Coin trackers

Thursday 04 August 2016

Bitcoin isn’t anonymous, it’s pseudonymous. Bitcoins can be tracked - and there are organisations doing just that, with implications for criminals and those who deal with them.

Bitcoin rose to prominence as the currency of choice for drug dealers and buyers on the Silk Road, the online dark market that was taken down by the FBI in 2013 - resulting in a lifetime in prison for its architect Ross Ulbricht. The reality is that bitcoin is not anonymous. The ledger is transparent and every transaction can be traced to every address involved. Identify one of those addresses and you can start to put together information about the others.

In practice, it’s not so easy. There’s no evidence that those who bought drugs on the Silk Road have been targeted by law enforcement. But now, three years later, a team of experts is making that idea a reality.


IWF and Elliptic are sniffing out illegal transactions and tracking them to their source

‘We are seeing it being used on the more dedicated commercial abuse sites that we monitor on a regular basis,’ said Sarah Smith of the Internet Watch Foundation. The IWF noticed the rise of bitcoin as a means of payment on abuse sites in 2014. They now have a list of bitcoin addresses associated with such sites, and have passed them onto tech firm Elliptic. Elliptic track transactions on the blockchain with the aim of tracing the flow of illegal funds.

This is something that has always been done on a small scale; every time there is a hack or theft, bitcoiners rush to follow transactions through the blockchain and seek to de-anonymise the perpetrator. Even if that is not possible, exchanges can still be warned not to accept funds from particular addresses. Remarkably, though, given the transparent nature of the blockchain, this is a new endeavour for larger organisations to explore. ‘This is the first time anybody has started identifying these crimes in Bitcoin and flagging them up in a system like ours,’ says Elliptic CEO and co-founder James Smith.

Elliptic shares the information they gather with law enforcement and other crypto outfits, to help prevent them from becoming involved - inadvertently or otherwise - in criminal activity by accepting bitcoins that are associated with theft, fraud and abuse. It’s such an obvious thing to do, it’s incredible it’s not already routine. But that’s the nature of bitcoin and the authorities’ engagement with it. It’s still new, and it takes a while for the full implications to sink in.

At some point down the line, perhaps in the not-too-distant future, law enforcement agencies will no doubt have the desire and ability to track bitcoin transactions, flagging the proceeds of crime and preventing them from being spent as well as hunting down the criminals responsible. For now, it’s up to outfits like Elliptic and IWF to get the ball rolling.

What this also points to is an arms race in anonymity tech. Bitcoin serves a purpose for criminals - for now. As soon as it can be traced reliably, they will need to find something else. That solution will no doubt arise, if it hasn’t already.

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