[2018-11-30] The US Government Is Powerless to Block Bitcoin Addresses

[tyz]

It has been widely reported this week that the U.S. government has blacklisted two BTC addresses linked to cyber crime. These particular addresses were singled out because their owners are believed to be Iranians, whose country is currently facing heavy economic sanctions from the U.S. While the BTC addresses are clearly connected to ransomware, mainstream media has gotten one crucial element of the story wrong: You can’t blacklist a bitcoin address.
https://news.bitcoin.com/the-us-government-is-powerless-to-block-bitcoin-addresses/

[Rustamm]

Very interesting information. The article itself states that, unlike such coins as EOS and ripple, the specific addresses of BTC and BCH cannot be blocked even by the all-powerful US government. Bitcoins come and go to two specific BTC addresses, and the US government can’t stop it. On the one hand, this is good, as it proves Bitcoin’s invulnerability for outside intervention. However, in this case, the United States can go further and prohibit the general circulation of Bitcoin in its own country.

[squatter]

While cryptocurrency exchanges can and do block accounts linked to certain addresses, the Bitcoin protocol remains immune from such interference.

Exchanges freeze accounts on a regular basis. That's all this is about. The government isn't trying to interfere with the protocol. OFAC is just telling exchanges and money transmitters to confiscate funds under their control that are tainted by those addresses. This isn't so different from OFAC publishing name identifiers so that banks know to block associated funds.

[hatshepsut93]

Very interesting information. The article itself states that, unlike such coins as EOS and ripple, the specific addresses of BTC and BCH cannot be blocked even by the all-powerful US government. Bitcoins come and go to two specific BTC addresses, and the US government can’t stop it. On the one hand, this is good, as it proves Bitcoin’s invulnerability for outside intervention. However, in this case, the United States can go further and prohibit the general circulation of Bitcoin in its own country.

Anyone can blacklist any address if they are willing to commit a 51% attack for it, but it will be noticed pretty quickly.

While cryptocurrency exchanges can and do block accounts linked to certain addresses, the Bitcoin protocol remains immune from such interference.

Exchanges freeze accounts on a regular basis. That's all this is about. The government isn't trying to interfere with the protocol. OFAC is just telling exchanges and money transmitters to confiscate funds under their control that are tainted by those addresses. This isn't so different from OFAC publishing name identifiers so that banks know to block associated funds.

I'm curious, how much taint is required to trigger that response. I've heard that pretty much every Bitcoin is tainted by the Silk Road, just like most of the US dollars have traces of cocaine on them. Such regulations can be really bad for exchanges.

[figmentofmyass]

While cryptocurrency exchanges can and do block accounts linked to certain addresses, the Bitcoin protocol remains immune from such interference.

Exchanges freeze accounts on a regular basis. That's all this is about. The government isn't trying to interfere with the protocol. OFAC is just telling exchanges and money transmitters to confiscate funds under their control that are tainted by those addresses. This isn't so different from OFAC publishing name identifiers so that banks know to block associated funds.

I'm curious, how much taint is required to trigger that response. I've heard that pretty much every Bitcoin is tainted by the Silk Road, just like most of the US dollars have traces of cocaine on them. Such regulations can be really bad for exchanges.

that's the scary thing about this. asset forfeitures are rarely fought or beaten in court and there's no court precedent for this sort of thing. so what constitutes funds that are "associated with blocked persons" is at the discretion of the feds until a judge rules on the matter.

different exchanges will have different legal counsels with different opinions about their obligations here. some exchanges will probably freeze accounts and notify the feds over very low taint. some offshore exchanges won't comply at all.

[cryptofonia]

Very interesting... so centralized Binance and other obey OFAC sanctions?

[figmentofmyass]

Very interesting... so centralized Binance and other obey OFAC sanctions?

probably. they don't want to be on a USA government shitlist for noncompliance. anyone dealing with these guys could be subjected to secondary sanctions, which will make them pariahs in the banking system. this is relevant for exchanges like binance who are trying to launch fiat markets.

that's why we saw bitfinex begin complying with FATCA earlier this year too.

[Kakmakr]

Well, you might not be able to blacklist specific addresses, but you can stop them from converting that money to fiat in a regulated environment. <Exchanges that adhere to strict KYC/AML regulations.>

The problem is, these people will push those coins through a mixer service and the "blacklisting" would be rendered useless, because you cannot follow those coins after it went through these mixer services. 

They should not even try to "blackmail" any addresses, because it is useless. 

[gentlemand]

The problem is, these people will push those coins through a mixer service and the "blacklisting" would be rendered useless, because you cannot follow those coins after it went through these mixer services.  

I think it's safe to assume that there are techniques we're not being told about that are rather hot when it comes to tracking mixing. Much depends on the quality of the mixing service of course.

Something pre funded like the wonderful operation in my signature is going to be a vastly more robust than one that sends identical amounts minus a predictable fee out a few minutes after the dodgy funds come in.

[Carlton Banks]

Well, you might not be able to blacklist specific addresses, but you can stop them from converting that money to fiat in a regulated environment. <Exchanges that adhere to strict KYC/AML regulations.>

The problem is, these people will push those coins through a mixer service and the "blacklisting" would be rendered useless, because you cannot follow those coins after it went through these mixer services. 

What they could do is use the BTC at the blacklisted address to pay transaction fees. That completely taints the block reward (and is significant reason why so much of the BTC supply is tainted with i.e. coins linked to Silk Road). If the owners of the blacklisted coins also know a miner they can do a deal with, then the blacklist can be very thoroughly neutralised.



Remember too that these are unilateral sanctions, only the USA government is enforcing this. If all governments start to come up with conflicting sanctions, the more people are likely to ignore all of them. Once confidential transactions tech is implemented in Bitcoin it's all pointless anyway

[veleten]

so, lets say they blocked a specific bitcoin address
lets say they know that the coins from a particular address are tainted
where is this mechanism to prevent someone to send coins or convert them to fiat? well, other than forcing exchanges like Coinbase to freeze the coins
but once the first seizure is public, people would simply avoid the said exchange(s), not like they do not do it already
if it cannot be enforced , why bother?

[pixie85]

so, lets say they blocked a specific bitcoin address
lets say they know that the coins from a particular address are tainted
where is this mechanism to prevent someone to send coins or convert them to fiat? well, other than forcing exchanges like Coinbase to freeze the coins
but once the first seizure is public, people would simply avoid the said exchange(s), not like they do not do it already
if it cannot be enforced , why bother?

They're doing it to at least make it hard for these people to convert. I agree that it's stupid. They can send Bitcoins abroad, turn them to Euros in some exchange in Germany or France and take fiat to a bank that will exchange it to USD if that's what they want. All exchanges will never agree to taint coins. There will be new services that will offer to mix your coins and remove the taint. Demand creates opportunities.

[Carlton Banks]

There will be new services that will offer to mix your coins and remove the taint.

It's not possible to mix coins to remove taint. You can spread the taint around, or add different sources of taint (they're both kind of the same thing really)

[pixie85]

You're right, although I think that there will be ways to counter tainting. Some people will think of a way to help people whose coins got targeted and offer services of accepting their tainted coins and turning them into fiat for a fee or there will be new, better ways of mixing that will make it harder to find specific coins and taint them.
If they can make it too time consuming for the authorities they'll win. It's like the fight with cannabis growers. They were trying to stop people from selling, it didn't work so now they're handing out licenses.

[Coin-Keeper]

Carlton Banks wrote:  Once confidential transactions tech is implemented in Bitcoin it's all pointless anyway

I have been hoping for this for awhile now.  I can achieve it, but only with copious amounts of personal attention to privacy methodologies.   I have well mixed coins but turning them into fiat is such a pain from my location.  Not really looking to liquidate at this time anyway, but it would be nice to know I could without such a hassle during the process.

[jademaxxiss012]

It has been widely reported this week that the U.S. government has blacklisted two BTC addresses linked to cyber crime. These particular addresses were singled out because their owners are believed to be Iranians, whose country is currently facing heavy economic sanctions from the U.S. While the BTC addresses are clearly connected to ransomware, mainstream media has gotten one crucial element of the story wrong: You can’t blacklist a bitcoin address.
https://news.bitcoin.com/the-us-government-is-powerless-to-block-bitcoin-addresses/

THis is not true because the US government had already a good access and knowledge about cryptocurrency. So, if they wish to block bitcoin then definitely they could do it in their own community and not included other country for it is not in their jurisdiction.

[nutildah]

There will be new services that will offer to mix your coins and remove the taint.

It's not possible to mix coins to remove taint. You can spread the taint around, or add different sources of taint (they're both kind of the same thing really)

I had to laugh internally when you said "spread the taint around," but really that (and your previous comment) makes a lot of sense, and I'm wondering if you (or anybody) know of some sort of free-to-use blockchain analytics service where this kind of phenomenon can be visualized. I know some addresses are labeled in the block explorer at blockchain.com which makes it much easier to perform analytics, and then I know that Chainalysis exists, but I'm wondering if there's any such free analytics tools out there.

Interestingly, in the 4 days since this story was published, there have been 3 transactions sent from one of the addresses to the Bitcoin Genesis address, which now has a whopping 66.90094937 BTC. Wonder what the purpose of that was.

[coolcoinz]

Interestingly, in the 4 days since this story was published, there have been 3 transactions sent from one of the addresses to the Bitcoin Genesis address, which now has a whopping 66.90094937 BTC. Wonder what the purpose of that was.

If the owner of the address knew that there's a lot of government and media attention and decided to give up and burn the coins. He probably saw no way to redeem them, so he threw them into the flames of mount doom. There were better ways, like he could have donated them to Mark Karpeles so that he could buy more frappuccinos and hookers.
Is this how taint will work from now on? Bad coins! To Satoshi you go! (read that in Yoda's voice).

[timerland]

It has been widely reported this week that the U.S. government has blacklisted two BTC addresses linked to cyber crime. These particular addresses were singled out because their owners are believed to be Iranians, whose country is currently facing heavy economic sanctions from the U.S. While the BTC addresses are clearly connected to ransomware, mainstream media has gotten one crucial element of the story wrong: You can’t blacklist a bitcoin address.
https://news.bitcoin.com/the-us-government-is-powerless-to-block-bitcoin-addresses/

The article is absolutely right. A lot of mainstream media is trying to make it sound like that bitcoin addresses can just be switched off and controlled by the government by pushing a button. That is obviously not true given the decentralized nature of BTC.

However, the sanction could still possibly be enforced by the U.S. government if they choose to go that far. But I feel like instead of doing that, promoting cybersecurity would be a much better investment of money.

For example, they could ask exchanges to not accept deposits that have coins coming from this address, or seize coins that are tainted via that address. But even then, the enforeability of such action is probably not as effective as people think. And people could well receive coins that are tainted, but don't know about it until later, making the whole thing very unfair.

[odolvlobo]

There will be new services that will offer to mix your coins and remove the taint.

It's not possible to mix coins to remove taint. You can spread the taint around, or add different sources of taint (they're both kind of the same thing really)

Mixers don't remove taint, they just give it to someone else. If you send coins to a mixer, you could get tainted coins in return.