Topic: Governments/regulators may eventually actually *like* Bitcoin. - coin blacklists (Read 4388 times)

Okay, spent some time to read this through. [Hello, ‘bitcoin kidnapper’ poster – sorry, skipped through yours] Conclusion – any regulative restriction is legally and even financially [for totalitarian regimes] impossible to implement. Propaganda restriction is already in place and unlikely being cost-effective if the goal is to destroy, not regulate. I can, however, imagine a time when regulating bitcoin would be a real goal, but still cannot see a legal way to do it in a manner described here. To think further: all bank notes in circulation are traceable, therefore can be traced to a degree [when it is worth it], so are bitcoins [maybe, questionably, at much lower costs]. But no more. Never more. Freedom is always a given, such is the difference between any law and enforcing it. Majority of human population at risk/unsustainable – discuss then.

I'm not so jaded as some here. I really think most people are honest. Tor, darknets, black markets, etc. are only a tiny portion of financial transactions. When robbers, muggers, and lunch money bullies no longer have cash to steal, people will become more trusting. There will always be some criminality, but Bitcoin brings financial control back to the people rather than arcane derivative sorcerers.

You dont allways have to tie them to a person or entity, its enought to tie them to a crime to taint the adress they are at and maybe any adresses they go to.

One problem though is speed, it has to go quite quick? What happens when it goes to slow...Before an adress is tainted, the coins are allready moved into an exchange and ends up spread to other users.

Should those user be asked to send the coins back otherwise their adresses will be tainted? Thinking about it, its not reasonable...

So this tainting system should perhaps only be there to prevent crimes such as extortion and kidnapping from being based on Bitcoins, because in both cases you will be able to know in advance that a certain adress will contain tainted money.

Ofcourse a kidnapper could allways threaten that the adress should not be tainted or else.
But in these case I see governments cooperating with exchanges and warning them of the adress without tainting it.
Though thinking further would not be possible since he could send the coins to a new adress, exchange them at an exchange and claim that he bought the coins from someone unknown etc.


Thinking about the speed...

Thats where whitelisted adresses comes in, or known adresses.

Exchanges will have to only accept coins with zero day delay from whitelisted adresses. 
Any unknown adress will have to be in quarantine waiting to be aknowledged for say 3 weeks depending on country, so that its not money from a serious crime.

Some poker networks have these kinds of quarantine when withdrawing funds.

This will also force real users to rather use and keep their coins at whitelisted adresses.
An adress will probably be "whitelisted" just by doing a verification at any of the exchanges.

 

   Amazing!  

But: this all makes the bold assumption you can absolutely tie an address and specific Bitcoins with an individual or entity.
It won't happen, I can assure you. (Some hints: connecting through Tor; building OpenTransaction overlay upon bitcoin > exchanging blind tokens, etc)

The city is filled with stories like this. Some are even true.
Sally is paid by her boss in Bitcoins. Her employer automatically takes out taxes from her registered Bitcoin address. After paying her bills to registered business Bitcoin addresses she decides to take her remaining salary and go out. Sally calls an escort service and pays their public address. She then meets Lance for a night of frolic. While she is in the shower the pizza arrives at the motel room. She tells Lance to pay the pizza guy Bill with her card. Her card is designed to only accept registered addresses. Lance is disappointed because he was hoping he could buy drugs from Bill with her card too, but ended up payiing for them with a physical Bitcoin and was unable to get change. Bill pocketed his profit thinking "stupid junkie."

Bill is caught by police buying more drugs to sell. They ask him where he got a whole Bitcoin. Bill tells him that it was a tip from a nice lady. Police check his employer records and find his last delivery. They investigate and find Sally barely alive. They rush her to the hospital. Meanwhile Lance was trying to pawn her jewelry. The first pawn shop wouldn't take his items because Lance refused to give them his registered Bitcoin address. They learned their lesson when an undercover cop pawned jewelry and offered to take half the money if they would use an unregistered address. The next pawn shop would register an address for him if he would wait 10 minutes for the transaction to verify. Lance was desperate for another fix so he agreed to wait. Police picked up the unregistered transaction by the pawn shop IP address and intercepted the perp. The escort was then investigated, but the police chief cleared them of any wrongdoing. Sally later went on Oprah with a book she wrote about how Bitcoin saved her life.

Not only this…but criminals would likely move coins through an exchange or mixing service of some kind long before law enforcement could identify and blacklist an address.

a warning is fine. but you will not be able ton enforce anything on bitcoins - luckily.

Nihil novi sub sole. Actually, this thread is more original:

https://bitcointalksearch.org/topic/freezing-bitcoin-addresses-by-regulating-miners-5979

Check out what Mike Hearn, theymos and Vladimir have said.

And finally, pay attention to the last post, by Anonymous Guest (I did not know that such 'anonymous' commenting was possible - maybe this guy is Satoshi?  )

I'm glad I don't live in a banana republic with "guilty by association" laws.

Bingo! Thank you Notme...




Unless the cops (evil repressive regime - certainly not the country in which you pay taxes) set up a honey trap, I think there is (or should be) enough plausible deniability that this concern is moot. The current behavior of the Satoshi client - to send change to a new address - is a pathetic anonymizer. It needs to be random, multiple, and continual.

The cops are tracing back to coins that popped up at Merchant Mike's.  They know they came from Sleazy Steve's website, but they don't yet know all the links in the chain.  If they follow the coins back they will find Bert.  They don't have him yet.

OK so far.


Why would the cops care about where Bert spent his money? They already have him involved with a crime. Are you assuming all criminal activity is committed by evil masterminds?

What's the use case? Pervert Bert buys smut from Sleazy Steve's website. A week later, the website's accounts get opened by law enforcement. Sleazy Steve goes to jail, now the cops are after all of its customers. In the meantime, Pervert Bert sent coins to Innocent Irene from the previous sleazy transaction's change address. Innocent Irene buys an apple from Merchant Mike. Merchant Mike nabs Innocent Irene and calls the cops. The cops go through Innocent Irene's transaction history and question her about a particular purchase weeks earlier.

How many hops before the trail is futile? How much time? A simple solution is to send random denominations with few inputs and random number of outputs at random intervals to new addresses, perhaps a new wallet. Doesn't everyone create a new wallet with each client release and never use labels?

By most crimes, I mean those that fill our prisons. I wrote about this in this thread: https://bitcointalksearch.org/topic/m.597113

But as for white collar crimes, well those for the most part aren't really crimes. They are legal forms of theft that sometimes go too far. Laws need better enforcement and Bitcoin can help provide tools for law enforcement while still maintaining privacy.

Ok.. I'll bite. Are you being sarcastic?
If not..  How? Do you classify governments and bankers as the commiters of 'most crimes' and think bitcoin will bring them down?
And *I* am over-reaching??

I think you are over reaching with this problem. Bitcoin will eliminate most crimes.

The worst aspect of this sort of tagging is the possibility of silent tags.

You innocently spend some coins at the supermarket, and before you know it, the facial-recognition camera at the checkout has worked out who you are and the police come knocking to ask where you got a specific payment from.

While that has some legitimate law-enforcement use - it's also a pretty horrifying invasion of privacy and open to abuse.

I suspect there isn't a technical fix for this.  Bitcoin won't remove the need to fight for legal principles and rights.

edit: Although some ordinary cash is tracked by serial number, the average person just isn't going to remember where they got a particular note from - so it's hardly likely police will come knocking. With a bitcoin wallet though, there's a record and timestamps so it's more of a possibility.

Why not just have government automatically "launder" the money for you when you receive it? The onus will be on the one sending you tainted money in the first place.

[edit] I don't actually think we are in disagreement here.

The government could indeed penalize them - and in a fairly automated way.
Sorry - you should have used software which checks our public lists - 10% tax at the supermarket checkout for you! 
(or go spend your tainted coins on the blackmarket - maybe you'll only lose 5% there)

Welcome to Bitcoin's brave new world of 'programmable money'.

Whether you like it or think it sucks is immaterial.  If you're lucky, your government may hit a legal wall in trying to implement it.
Some governments will push such things through anyway.

As I mentioned in my previous long post - I think governments will have to be judicious in their application of these lists, or it'll backfire by just increasing the blackmarket coin liquidity.

For sure.
Regulators will want to unsolve that problem for the criminals one way or another.
Ordinary cash is barely tolerable in that regard - bitcoin won't be.



I admit I hadn't really thought through the public perception and PR ramifications of this. You're right - it could be devastating.
(Devastating to any mainstream or even semi-mainstream bitcoin aspirations that is. It would still have it's place as a niche underground thing)

I think most people assume the solution would be to track when the coins move in the blockchain, and combined with a few subpoenas and cooperations with major exchanges - do some tracing to try to get closer to the source of the funds.
I don't think this will be good enough.



That's right - by adding a 'taint' system with a very public face, the regulators have the advantage that now even the fairly stupid crazies should realize they're going to get caught.  The disincentive to even engage in the crime is an important aspect.





These taint lists will be run by governments primarily I think.   Any brick and mortar business must comply with authorities.
Once people find their bitcoins are being taxed at the checkout depending on how much 'taint' they have - they'll upgrade to wallet software which saves them money.
Once a certain number of their peers upgrade - they'll find their coins less acceptable even in personal exchange, so the system is viral in that regard.

Many governments will run blacklists - and perhaps there will be aggregated subscriptions available.




I suspect that rather than just a flat out ban on accepting the coins - they'll be taxed heavily upon entry into an audited exchange or merchant.
They would be 'cleaned' at those entry points once the fee is paid.



I think they will bother, if it has a reasonable chance of deterring the crime and/or catching the perpetrators, and if the alternative of banning or doing nothing wouldn't alleviate the problem.
I suspect both these things are true.

Outlawing bitcoins ultimately wouldn't keep the market small enough to prevent this sort of thing. Geeks and others who appreciate bitcoin would still use it for certain things, and it would (after a long slow growth) thrive as an underground currency.

It would be a balancing act.

By publishing taint lists mainly for the worst crimes, the tainted-coin pool is small, and even the average rebellious streaked person is inclined to prefer untainted coins.

If the governments go overboard on the taint list - they provide more liquidity in tainted coins, because those coins still have some value in purely black market exchange.

So.. their best bet in discouraging bitcoin-ransom crimes is not to go overboard with the lists. Keep the tainted coin pool small. Not much of an incentive to kidnap if you can only spend your loot with kidnappers and terrorists.  If however.. governments taint for a large number of drug related crimes - then they massively increase the market for and use of tainted coins.
Taints applied to anything and everything would have less stigma than taints applied judiciously.






I agree this is a longterm thing.  I'm not sure about the 'whitelist' concept. That doesn't really make sense to me at this stage.
I see them 'tainting' certain addresses (with various public and private labels) - and marking certain coins which have a taint further back in their history as 'fee paid - now clean' once they pass through certain audited merchants/exchanges.

I don't think 'Go to the IRS and whitelist them' is a practical solution for the government. Just like being overzealous on the taint-lists - that would simply keep the bitcoin blackmarket liquidity larger - and wouldn't work well on an international basis.



Governments could outlaw bitcoin, or tax it heavily at regulated merchants to discourage its uptake - but that would make bitcoin an underground thing that still has enough interest and liquidity to be used for some crimes such as kidnapping, without giving the government a lot of ways to prevent or punish those crimes.

By applying taint lists, but not going so far as to alienate the average rebellious-streaked geek, they may be able to keep the marked coins with a generally high stigma, and low spendability, as well as encourage some users to cooperate in reporting on sight.

If they taint like crazy for run of the mill drug/prostitution/politics etc etc - then they'll reduce their own effectiveness at fighting the serious issues such as terrorism/kidnap/assassination markets.

I guess some governments will get this wrong - some will eventually get it right.