How bitcoin could turn into a 'Big Brother' nightmare

[Dansker]

Bitcoin is often regarded as a new era of freedom and anonymity in money. It has been generally accepted, that it leads to both the positive consequences of being able to hide financial transactions from opressive governments and over zealous regulation, but also the flipside with coins being stolen en masse by hackers and fraudsters.

The fact that the blockchain stores all transactions in public have not changed peoples attitude towards this, since stolen money can be laundered by setting up a spider web of seemingly random transactions between the criminal himself, or possibly laundered through third parties only to return to the fraudsters control before presumeably being converted into fiat or goods.

I would argue, that instead of the above being true, we could end up with exactly the opposite. Governments in developed countries could impose regulation stating that "dirty money" could not legally be accepted. It would be trivial to follow the laundering efforts, all coins that come into contact with or originate from a "dirty money" transaction are not accepted as tender and it could be coded into the standard clients, that "dirty money" would not be accepted as money at all, or even make criminal to accept it.

A central public list would keep all the "dirty money" in check. If you do not use this list, you are responsible if you end up with "dirty money" since you could easily have avoided the risk by using the list. For the sake of this argument, it should be presumed that the majority of participators in the bitcoin economy would adhere to this list.

Now this might be a good thing: Thieves would never be able to let their stolen money re-enter the legal trade, essentially making the coins virtually worthless untill the "dirty money" stamp is removed by the dirty money list authorities/consensus.

On the other hand, there are at least two negative impacts:

1. Bitcoins are no longer "money" in the same way fiat is: If you receive payment of 200 $ cash for selling an item worth 200 $, then you would never have to worry if there was anything wrong with the money themselves. Money is money, and regarded not as specific items but as an amount. If there was dirty money and clean money and not just dirty deals and proper deals, then the trust in bitcoin could drop. (I hope this makes sense!)

2. Legitimate but controversial/unwanted bitcoin holders (for example wikileaks) could have their funds marked as "dirty money" essentially making their coins almost useless, since they cannot re-enter the dirty money list-regulated market.

Thoughts?

[interlagos]

These rules are hardly enforcible. Where do you put these dirty lists?
It will be prohibitively difficult cost-wise to regulate the whole network, any govt body attempting to do that would run out of coins very soon, or are you suggesting they will be paying for this job in dollars

[phatsphere]

Bitcoin is often regarded as a new era of freedom and anonymity in money.

bitcoin is not anonymous and that isn't claimed by bitcoin.org and the satoshi whitepaper only talks about keeping the private keys somewhat anonymous. it's a tradeoff between several properties and the focus lies on decentralization.

hence, i don't see a point in reading any more. maybe reconsider you interest in bitcoin.

[kjj]

I would argue, that instead of the above being true, we could end up with exactly the opposite. Governments in developed countries could impose regulation stating that "dirty money" could not legally be accepted. It would be trivial to follow the laundering efforts, all coins that come into contact with or originate from a "dirty money" transaction are not accepted as tender and it could be coded into the standard clients, that "dirty money" would not be accepted as money at all, or even make criminal to accept it.

A central public list would keep all the "dirty money" in check. If you do not use this list, you are responsible if you end up with "dirty money" since you could easily have avoided the risk by using the list. For the sake of this argument, it should be presumed that the majority of participators in the bitcoin economy would adhere to this list.

Receiving bitcoins does not require the consent of the receiver, just their address.  By the time the receiver would have a chance to check the dirtiness of the transaction, it is too late, he already has them.

[Dansker]

Receiving bitcoins does not require the consent of the receiver, just their address.  By the time the receiver would have a chance to check the dirtiness of the transaction, it is too late, he already has them.

I realize this. What the list-compliant client would do was check with the list as soon as the dirty money showed up, the client would warn the user that he had recieved dirty money that are of no use. This could happen with 0 confirmations, as it would already say in the blockchain where the transaction originated from.

Of course, what you said raised the question of what the list-complient recipient should do with dirty money recieved. The answer would probably be send them to the police, since they deal with stolen things.

These rules are hardly enforcible. Where do you put these dirty lists?
It will be prohibitively difficult cost-wise to regulate the whole network, any govt body attempting to do that would run out of coins very soon, or are you suggesting they will be paying for this job in dollars

The list would be online of course, so on a server? Or maybe I don't understand your question. Why would having a list of bitcoins confirmed stolen be costly to maintain? You simply note down the original transaction (theft) and then from there on all transactions originating from the theft-transfer are tainted automatically.

[wareen]

A central public list would keep all the "dirty money" in check. If you do not use this list, you are responsible if you end up with "dirty money" since you could easily have avoided the risk by using the list. For the sake of this argument, it should be presumed that the majority of participators in the bitcoin economy would adhere to this list.

Now this might be a good thing: Thieves would never be able to let their stolen money re-enter the legal trade, essentially making the coins virtually worthless untill the "dirty money" stamp is removed by the dirty money list authorities/consensus.

This has been discussed over and over and over again, so please do some reading before suggesting such a scheme.

Tainting stolen Bitcoins is a very bad idea! It cannot work the way it is intended because it is trivial for the thieves to mix their coins with untainted coins until they are below the detection threshold and it would lead to huge problems for everybody accepting coins (what do you do if the coins you just received appear on the list after the transaction had 6 confirmations and was considered final by you)? In effect you can _never_ rely on Bitcoin transactions being final!

Please, before you respond, read up on the links I gave above - especially the last one.

[kjj]

Receiving bitcoins does not require the consent of the receiver, just their address.  By the time the receiver would have a chance to check the dirtiness of the transaction, it is too late, he already has them.

I realize this. What the list-compliant client would do was check with the list as soon as the dirty money showed up, the client would warn the user that he had recieved dirty money that are of no use. This could happen with 0 confirmations, as it would already say in the blockchain where the transaction originated from.

Well, if you know that, then why didn't you know how to search for and read some of the hundreds of other threads on this topic? 

Basically, all of the taint schemes have fatal flaws, and the only way to fix them is to kill the whole thing.

[Dansker]

I think you are confused if you think I am proposing this as a good idea, I am simply exploring the scenario's viability.

The problem raised with innocent recipients would not be a problem, since the recipient would be instantly aware that the received coins are tainted.

It would only be possible to launder the bitcoins by mixing them with third parties legitimate coins if the third party does not use the list. If the third parties use the list, then they would instantly know they are receiving dirty money, and halt any business with the theif.

It would also not result in destroying bitcoins, since they should of course be sent back to the person they were stolen from.

I realize, that this would be massively disruptive to bitcoins, and I in no way condone this. I am simply exploring the idea.

[wareen]

I am simply exploring the idea.

The idea was explored before in many many threads - the result was that such a scheme simply cannot work, would make Bitcoin a big mess and hence nobody in their right mind would use it.

Even if somebody had the power to make taint-lists mandatory you would quickly see the taint spreading pretty equally amongst all coins. I'm sorry but this is just a useless concept to begin with! Anybody who doesn't see it this way should really read all the other threads on that topic and not post unless he/she has something absolutely new to add to this topic.

[kjj]

I think you are confused if you think I am proposing this as a good idea, I am simply exploring the scenario's viability.

The problem raised with innocent recipients would not be a problem, since the recipient would be instantly aware that the received coins are tainted.

It would only be possible to launder the bitcoins by mixing them with third parties legitimate coins if the third party does not use the list. If the third parties use the list, then they would instantly know they are receiving dirty money, and halt any business with the theif.

It would also not result in destroying bitcoins, since they should of course be sent back to the person they were stolen from.

I realize, that this would be massively disruptive to bitcoins, and I in no way condone this. I am simply exploring the idea.

I wasn't trying to suggest that you think it was a good idea, I was saying that it can't possibly work.  That it can't work doesn't depend on who is endorsing it.

For this to work, someone would need to impose their will on the entire network at once.  All miners, all nodes, all exchanges, everything.  Otherwise, the network would fork away from the damaged nodes and life would go on.

Also, if they had that much control over the world, they wouldn't need to do this.

[wareen]

And just because I really should be doing something else right now:

The problem raised with innocent recipients would not be a problem, since the recipient would be instantly aware that the received coins are tainted.

No - thefts are not always immediately recognized/reported hence the list could never be realtime.

It would only be possible to launder the bitcoins by mixing them with third parties legitimate coins if the third party does not use the list. If the third parties use the list, then they would instantly know they are receiving dirty money, and halt any business with the theif.

No - thief buys fresh clean coins and mixes them just so that they are below the detection threshold and sells them again.

It would also not result in destroying bitcoins, since they should of course be sent back to the person they were stolen from.

This would result in many lost coins, because in general you cannot expect the sender to have the private key for the transaction (think: online wallets). Also: "oh, so you have a super secure, offline, cold storage, long-term savings Bitcoin wallet - wouldn't it be a shame if some tainted coins got sent there and you would be required by Bitcoin law to send them back immediately!"

If you're still in doubt over such a mechanism's (non-) viability and don't want to do some research, I really can't help you!

[Dansker]

Hey, thanks for the replies.

I've read what you say, and what has been said before in the similar threads.

I understand now that it would not be able to be implemented, not even if the implementer was willing to accept disrupting the bitcoin network.

So thank you for sharing your thoughts on this subject with me: I've learned something today

[adamstgBit]

Bitcoin is often regarded as a new era of freedom and anonymity in money. It has been generally accepted, that it leads to both the positive consequences of being able to hide financial transactions from opressive governments and over zealous regulation, but also the flipside with coins being stolen en masse by hackers and fraudsters.

The fact that the blockchain stores all transactions in public have not changed peoples attitude towards this, since stolen money can be laundered by setting up a spider web of seemingly random transactions between the criminal himself, or possibly laundered through third parties only to return to the fraudsters control before presumeably being converted into fiat or goods.

I would argue, that instead of the above being true, we could end up with exactly the opposite. Governments in developed countries could impose regulation stating that "dirty money" could not legally be accepted. It would be trivial to follow the laundering efforts, all coins that come into contact with or originate from a "dirty money" transaction are not accepted as tender and it could be coded into the standard clients, that "dirty money" would not be accepted as money at all, or even make criminal to accept it.

A central public list would keep all the "dirty money" in check. If you do not use this list, you are responsible if you end up with "dirty money" since you could easily have avoided the risk by using the list. For the sake of this argument, it should be presumed that the majority of participators in the bitcoin economy would adhere to this list.

Now this might be a good thing: Thieves would never be able to let their stolen money re-enter the legal trade, essentially making the coins virtually worthless untill the "dirty money" stamp is removed by the dirty money list authorities/consensus.

On the other hand, there are at least two negative impacts:

1. Bitcoins are no longer "money" in the same way fiat is: If you receive payment of 200 $ cash for selling an item worth 200 $, then you would never have to worry if there was anything wrong with the money themselves. Money is money, and regarded not as specific items but as an amount. If there was dirty money and clean money and not just dirty deals and proper deals, then the trust in bitcoin could drop. (I hope this makes sense!)

2. Legitimate but controversial/unwanted bitcoin holders (for example wikileaks) could have their funds marked as "dirty money" essentially making their coins almost useless, since they cannot re-enter the dirty money list-regulated market.

Thoughts?

"dirty money"
you just said , stolen money can be laundered ... which is true
wikileaks can mix the coins and cash out under some other name...
even if government tracks all tx you can make it so the tx tracks back to a dead end.

anyone can hide 22million in a Swiss Offshore Bank account ... or is that offered only to rich people?

[kjj]

It would also not result in destroying bitcoins, since they should of course be sent back to the person they were stolen from.

This would result in many lost coins, because in general you cannot expect the sender to have the private key for the transaction (think: online wallets). Also: "oh, so you have a super secure, offline, cold storage, long-term savings Bitcoin wallet - wouldn't it be a shame if some tainted coins got sent there and you would be required by Bitcoin law to send them back immediately!"

If you're still in doubt over such a mechanism's (non-) viability and don't want to do some research, I really can't help you!

He's saying return them to the person they were stolen from, not return them to the latest sender.  It is a huge difference.  There are practical problems with proving the theft, etc, etc, but if we overlook those, sending them to a new address controlled by the victim should be easy enough.  I presume that when bitcoins take over the world and become the dominant means of exchange, court orders and judgments will be more or less "send X BTC to address Y before date Z".

[cedivad]

Isn't a public blockchain required in a p2p currency?
If so, just live with it, no?

[Come-from-Beyond]

Isn't a public blockchain required in a p2p currency?

No

[wareen]

He's saying return them to the person they were stolen from, not return them to the latest sender.  It is a huge difference.

I agree and I apologize for dismissing the point too quickly.

I presume that when bitcoins take over the world and become the dominant means of exchange, court orders and judgments will be more or less "send X BTC to address Y before date Z".

Having a thief convicted by a court and forcing him/her to pay back is of course possible, but it has absolutely nothing to do with Bitcoin or with any kind of tainting mechanism.

[kjj]

He's saying return them to the person they were stolen from, not return them to the latest sender.  It is a huge difference.

I agree and I apologize for dismissing the point too quickly.

I presume that when bitcoins take over the world and become the dominant means of exchange, court orders and judgments will be more or less "send X BTC to address Y before date Z".

Having a thief convicted by a court and forcing him/her to pay back is of course possible, but it has absolutely nothing to do with Bitcoin or with any kind of tainting mechanism.

Right.  I was just pointing out that that part would work.  If we overlooked all of the other problems with taint in general, stolen coins could be returned to their rightful owners using a mechanism that will presumably be in widespread use by courts.

[Herodes]

This has been discussed many times already, although the intentions are good, it is a horrible idea.

Who will decide which coins are 'tainted' ?

The whole idea of bitcoin is that it's a free decentralized 'currency' that nobody can block. Lost coins, are lost, no matter if you just formatted the harddrive with your wallet on it, or if some thief stole it.

From all the cases I've seen, most of the time it seems poor security is to blame. People need to be more careful!

[kjj]

Who will decide which coins are 'tainted' ?

Heh.  You didn't read the thread, did you?

In this thread, the discussion assumes that some entity is making that taint decision.  Pretend that it is the United Nations Special Committee on Bitcoin Taint, or whatever.

Fortunately, the conclusion seems to be the same.  Even if that first barrier is overcome, the system is still unworkable.