The public image of bitcoin, cultivated by the media, is of the international criminal’s currency of choice – an anonymous, untraceable means of laundering proceeds of crime.This has made for compelling column inches, but the opposite is true.Bitcoin is, in fact, the most transparent payment method ever developed and has the potential to become a powerful tool in the fight against financial crime.On day nine of the trial of Ross Ulbricht, the prosecution called their key witness: Ilhwan Yum, an FBI special agent and cyber security expert.Ulbricht had been arrested in a San Francisco public library fifteen months earlier and charged with being the owner and operator of Silk Road, the world’s largest online illegal marketplace.By using bitcoin as the only means of payment, the operators of the site hoped to maintain the anonymity of their users, who were primarily engaged in buying and selling illegal drugs.Over $1 billion in transactions took place on Silk Road between February 2011 and July 2013, and almost $80m of commissions were earned by the operators – all in bitcoins.

‘Bitcoin transactions are anything but anonymous’ FBI Agent Yum’s testimony provided a clear and high-profile illustration of what those with a technical understanding of the digital currency already knew – that bitcoin transactions are anything but anonymous.Up until this point in the trial, Ulbricht’s defence team had maintained that he was not the operator of the Silk Road and had merely created it before handing it over to others.Yum provided the smoking gun in the form of incontrovertible proof that over a 12-month period, more than 700,000 bitcoins had been transferred from the Silk Road bitcoin wallet directly to a wallet on Ross Ulbricht’s laptop.To understand how this link could be made, we need to take a closer look at how bitcoin transactions work.In order to send or receive bitcoins, you need a bitcoin address – a string of letters and numbers.This address is analogous to an email address: you can send bitcoins to a bitcoin address in the same way as you can send emails to an email address.

At the core of bitcoin is a public, online ledger recording every single transaction, for all to see, known as the blockchain.ethereum price predictionAgent Yum simply searched the bitcoin blockchain for transactions involving the bitcoin addresses found in the Silk Road wallet and those on Ross Ulbricht’s laptop – and bingo, he found transactions going directly between them.bitcoin index nyse‘In many cases identities can be linked to bitcoin addresses’ Now of course the blockchain does not record everything – identities of the transacting parties are not recorded.bitcoin atm 24 hoursSo bitcoin is pseudonymous rather than anonymous – your pseudonym (bitcoin address) is recorded, but your identity isn’t.bitcoin oakland

However in many cases identities can be linked to bitcoin addresses – and it is usually much easier than seizing someone’s laptop.bitcoin wikipedia bahasa indonesiaAny bitcoin transaction with a party that knows your identity leaks information that can be used to identify your activity, past and future, on the block chain.bitcoin armory safeFor example, if you transfer bitcoins to an online retailer, an exchange, or many of the other services that take customer identity information, you allow them to link that identity to your blockchain pseudonym, potentially revealing the other transactions that you are party to.fichas bitcoinBitcoin therefore provides the ultimate paper trail for law enforcement agencies, tax authorities and compliance professionals.fichas bitcoin

This traceability also makes bitcoin theft a far less attractive endeavour.Many tens of millions of pounds’ worth of bitcoins have been stolen from exchanges and wallet services over the past few years, but the thieves have been able to do very little with these stolen funds, because in most cases they have been identified on the block chain and forever “tainted” – the digital equivalent of blood-stained fifty pound notes.litecoin going downOf course, bitcoin laundering tools, known as ‘mixers’ or ‘tumblers’, have sprung up.These services attempt to break up the paper trail by exchanging one set of bitcoins for another with different addresses and transaction histories.However these services have serious limitations – they tend not to work well for large volumes and the laundering process can itself often be identified on the block chain.‘We must protect the right to maintain user privacy’ We are only just starting to scratch the surface of what information can be mined from the open transaction ledger at the heart of bitcoin.

As criminals develop more sophisticated laundering techniques, so others will develop more powerful tools to extract identifying information from the block chain and trace payments.This also has serious implications for user privacy – we are on the whole comfortable with entrusting our financial information with banks, but opening up this transaction history for all to see on the block chain may be too much for many.The laundering techniques employed by criminals may be indistinguishable from completely justified efforts by bitcoin users to mask their activity – but we must protect the right to maintain this privacy.What is clear is that regulators and law enforcement agencies should not fear this technology, but embrace it.The transparency of digital currencies makes them an uncomfortable home for proceeds of crime.This article first appeared on the ResPublica website.One of the bigger tech stories this week is the shutdown of Silk Road, a black market bazaar that trafficked in any and all illegal goods, from drugs and guns to personal data and malware.

The alleged Silk Road mastermind, Ross William Ulbricht, was arrested on Tuesday in San Francisco, and presented in San Francisco federal court Wednesday morning.A detention hearing will be held at 9:30 a.m.But how exactly does one manage to sell drugs and guns online for more than two years?Can you really buy heroin on the Web as easily as you might purchase the latest best-seller from Amazon?Not exactly, but as the FBI explained in its complaint, it wasn't exactly rocket science, thanks to Tor and some bitcoins.Here's a rundown of how Silk Road worked before the feds swooped in.In its investigation, the FBI made more than 100 undercover purchases from Silk Road, according to FBI Special Agent Christopher Tarbell.But it's not as easy as logging on and typing in your credit card number.A key part of the puzzle is the Tor network.The Tor Network Ulbricht "operated Silk Road on what is known as 'The Onion Router' or 'Tor' network, a special network on the Internet designed to make it practically impossible to physically locate the computers hosting or accessing the websites on the network," Tarbell wrote in his complaint.

If you navigate to the Silk Road URL (silkroadvb5piz3r.onion) on the average browser, you will get an error.To view it, you need to install Tor software on your browser (though the website currently shows a note from the feds saying the site has been seized).According to the Tor Project, Tor was originally developed by the U.S.Naval Research Lab as a way to protect government communications."Today, it is used every day for a wide variety of purposes by normal people, the military, journalists, law enforcement officers, activists, and many others," Tor said."Tor helps to reduce the risks of both simple and sophisticated traffic analysis by distributing your transactions over several places on the Internet, so no single point can link you to your destination," the group said in an explainer.In a statement about the Ulbricht case, Tor said it has "been watching carefully to try to learn if there are any flaws with Tor that we need to correct.So far, nothing about this case makes us think that there are new ways to compromise Tor (the software or the network)."

Tor said Ulbricht "made mistakes in operational security" and was caught by "actual detective work" rather than exploiting problems with Tor.Indeed, the FBI tracked him down in part thanks to an online post that linked to a Gmail account.The Electronic Frontier Foundation (EFF) also urged people not to blame the technology."The public wouldn't tolerate a campaign to malign the car because of its utility as a getaway vehicle for bank robbers; we must apply the same critical thinking to essential privacy-preserving technology," EFF activist Parker Higgins wrote.How to Get Tor for PC, Mac, and Linux.But it will block browser plugins such as Flash, RealPlayer, Quicktime, among other things, so it might not be the optimal choice for all Web users.Still, if you're trafficking in sensitive data - whether that be worthwhile endeavors like data from journalists working in unsafe areas or less savory fare from the likes of Silk Road - Tor can help prevent your Web activity from being tracked.

In the case of Silk Road, all one had to do was download the Tor browser software and type in the Silk Road URL.Accessing Silk Road With Tor installed, the Silk Road URL directed new users to a black screen with a prompt for a username and password, as well as the option to sign up.All that was required to sign up for Silk Road was a username, password, and country of origin.You could shop by category or peruse photos of current inventory.A messages system allowed buyers and sellers to privately discuss their transactions, while community forums provided for more public chats.A wiki included FAQs, while a customer service section presumably provided assistance when that batch of cocaine was a bit late.Product listings, meanwhile, included descriptions, seller information, reviews of previous transactions, and the familiar "add to cart" purchase option.Bitcoin Silk Road doesn't take American Express.Instead it relies on virtual bitcoin currency (for more, check out PCMag's bitcoin primer).

Though bitcoin transactions are tracked via a public ledger known as the Blockchain, it "only reflects the movement of funds between anonymous bitcoin addresses and therefore cannot by itself be used to determine the identities of the persons involved in the transactions," Tarbell wrote."Only if one knows the identities associated with each bitcoin address involved in a set of transactions is it possible to meaningfully trace funds through the system."Like Tor, bitcoins are not illegal, but can be used for nefarious purposes.As Reuters reported, the value of a bitcoin dropped from $140 to $129 to in the wake of the Silk Road shutdown.When Silk Road was active, every user needed a bitcoin address, which were stored on wallets maintained on servers controlled by Silk Road.Once funds were added to bitcoin wallets, they could be used to buy whatever your criminal heart desired.Sellers then transferred their bitcoins to an exchange, which extracted a commission rate between 8 to 15 percent.As Tarbell noted, however, Silk Road also used a "tumbler" to further hide bitcoin transactions.

That process "sends all payments through a complex, semi-random series of dummy transactions ... making it nearly impossible to link your payment with any coins leaving the site," the FBI said.Tarbell said that in his experience, tumblers are usually only used "to assist with the laundering of criminal proceeds," though the EFF took issue with that assertion."It's incredibly dangerous, though, to say that anonymous currency—whether bitcoins or traditional cash—is only of interest to drug dealers or money launderers," EFF said.Your Package Is in the Mail So, you've anonymized your data online, but how do you actually get that package in the mail?Wouldn't Customs or the postal service notice if your packages contained drugs or firearms?The answer is, possibly.It's basically a crapshoot.Some packages might be intercepted, others might arrive safely (as evidenced by the packages that the FBI bought undercover).As a result, the complaint mentions that Silk Road suggested the use of an alternative address for purchase deliveries ("such as a friend's house or P.O.