FBI Says It's Seized $28.5 Million in Bitcoins From Ross Ulbricht | Hacker News Reader

FBI Says It's Seized $28.5 Million in Bitcoins From Ross Ulbricht

forbes.com

45 pointstjaerv71 comments

Now the real question is -- where are they going to go from here?

* Few exchanges will be able to accommodate a 144.3K BTC transaction

* All transactions are public[1]

* The exchange(s) that broker this transaction will receive a massive amount of publicity

Now, it may end up being a bank looking to leverage the ownership of these BTC for their own business dealings, and it could adequately obfuscate where the BTC will go.

Keep in mind that the FBI's BTC address has been permanently tainted -- any shady business that takes security seriously will never do business with that address. This disqualifies the usage of the BTC in sting operations (for example).

[1] History of 'sends' for the FBI's BTC address: https://blockchain.info/address/1FfmbHfnpaZjKFvyi1okTjJJusN4...

> Keep in mind that the FBI's BTC address has been permanently tainted

Well, no. Run them through any service with a shared wallet and they're instantly clean. There's no way of tracing them after that point. If they are put through a mixer, you'll end up discriminating against people that are completely unrelated.

> any shady business that takes security seriously will never do business with that address

Almost all systems are automated and won't discriminate one coin from another. Manually checking each input is a ridiculous idea, and destroys the idea that all coins are equal.

How many mixers would you trust with $30M in Bitcoins?

How many trustworthy mixers are going to want to be the service that mixed $30M for the FBI, causing suspicion to be cast on all their other clients?

Any service with a shared wallet would do, not necessarily a mixing service. Doesn't have to be one entity, doesn't even have to be all at once.

Zerocoin? (Not that I think it's a viable option but instead because I believe it was solving this exact problem and I'm curious, practically, how far away the community is from implementing it.)

>If they are put through a mixer, you'll end up discriminating against people that are completely unrelated.

Wouldn't you do that just so people would be afraid to deal with tainted coins or shared wallets?

Why wouldn't they simply sell them publicly and then buy more if and when they need them? It's not like you need to be part of some club to get them.

With the highly fluctuating value of bitcoin, who chooses WHEN to sell? And if the FBI must preserve it as evidence until all legal issues are resolved, it could be worth much more, or maybe nothing.

There's no need to hold the coins to preserve the evidence: they have cryptographically-secured logs of the funds' provenance (and disposition) in either case.

If they do ever sell, is it a bullish or bearish signal? That they've made peace with the market, or know that a brutal crackdown is imminent (and thus selling at a the top)?

What if the defendant is found not to be guilty? Will the courts return the actual bitcoin, or the value of the bitcoin in USD? If USD, what date/time valuation would they use?

They won't return them just because he's found not guilty.

They are seized as a part of a civil forfeiture action, which means that their seizure is completely distinct, and is handled in a separate court with a lower standard of proof ("Preponderance of the evidence" versus "Beyond reasonable doubt"). It's entirely possible that the court finds him not guilty, and yet the civil court handling the forfeiture action finds the forfeiture legal.

In order to get anything returned to him, he would have to contest the forfeiture in a civil court, and essentially the burden of proof would be on him to prove that the coins were not gained through illegal means, which would mean he would have to show where and how he got them.

In the end, the US government measures wealth based on the dollar, so he would be returned whatever was gained when the coins were auctioned off.

The FBI could liquidate everything in a private transaction with the Winkelvoss ETF or SecondMarket.

https://www.secondmarket.com/company/bitcoin-investment-trus...

144,000 BTC would be easy to sell, distributed over 2-3 exchanges over a few weeks.

It only represents 7% of the 2 million BTC sold on the top 3 exchanges over the last 30 days: http://bitcoinity.org/markets/list?currency=ALL&span=30d

It's still a large enough volume that it would be in their best interest to sell slow enough as to not flood the market and lower the value. Of course, I am assuming they'd want to maximize the return?

"Wait! Now it's $50 million! Now it's $23 million! Now it's zero!"

Link to the purported address: https://blockchain.info/address/1FfmbHfnpaZjKFvyi1okTjJJusN4...

I'm not sure you can call it "seized" if the balance hasn't moved to a different address, which would be proof that they have ownership. Until then they can claim they have found the money.

The bitcoins were moved to this address today, October 25. This is likely an address controlled by the FBI.

As I read the article, the address is owned by DPR and the FBI seized the associated wallet.

Since they can't be sure DPR doesn't have a confederate or dead-man-switch process somewhere with the private key, it's not good enough to seize/know his key: they have to move balances to a new address that only they control.

You're right, I haven't noticed that. However, quoting Forbes:

> The FBI official wouldn’t say how the agency had determined that the Bitcoin “wallet”–a collection of Bitcoins at a single address in the Bitcoin network–belonged to Ulbricht, but that it was sure they were his.

Lots of 324BTC transactions. 324 is how you dial FBI.

For the curious, this 114k seizure represents a full 1% of all bitcoins that currently exist worldwide (0.7% of all bitcoins that will ever be produced). I'd wager the US government won't be releasing them or selling them back into circulation.

Might there not be a required process of selling seized assets?

As bitcoin is likely only quasi-legal in the eyes of the government, I doubt they'd be selling it off before they take a stance on it one way or another.

If they did sell them off, would give the currency some legitimacy as being legal?

Probable, though not any more so than just anyone using it. A judge - appointed by whomever with whatever set agenda - could easily just say that those Bitcoins sold was illegal if it came to that.

I haven't seen any evidence to suggest any quasi-legality of bitcoins themselves. The legality of bitcoin exchanges and bitcoins' use as a currency, however, could be up for debate. Its reasonable that they'd just treat them as an asset and auction them off without needing to take a stance on any legal issues.

One of the government's complaints against Ulbricht states:

"Bitcoins are not illegal in and of themselves and have known legitimate uses."

(See 21(b)(v) of http://www1.icsi.berkeley.edu/~nweaver/UlbrichtCriminalCompl...)

Of course that's not a binding declaration, but it indicates some openness on the mattter. The agency holding it would surely like the $millions (or someday appreciated $billions) in law-enforcement toys it could buy, if liquidated. They routinely sell/spend other confiscations.

So 99 more arrests like this, hold onto everything, and the currency is dead?

As it stands. But the rules come from the network quorum, in some crazy version of reality, the network could conspire to take these coins away from the FBI and use them as mining rewards or whatever.

Your 0.7% figure is slightly off. The total number of Bitcoins to be mined is 21 million, putting the percentage at slightly more than 0.54% (114000/21000000).

Correct! Not sure what I keyed in earlier.

I posted 114k in my post here, but it was 144k in the article. That was it :) So it is 0.7%.

What I'd like to know is how they seized it. It requires they find his private key - either Ulbricht made serious blunders when storing his private key, or (paranoid) the FBI had some techniques to get it that we wouldn't expect.

He blundered or he caved. We only have evidence of past blunders so that is the best guess.

I have to assume it was traded as part of a deal with the prosecution. He made plenty of blunders, but if he had legitimately messed up with the encryption or storage of these coins it would make much more sense that they would have found the hole and seized them right from the start.

We also know that they waited until he entered some keys on his laptop before they seized him. The likelihood it was these keys is probably low, but still should be considered.

"X years in jail if you give us the keys, X^2 if you don't" works nicely, I'd imagine. Plea agreements are a very, very powerful - and potentially abusive - tool.

Don't they usually make that public?

Sometimes it comes out later. In this case, it may be to their benefit to sow a little doubt over how they obtained it.

Really curious what FBI will do with the BTC they now have. Sell it for USD? Devise a government process for storing seized Bitcoin?

Possibly use them in sting operations of more underground sites like the silk road. Obviously as we've seen they are still going after dealers, hitmen, CP and this would be a large enough fund of coins to do that from. The only issue I see is how they would tumble and transfer them without everyone watching for transactions out of the main account.

Yep these will be watched as closely as Sathoshi's (alleged) coins.

... which will be completely useless if they use a tumbler. It's only a matter of time before feds become skilled techies. If they currently have anyone remotely capable on their staff -- and let me remind you, they somehow managed to acquire server images of Silk Road even though it was operating as a Tor hidden service, so apparently they do -- then those technically-capable staff members will strongly advise them to tumble those coins.

Which service will tumble 32 million worth of coins? And if they do them per bust then people will still see a transaction of x amount leaving their wallet.

Exactly, regardless if they tumble it, they still have to tumble it. Which creates plenty of technical and legal challenges. I personally doubt they would essentially launder their own seized money for future operations.

They aren't going to tumble all 32 million. Even 10k-20k USD worth of coins is enough to work with for most criminal cases.

The same that they do with all things they seize. It will be held for some time and then auctioned off.

I think you're right. It would take time and effort (and cash) on their part to anonymize these bitcoins, so I suspect they'll sell them at a slightly discount. I'm sure plenty of people would buy 10%-off FBI bitcoins.

I assume that most exchanges involving bitcoins are purely speculative. Given that, I don't see most buyers caring (or even knowing) whether they have an "FBI bitcoin".

They should securely erase the private keys and sell the seized equipment at auction.

    "FBI Says It's Seized $28.5 Million In Bitcoins From Ross 
    Ulbricht, Alleged Owner Of Silk Road"

    "It believes that the stash belonged to Ross Ulbricht, the 29-
    year-old who allegedly created and managed the Silk Road..."

The title and that sentence are in contradiction with one another. They either seized it from him or they did not. If they did seize it from him, why are they saying that they "think" it is his.

> The title and that sentence are in contradiction with one another.

No, they aren't.

> They either seized it from him or they did not. If they did seize it from him, why are they saying that they "think" it is his.

Because possession ("from Ross Ulbricht") and ownership ("belonged to Ross Ulbricht") are not the same thing. Its possible to have more certainty about the former than the latter.

A thief possesses items that belong to me.

"the FBI may have seized the key to that [111,000 BTC] wallet and thus gained control of the bitcoins, which they could transfer at any time to the FBI’s own wallet. “They may have the key and just be keeping them at that address,” says Meiklejohn. “That would explain what we wouldn’t have seen them move."

That would be extremely stupid for the FBI to do. If they don't immediately transfer the coins, then anybody with a backup of this wallet (eg. an accomplice that has yet to be apprehended) could run away with the coins, even after the wallet has been "seized".

So, unless the FBI is that stupid, it is almost certain that they have not seized this secondary wallet of 111,000 BTC.

As came out in the presses, http://upstart.bizjournals.com/money/loot/2013/10/08/fbi-can...

The consensus I've read is that until announced otherwise, somebody made the announcement without realizing how seizures are supposed to work (It's akin to me taking a copy of your bank statement and thinking I have wrested control of your bank account from you). This may be that announcement but it sure seems pretty limp evidence so far.

In order to "seize" ownership of bitcoins, the FBI would need to gain access to his private bitcoin keys. Wouldn't it be possible to transfer all his bitcoin to a different address with a private key that's encrypted? Wouldn't such an action prevent a seizure?

EDIT: That's what appears to have happened.

Supposedly the coins: https://blockchain.info/address/1FfmbHfnpaZjKFvyi1okTjJJusN4...

Why did they do it in groups of 324?

324 dials FBI.

That honestly seems like an odd practice. Do they feel an obligation to signal that they're the FBI?

They do have a habit of putting on a show when they make a big arrest or whatever.

Yeah, but that's because people would claim they weren't doing anything if they didn't.

http://en.wikipedia.org/wiki/Touchdown_celebration

Ha, interesting! Strange practice by them…

That is bizarre. I can totally see them "rallying the troops" with their successful capture. But it kind of makes me sick.

So now even the FBI is saying these crazy virtual coins have actual value? A great day for Bitcoin indeed!

The FBI say that WOW gold or other online game virtual objects have value. It doesn't mean much.

Why would you need FBI validation? It's a fact that Bitcoins have value.

Me? Not so much. Many people around me. Yes so much.

Can you pay your taxes in bitcoins?

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