Inside a bitcoin laundry I: What’s it all about?

Wednesday 20 May 2015

Bitcoin laundries ‘wash’ your coins so they can’t be traced. BitScan takes a look at how to use them - and why you might want to.

This three part mini-series takes a look into the intriguing and sometimes murky world of bitcoin laundries.

Bitcoin laundries are most commonly associated with criminals who want to ‘wash’ stolen bitcoins, or make sure they have a stash that can’t be traced back to an account that can be identified as belonging to them. Like laundering real money through a casino or an Italian restaurant run by your friendly neighbourhood mafioso, a bitcoin laundry mixes your funds with many other people’s money, then returns it to you, minus a cut.

Read also: Tor tutorial 

Bitcoin laundries and mixing services have long been a part of the bitcoin ecosystem. The blockchain makes bitcoin far more traceable than regular cash - in fact, that’s one of its great strengths. But there are times when that’s problematic.

Laundry

Don't worry. This is a whole lot more interesting than doing your real laundry.

Who uses laundries?

You might want to use a bitcoin laundry for many reasons. Unsurprisingly, a large number of their clients are criminals of one hue or another. One common use is washing funds that have been stolen so they can’t be traced back to the thief, and can be safely sold. Those who buy and sell wares on the various darkmarkets sometimes wash their funds before and after transactions, too - handy if you don’t want the Feds to come knocking.

But there are plenty of legitimate reasons you might want to use a bitcoin laundry. For some people, it’s simply an issue of freedom and privacy. They don’t want anyone - including the authorities but also friends, family, colleagues and the random weirdo from the internet - tracing their transactions. Which is entirely reasonable, since the blockchain could easily become a tool of surveillance. Once you know someone’s address, it’s a simple matter to follow the money trail and build up a picture of what they’re doing by their transactions.

That also makes it relevant for some businesses. Follow the transactions and you find suppliers, customers, consultants, employees - all information that can be exploited by someone so inclined.

On an individual level, what if you want to make a purchase you need to remain private - maybe anonymous web hosting for a political blog that’s critical of a hostile regime, a whistleblowing site or something you want to write under a pseudonym for one reason or another? Bitcoin alone won’t do it safely.

Bitcoin Fog

We’ll be taking a look at Bitcoin Fog. There are many mixing services, but Bitcoin Fog remains the community standard for coin anonymisation. It’s only accessible over Tor, though there’s an information page telling you more about it on the clearnet at http://www.bitcoinfog.com. They are decidedly agnostic - or rather, catholic - about who they deal with: everyone. The BTER hackers sent their 7,000 stolen coins to Bitcoin Fog, at which point the trail went cold. This does pose a bit of an ethical dilemma. Much of the money that goes through Bitcoin Fog will be ill-gotten gains and drug money. When BTER asked them to block the transactions and return the money, they got nothing but silence in return. (I dropped them a line to ask a few questions myself, but they're obviously the quiet type.)

Unfortunately, that is the way it has to be. Much as it would have been nice to have those coins - representing almost $2 million at the time - returned, it would have set a very damaging precedent. Block one transaction and how is anyone to know you won’t block another? Where do you draw the line - and how do you make a judgment on which transactions should be blocked and which should be allowed? A laundry that only washes some funds isn’t a laundry at all, it’s a liability. Only by impartially mixing everything that comes through their doors do they maintain confidence. (Whether these considerations played a part in their decision or whether the 1-3% commission fee was a greater factor, we’ll never know.)

Next week I’ll be giving Bitcoin Fog a test drive with a small amount of bitcoin to see how easy and effective it is to use.


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