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Author Topic: accepting stolen bitcoins  (Read 2921 times)
qbits
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February 12, 2013, 06:02:42 AM
 #1

I have considered this hypothetical situation and would like to propose a solution.

- let's say I run an online business selling products for bitcoins

- a bad person B manages to steal some else's bitcoins (we certainly saw a few posts on this forum of users attempting to trace their stolen coins) and they exchanges stolen coins for some goods with my online business

- now at the time of sale I have no way of knowing the person buying goods is not a legitimate owner of bitcoins used in exchange, so I should be legitimate owner of coins after the sale is complete, assuming I do not have anything to do with person B i.e. I'm not a partner in crime. certainly that would be the case should I be selling goods at my store for cash.

- however I will end up with bitcoins which are somehow "tainted" with suspicion and possibly a claw back should the person whose bitcoins were stolen manages to prove that these coins are rightfully his. this would certainly be the case if say I accepted a car or a carpet in exchange for my goods. The car's or carpet's original owner who could prove that the stuff is rightfully theirs could demand goods be returned.

- I deliberately used the examples here in the order of increase difficulty:
* car has a VIN and registration papers and I should ensure that it is the seller is indeed the legitimate owner before I exhange something for it
* an expensive carpet may have a serial number or another way of identifying the owner
* cash is completely anonymous

question is: where do the coins fit? my feeling is they resemble car more than cash.

in order for bitcoin to be useful as a currency ultimately they need to be anonymous as cash. however with current scheme of thing they can almost always be traced through the blockchain to the original miner who "created" them.

p.s. also please note all examples here begin with a letter c.
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Herodes
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February 12, 2013, 06:09:10 AM
 #2

bitcoins are neutral, all ideas about tainting them has been put down.
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February 12, 2013, 06:12:25 AM
 #3

If stolen coins are sent through a mixing wallet or exchange, good luck tracing them. A thief would have to be retarded (so much so that how could he even steal them in the first place?) to spend them with a taint analysis back to the exchange, or any other publicized, theft recipient addresses.

Saying that you don't trust someone because of their behavior is completely valid.
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February 12, 2013, 06:40:34 AM
 #4

Who defines which bitcoins are stolen?

'He' said they were.

Who is 'he'?

Oh that person that has lots of bitcoins and is well known.

Oh right you mean a bitcoin protection for people with lots of bitcoins?

Yeah, a rich person protection scheme.

What about the people with only a few bitcoins and someone else steals them?

Oh they don't matter - that's too hard to sort out.

But we still have the problem of deciding if coins are stolen!

Why not look at how fiat deals with it?

Oh you mean if someone gives you a $10 bill, you accept it no matter how much cocaine it has in it, and even if the person who had it before the person you got it from, stole it from somebody after killing them?

Yeah like that ... oh wait ... that's like saying no, no one cares if the bitcoins were 'tainted'.

How about we have some central controlling authority that decides which coins are stolen ..................... wait WHAT?

Yeah who wants decentralisation, that's not good for bitcoins .............

Central control is necessary to handle this - and certainly there will never be a problem with it coz only the people with the most bitcoins will make the decisions and they certainly know what is best for the rest of us .............

Everyone else with not many bitcoins, they'll be the ones most likely affected by receiving taint ... but they're the poor plebs so it doesn't matter.

Central control is what bitcoin is missing, so yeah lets add it .................... wait WHAT?

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February 12, 2013, 06:54:34 AM
Last edit: February 13, 2013, 12:58:49 AM by Stephen Gornick
 #5

With mixing always being an option, any concept of taint becomes useless because taint can be mixed away so easily.

Bitcoins are fungible.  Deal with it.

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qbits
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February 12, 2013, 01:34:16 PM
 #6

bitcoins are neutral, all ideas about tainting them has been put down.

precisely. this is what we all want.

however If you send me some bitcoins, and I spend it elsewhere then you are able to trace through blockchain where those coins went.
i'm not talking here about spending a coin or two. say that you spend 1000 btc. this transaction would stick out. now if I was to split those 1000 btc into 1000 1 btc addresses, i could get somewhere, but this is not simple with current wallet software.


using public mixing service is not a good option as it involves trust in those services.

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February 12, 2013, 01:44:04 PM
 #7

Send Your useless tainted bitcoins to me!

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February 12, 2013, 01:48:04 PM
 #8

A few questions:

What happens when a car is stolen and then found (say by VIN number)?

Would it be returned to the original owner?

Would someone who holds it at the time when it is found be compensated in any way even if the car has passed via 10 hands after it has been stolen?

How a bitcoin is different from a car in eyes of the law?




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February 12, 2013, 01:56:50 PM
 #9

A few questions:

What happens when a car is stolen and then found (say by VIN number)?

Would it be returned to the original owner?

Would someone who holds it at the time when it is found be compensated in any way even if the car has passed via 10 hands after it has been stolen?

How a bitcoin is different from a car in eyes of the law?
Chop shops part out vehicles to make them virtually untraceable. Bitcoins can be broken into thousands of pieces that would make it very difficult to track down, especially if they go outside their jurisdiction. I'm not saying this is a good thing about Bitcoin, but it is a good reason for a strongly authoritative government to prefer using only registered and controlled money. Bitcoin addresses can be registered, taxed, and whitelisted to comply with laws. It is likely that some governments will do this.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
qbits
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February 12, 2013, 04:46:05 PM
 #10

A few questions:

What happens when a car is stolen and then found (say by VIN number)?


Would it be returned to the original owner?

Would someone who holds it at the time when it is found be compensated in any way even if the car has passed via 10 hands after it has been stolen?

How a bitcoin is different from a car in eyes of the law?


car would be confiscated by authorities and returned to the rightful owner, even if it had passed through 10 dealers, and the person who got his/her car confiscated would have legal recourse towards the seller, seller to his/her seller and recursively all the way back to the person who presumably stole the car.

i don't know if in this respect bitcoin is any different than a car.

money is different though. if say you steal money from the bank and then buy a car with it and then get caught, the car dealership is not required to return money to the bank (righful owner).
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February 12, 2013, 05:05:56 PM
 #11

bitcoins are neutral, all ideas about tainting them has been put down.

precisely. this is what we all want.

however If you send me some bitcoins, and I spend it elsewhere then you are able to trace through blockchain where those coins went.
i'm not talking here about spending a coin or two. say that you spend 1000 btc. this transaction would stick out. now if I was to split those 1000 btc into 1000 1 btc addresses, i could get somewhere, but this is not simple with current wallet software.


using public mixing service is not a good option as it involves trust in those services.

You could run it through a exchange. It would not be easy for an outsider to link the entry and exit address.

Ie. you have coins at adress A, you send them to address B, which belongs to an exchange. You buy USD/LTC/NMC or whatever. Buy back BTC, now withdraw to address C. There's no easily followable link from B to C, unless you have insider information from the exchange.
marcus_of_augustus
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February 12, 2013, 05:56:57 PM
 #12

Send Your useless tainted bitcoins to me!

I love this guy ... always stands ready to liberate tainted, downtrodden, homeless, unwanted coins. Champion of the underdog coins.

I think the OP makes a good business case for 'reputable' mixing service for legitimate business also ... because financial privacy is not just for criminals.

Or an automated mixing client option so everyone's coins are cleaned, NO MATTER WHAT.

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February 12, 2013, 06:10:11 PM
Last edit: February 12, 2013, 07:08:13 PM by Rampion
 #13

Or an automated mixing client option so everyone's coins are cleaned, NO MATTER WHAT.

This. The traceability of all transactions in the blockchain can be dangerous for privacy. May expose your entire balance to malicious eyes. If bitcoin grows, software will be created to datamine the blockchain in order to find potential, wealthy victims.

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February 12, 2013, 06:28:35 PM
 #14

There is no such thing as "stolen" bitcoins. The final authority on the ownership of bitcoins is the Bitcoin protocol, which defines ownership exclusively in terms of the ability to supply an input satisfying the output script in the block chain, typically equivalent to possession of a certain private key.

On the other hand, unauthorized (physical) access to your computer is a violation of your property rights, and entitles you to seek compensation (from the perpetrator, not third-parties) for all damages. That includes damages resulting from unauthorized use of any data found on the computer, including private bitcoin keys.
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February 13, 2013, 04:09:22 PM
 #15

There is no such thing as "stolen" bitcoins. The final authority on the ownership of bitcoins is the Bitcoin protocol, which defines ownership exclusively in terms of the ability to supply an input satisfying the output script in the block chain, typically equivalent to possession of a certain private key.

On the other hand, unauthorized (physical) access to your computer is a violation of your property rights, and entitles you to seek compensation (from the perpetrator, not third-parties) for all damages. That includes damages resulting from unauthorized use of any data found on the computer, including private bitcoin keys.
Good luck proving keys were stolen and you yourself did not spend them.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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February 13, 2013, 04:32:59 PM
Last edit: February 13, 2013, 11:47:35 PM by Vladimir
 #16

There is no such thing as "stolen" bitcoins. The final authority on the ownership of bitcoins is the Bitcoin protocol, which defines ownership exclusively in terms of the ability to supply an input satisfying the output script in the block chain, typically equivalent to possession of a certain private key.

On the other hand, unauthorized (physical) access to your computer is a violation of your property rights, and entitles you to seek compensation (from the perpetrator, not third-parties) for all damages. That includes damages resulting from unauthorized use of any data found on the computer, including private bitcoin keys.
Good luck proving keys were stolen and you yourself did not spend them.

Then this is not a matter of law. It is simply a matter of fact. Is it not?

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February 13, 2013, 08:01:34 PM
 #17

Let's say I photograph your printed private key from my property. Would this violate any of your rights? Would you have grounds for complaint if I used the key?
No, I would not. It's up to me to keep my private keys private. If you can photograph my private key from your property then I've essentially given it to you, and have no cause for complaint.
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February 14, 2013, 04:05:03 AM
 #18

There is no such thing as "stolen" bitcoins. The final authority on the ownership of bitcoins is the Bitcoin protocol, which defines ownership exclusively in terms of the ability to supply an input satisfying the output script in the block chain, typically equivalent to possession of a certain private key.

On the other hand, unauthorized (physical) access to your computer is a violation of your property rights, and entitles you to seek compensation (from the perpetrator, not third-parties) for all damages. That includes damages resulting from unauthorized use of any data found on the computer, including private bitcoin keys.
Good luck proving keys were stolen and you yourself did not spend them.

Then this is not a matter of law. It is simply a matter of fact. Is it not?

That's why lawyers make the big bucks.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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February 14, 2013, 06:23:36 AM
 #19

There is no such thing as "stolen" bitcoins. The final authority on the ownership of bitcoins is the Bitcoin protocol, which defines ownership exclusively in terms of the ability to supply an input satisfying the output script in the block chain, typically equivalent to possession of a certain private key.

On the other hand, unauthorized (physical) access to your computer is a violation of your property rights, and entitles you to seek compensation (from the perpetrator, not third-parties) for all damages. That includes damages resulting from unauthorized use of any data found on the computer, including private bitcoin keys.

in that case this is a problem bitcoin needs to solve. if people in general perceive that it is dangerous to keep your money in bitcoin then they will not opt to have bitcoins.

one way of dealing with this is by using online public "secure" wallet services. this is in fact what regular banks do for "real" money. it is interesting that most online-bank service agreements do have provisions in them that bank is not responsible for any theft which occurred by someone hacking into end user computer as in this case bank has no way of distinguishing legitimate transactions from fraudulent ones.

another is to harden the end user wallet. i believe Slush has taken this approach with his hardware wallet which presumably cannot be hacked.

having said that there is a simple attack vector which can defeat both of these approaches.

i suppose one way would be to encode end user information into the public key, say a vanity address with your email in it. but that would go against anonymity.

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February 26, 2013, 09:57:25 PM
 #20

I have considered this hypothetical situation and would like to propose a solution.

- let's say I run an online business selling products for bitcoins

- a bad person B manages to steal some else's bitcoins (we certainly saw a few posts on this forum of users attempting to trace their stolen coins) and they exchanges stolen coins for some goods with my online business

- now at the time of sale I have no way of knowing the person buying goods is not a legitimate owner of bitcoins used in exchange, so I should be legitimate owner of coins after the sale is complete, assuming I do not have anything to do with person B i.e. I'm not a partner in crime. certainly that would be the case should I be selling goods at my store for cash.

- however I will end up with bitcoins which are somehow "tainted" with suspicion and possibly a claw back should the person whose bitcoins were stolen manages to prove that these coins are rightfully his. this would certainly be the case if say I accepted a car or a carpet in exchange for my goods. The car's or carpet's original owner who could prove that the stuff is rightfully theirs could demand goods be returned.

- I deliberately used the examples here in the order of increase difficulty:
* car has a VIN and registration papers and I should ensure that it is the seller is indeed the legitimate owner before I exhange something for it
* an expensive carpet may have a serial number or another way of identifying the owner
* cash is completely anonymous

question is: where do the coins fit? my feeling is they resemble car more than cash.

in order for bitcoin to be useful as a currency ultimately they need to be anonymous as cash. however with current scheme of thing they can almost always be traced through the blockchain to the original miner who "created" them.

p.s. also please note all examples here begin with a letter c.



There are many different jurisdictional differences with receiving stolen goods and Possession of stolen goods - The two distinctions exist due to timing of knowledge of the goods being stolen. If known before the transaction was consummated then the crime  would be receiving stolen goods if known after the fact it would be possession of stolen goods. Normally it is much more difficult to defend against receiving stolen goods as the defense of mistake would normally not be available since you had actual knowledge

Receiving stolen property is defined by statute in most states (US) as having four elements: (1) the property must be received; (2) it must have been previously stolen; (3) the person receiving the property must know it was stolen; and (4) the receiver must intend to deprive the owner of his or her property.

Mistake of fact may be used as a defense if, for example, you didn't know that the property you acquired was stolen. If you didn't know that you were receiving stolen property (but assumed you were buying a legitimately owned item), you normally can't be convicted of receiving stolen property.

It should also be noted that even if you didn't know when you received the property that it was stolen -- but later learned that fact -- you are required to turn the property over to its rightful owner or the police at that point.

The anonymity of bitcoin can present real problems of proof when it comes to ascertaining whether they were stolen which can be exacerbated if the coins have changed hands many times. The best advice is to use reasonable judgement. If you have reason to believe that the person sending you the bitcoins is less than trustworthy then it would be best to avoid the transaction. In reality it may be near to impossible to make that determination up front.

If the coins are later found to be stolen they must be surrendered or you expose yourself to criminal liability. There are would most likely be a  recourse available to you in civil court to reclaim lost value from the person that sent you the coins originally.


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