Understanding Bitcoins and Its Supposed Anonymity

By Paladion

April 14, 2017

Why Bitcoin Is the Chosen Currency of Cyber Criminals.Why Bitcoin?

Everyone who is aware of the internet has heard of the “Dark Web,” the parallel internet where there is a market for everything, both legal and illegal. This includes everything from advanced weaponry to stolen financial data and false identities. Of course anyone interested in buying illegal goods or information is going to want anonymity and the de facto currency for this world has become Bitcoin.

The Bitcoin Journey

Although Bitcoin is the currency of choice for cyber criminals now, that hasn’t always been true. Until recently there have been other methods of payment and even previous versions of crypto currencies cyber criminals used to get paid; however, these methods were easy to track and law enforcement was able to shut most of them down. For example, a currency known as Liberty Reserves handled over 55 million transactions before it was shut down.

As recently as 2012, Bitcoin was a niche currency with a volatile exchange rate. Cyber criminals using Bitcoin could count on anonymity but could never be sure of the financial gains from their crimes. By the end of 2013 though, Bitcoin had become more accepted in the global economy resulting in a more stable exchange rate. In addition, the retail world and businesses began to accept Bitcoin as a valid currency. For example, there are now over 150 Bitcoin exchanges on the global market. This new international acceptance and subsequent stability made it the currency of choice for the underworld, especially among cyber criminals.

Since 2014, cyber criminals have relied almost exclusively on Bitcoin because it is an established currency without an identifiable centralized agency backing it and because it provides anonymity using a technology called block chain. With block chain, the “bank’s” ledgers are kept in numerous places instead of in one account, almost like cloud based banking.

Is Bitcoin Truly Anonymous?

Anyone in the world of cyber security knows that nothing is 100% secure. The same is true of Bitcoin. And while Bitcoin use is difficult to track, it is not impossible to trace its users. Bitcoin is not associated with an individual the way a bank account is. Bitcoin is associated with a public key and that key is tied to an amount. For example, a paper money note has an ID number and a monetary value that is registered with the centralized government that issues the currency. However, it is impossible to know where that piece of currency currently is and who holds it. With Bitcoin, there is a public key and an amount tied to it, although there is no way to tell who currently owns it. However, as every transaction gets recorded using block chain technology in the form of a publically available ledger, law enforcement can do analysis on those transactions and identify patterns. In addition, when someone tries to cash in the value of Bitcoin by using it at a business or through Bitcoin exchanges, it reveals the final user. When you put these methods together, it becomes possible to trace users.

The Future of Bitcoin

As enforcement agencies learn to track Bitcoin exchanges by tracking the public key and analyzing digital wallets and transactions, the valuable anonymity of Bitcoin use may be compromised. Cyber criminals have begun to use third party Bitcoin “mixers” that can deposit Bitcoins associated with one public key and withdraw them under a different public key to effectively launder Bitcoin use and confuse law enforcement. The danger is that with the anonymity associated with Bitcoin, there is nothing to prevent that third party from taking the deposited Bitcoin and closing up shop. When Bitcoin finally loses its anonymity, look for the next version of crypto currency to corner the cyber criminal market.

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