laws to prevent adoption in the US before these security measures are adopted.  I am not aware of a de minimis provision in current law that prevents prosecution as long as transacted amounts are below $X so I think what you described about Iranians turning every wallet into a dirty wallet is in fact possible.

[bob123]

Well.. this can't work out.



Imagine the following scenario:


Lets say input A is 1 BTC 'from a blacklisted address'.
Further, input B is 1 BTC 'from a non-blacklisted address'.

Now there will be a transaction which uses input A and B to create outputs C, D, E and F with 0.5 BTC each (ignoring fees): A (1 BTC) + B (1 BTC) --> C (0.5 BTC) + D (0.5 BTC) + E (0.5 BTC) + F (0.5 BTC)

Outputs C, D, E and F belong to 4 different persons.


Who would have the 'blacklisted' coins now ? It's simple. No one. Coins do not exist in the bitcoin network. Only unspent transaction outputs do (UTXO's).



dothebeats has mentioned another scenario (sending an extremely small amount to a massive amounts of addresses to 'blacklist' them) which shows how retarded a system which blacklists addresses is.

[franky1]

what the treasury announcement is not saying is that the exchangers and the ransdomware guys knew of eachother and the exchangers still processed transactions without reporting it.
which made their exchange illegal.
if an exchange is running a business of exchange in america it needs a money business licence and needs to have a policy to report funds transfer IF the business becomes aware that the funds are directly involved in criminals
EG funds coming in are from a criminal and the criminal is using the exchange to swap funds to take out different funds back to the criminal (laundering)

if just handling funds that at some time somewhere may have orginated back to criminals. even without knowledge of the crime is still an 'accomplice'.. then many managers of walmart and cashiers of walmart in detroit should be arrested for simply handling cash

displaying the addresses is just showing one piece of 'proof' of a relationship, but has not shown the other proofs of relationship.

[kempchee]

https://www.bloomberg.com/news/articles/2018-11-28/u-s-exposes-bitcoin-users-addresses-in-iran-cyber-sanctions

I agree it doesn't make any sense but when has that stopped governments in the past?  I am worried by how quickly everyone is dismissing this issue given the broad power US financial regulators have.  I personally think it is very important that Bitcoin adds privacy features ASAP.

[clrpod]

https://www.bloomberg.com/news/articles/2018-11-28/u-s-exposes-bitcoin-users-addresses-in-iran-cyber-sanctions

I agree it doesn't make any sense but when has that stopped governments in the past?  I am worried by how quickly everyone is dismissing this issue given the broad power US financial regulators have.  I personally think it is very important that Bitcoin adds privacy features ASAP.

Privacy features are only going to provoke regulators even more. Right now things are transparent and they can work towards a way of controlling bitcoin without severely inhibiting its growth. If true privacy is added then they'll lose that element of control and the only real option will be to outlaw it.

[kempchee]

Privacy features are only going to provoke regulators even more. Right now things are transparent and they can work towards a way of controlling bitcoin without severely inhibiting its growth. If true privacy is added then they'll lose that element of control and the only real option will be to outlaw it.
[/quote]

So we are ok with letting governments control bitcoin?  What you are describing is basically allowing governments to get rid of bitcoin's censorship resistance.

[clrpod]

So we are ok with letting governments control bitcoin?  What you are describing is basically allowing governments to get rid of bitcoin's censorship resistance.

They are not controlling bitcoin, they are stating that these addresses have funds which are restricted for trade for one reason or another, be that money laundering, corruption, whatever. Adding privacy is just going to further enable this activity. Why are you so keen to see that happen? I for one am glad that there is a public blockchain and people can be held to account.