Sanitizing Bitcoin: This Company Wants To Track 'Clean' Bitcoin Accounts
forbes.com
forbes.com
Bitcoin transactions are by their nature traceable through the blockchain- but ownership of them is not. In it's simplest form I might sell a coin to somebody for cash, the blockchain does not show this change of ownership and an outside observer now thinks that they are still monitoring the same persons transactions. If they were "blacklisted" then suddenly the sold coins are worthless, even though the original seller has had no adverse impact.
It has interesting extensions, where you are able to destroy other people's funds by tainting them with your stolen ones. The Bitcoin system does not, and can not support a system where the user can accept and reject funds. You can ignore inputs, but that gets very messy very quickly.
You end up in a situation where only institutionally "clean" coins are allowed, and the system collapses. How this ever came to fruition I'll never know.
People of the world:
For the greater good please send all your Dollar bills and coins that were ever used for illegal activities to my doorsteps.
This is you last chance to win the war on drugs, terrorism, children, religion, or whoever else your demons might be!
I can see some strong similarities to DRM. There are large organizations that would very much like for a technical impossibility to exist, leading some to step forward to sell a fundamentally flawed patchwork to them whose primary impact is inconvenience for end users.
But tracking p2p transactions? No amount of clever algorithms with their amount of data will thwart anonymization efforts done with,for example, programmatic creation of addresses, random transactions, mixins and offline transactions.
[1]obviously not scientific
In reality though, the contamination of the market by Bitcoin will happen much faster than anyone could set up a framework of tracking it. Black markets will grow huge. A lot of intellectual work can avoid taxation easily. Especially, when younger generation finds itself in a situation of economic disaster that was created by their parents and grandparents. Teens will be less likely to tolerate all this banking nonsense.
2. Every early venture is also very volatile. Facebook, Twitter, Google, the web itself and the internet were volatile in the beginning. A lot of uncertainties, legal issues, security issues etc. Only when they reach half of the potential market, they start looking stable and glorious. I bet when gold was started to be used as a currency it was uncertain, competing with previous currencies and prices were fluctuating a lot.
3. Bitcoin can't be suddenly worth 1$ tomorrow for economic reasons. Only for technical reasons (but then it is more likely to become worthless). Economically, no big holder of bitcoin is going to crash the price by cashing out publicly if there is a way to sell steadily and/or privately. Which happens already. SecondMarket's BIT gets all its coins and money purely privately, without anyone noticing much changes.
Since almost no one is holding Bitcoin-denomitated debts, no one is hurt by having Bitcoin price rising unexpectedly. It only boosts interest. So if it stays around $430 for the months or grows to $1000, no one will be hugely disappointed. Even if drops now to $300, only a fraction of holders will suffer losses, while majority of others is still well in profit.
Good thing that Bitcoin flourishes from malicious attacks, otherwise it would have been dead a long ago or would die soon.
If they manage to establish themselves as LE's provider of Bitcoin info, then they're got a monopoly and a guaranteed income for the rest of their lives.
So if we compare this to "dirty" bit-coins how do you determine if a coin is dirty. How recent does this transaction have to be for the legitimate organization to refuse it because if a bit-coin is considered dirty forever after being involved in a dirty transaction that wouldn't work.
I'm probably missing some intricacies of how the block-chain works since you can do transactions of any size not necessarily 1 bit-coin.
"Their plan is to compile a database of the known identities associated with Bitcoin addresses in the hope that Coin Validation will become the one-stop-identity shop for law enforcement when trying to find out who’s doing something nefarious with Bitcoin, while providing a red-flag system for businesses who have customers trying to use Bitcoin that’s associated with illicit use."
I was just thinking about this the other day. If you have one well-meaning blacklist on certain Bitcoins, you could have dozens. Stolen coins, drug coins, "Democrat" coins, coins spent on Sunday. Like anti-spam lists, each Bitcoin user could choose which blacklists to pay attention to when receiving coins, but won't necessarily be privy to all the lists that divvy his seemingly fungible pool of Bitcoin into coins that are more portable and coins that are not.
It's not unworkable to have one list that everybody pays attention to, though even that is contentious. It's the ones that will follow that should really cause concern.
It's not the end for bitcoin anonymity. There will always be a market for "dirty" coins, and there won't be one definition of "dirty" either. The countermeasure is a multitude of such tracking tools, each operating on an opt-in basis, each with a different definition of "dirty". Then merchants and users would be able to choose what provenance has what value.
In fact, there is an opening now for someone to build an alternative system that isn't associated with regulators. One that perhaps might help us track stolen coins, like those from Pirate@40. On the other hand as a voluntaryist I happen to believe that DPR (the other pirate) deserved his coins, and I would accept his coins at face value.
If such an open-data solution existed, then I would feel inclined to support merchants and exchanges that reported their bitcoin addresses, knowing that (a) if their funds get stolen, people have the opportunity to reject the stolen coins thus reducing their value and the incentive to steal and (b) the public can perform audits on these bitcoin exchanges. On the other hand I wouldn't feel comfortable with a closed solution where the data gets walled off from the public, which selectively benefits those with access to the data.
The future of bitcoins will be full of unexpected surprises that seem obvious in hindsight. I think this is one of them. To the moon!
I must be terribly dull, but I fail to see why bitcoins have any store value at the moment. As a medium of exchange, I see their use. But taxes are payable in sovereign currency, and 20% of the worlds economy is taxed by 1 entity accepting only USD. Sovereign entities are not about to relinquish the power of inflating the money supply. And if I want to park money, I want to be able to pay my taxes with it when the time comes.
The p2p currency of exchange I get, as well as the distributed POW that has a reward priced in this currency. But what prevents a network of persons (or trustworthy entities) to clone it into one that has more legitimacy? What does BTC have over litecoins?
As a matter of fact, Litecoins are really more distributed as the proof of work uses a GPU instead of SHA256 that is now mostly computed by ASICs; GPUs are in every modern computer and the POW computation would not benefit from a significant speed up with ASICs. This is a better distribution platform if the breadth and width is what prevents a fork of the blockchain.
And if LTC became too expensive, volatile, etc, as an exchange medium, GPUC could be an alternative, ad nauseum.
Basically the point is: there seem to be a decreasing return on the network effect of a p2p unit of exchange, not the opposite(as for the fax machine, or facebook). This law of diminishing return, IMHO should bring to an end sooner or later this bubble caused by people failing to see the difference between a unit of exchange and an asset.
It could work almost exactly like Spamhaus which tracks email spammers (which coincidentally also happens to be pseudonymous) and smtp servers relaying spam.
As long as enough people opt in to the blacklists it would make life very hard for thieves. Whoever controls the blacklist would gain a lot of power yes, but since opting in would be voluntary you could always decide to use a different blacklist.
2)What happens when someone using blacklist A accepts payment that looks clean, only to find out they are now blacklisted on list B? No one could use bitcoin for something like ebay transactions, for fear that the payment they received might be blacklisted by some list.
2. The situation is the same as if someone irl where to accidentally purchase stolen goods. Or as if you where accidentally spamlisted because you forgot to secure your smtp server. Your options would be:
a) Return the bitcoins and clear your status. b) Argue your case with the operators of blacklist B. c) Ignore your blacklisting and just don't do business with those who follow blacklist B. If they blacklist addresses for frivolous reasons, more people will ignore their list and it won't matter if you are on it or not.
A decent client could automatically keep the blacklists updated so it would hardly be any burden for normal users.
While such an attempt should increase trust, this mechanism could be used to destroy it.
As others mentioned, it's not practical to try and enforce this on people who want to circumvent it, but there is certainly value in improving convenience of accounting for those who want it.
The Intuit-for-Bitcoin market is still practically non-existent, so expect to see more such announcements as the promise of Bitcoin's legitimacy continues favourably.
Although they seem to think that the protocol should not allow anonymity for some transactions: