You still can’t really buy bitcoin quickly on Coinbase and transfer it to a online poker site for example (directly, without raising possible issues). Now add JPMorgan into the mix.
Unfortunately, because the Bitcoin blockchain is fully transparent (all transactions can be seen by everyone) that assumption has turned to be largely incorrect: where you coin comes from matters a great deal, and if it came from a suspicions source, it is "tainted".
There are numerous effort to fix this gaping flaw (Monero, ZCash, the various mimblewible based coins, and even some efforts in that direction on the Bitcoin chain like coinjoin), but tracking where from an where to money flows on the Bitcoin chain is still very easy today.
Coinbase is taking full advantage of that to rub the regulator the right way.
If we think of Bitcoin as an electronic cash equivalent, isn't this a bit like worrying that you can't get away with making a withdrawal at the counter followed by a purchase from your drug dealer on the sidewalk out front?
What's far more concerning is the (even remote) possibility that any of the tracing services achieves technological success.
I thought we were supposed to not have a central authority approving transactions?
You are correct (not your keys, not your bitcoins), but the vast majority of Bitcoin purchasers these days are physically incapable of doing anything else given how complicated it is to properly manage your own private keys.
So how can CB find out if you're using it on poker?
Most people usually pull it out of Coinbase to another wallet and transfer from there to avoid any issues.
But you sure as hell aren’t going to be able to transfer poker money into Coinbase and then dump it into your Chase account. At least I don’t think you can.
I guess it follows that if you directly deposit from Chase to those sites, Chase would close you down too.
(1) https://twitter.com/RonaldMcHodled/status/122217208461002752...
Just try it, and you'll see what happens to your account.
To do what you suggest is of course possible, but requires far more "exertion" than what you suggest and certainly more than the average user is technically capable of.
For example, I transfer to an Electrum address from Coinbase. Then I make a transaction that has a single input spending that address, and two outputs, both with newly derived addresses that belong to me (unknown at that point to the chainalysis). Then I make a third transaction with one one input, spending one of those two new addresses that belong to me, and one output with the address of the poker site. How does Chainalysis know that the new address that was spent by the input of that last (third) transaction to the poker site was mine (at least till I spend the second output from the second transaction)? What am I missing?
From what I know, chain analytics uses various heuristics and it's inherently probabilistic: the more hops, the less certainty
The poker site can generate independent addresses A1, A2, A3, ... to receive deposits. But then they also need to handle withdrawals. A withdrawal transaction might for example consume the amount in A1 plus part of the amount on A2, sending the leftover change to another new address. Now A1 and A2 have been observed to be under the control of the same entity.
All addresses of the poker site can be linked together like this, by tracing the "taint" from a single known address. The poker site can try to split their addresses into subsets that are isolated from each other (selerate "wallets"), but then a blockchain analyst can simply keep doing deposits/withdrawals to find them all.