Topic: How do "they" tag BTC (from gambling, mixers, dark markets, etc.)? - page 2. (Read 619 times)

Chainalysis has made $10 million in five years from the U.S. government, with nearly a dozen agencies and a military branch tapping the blockchain forensics firm for everything from tracking tools to training on analyzing network data. All started with a $9,000 data software contract for a 3 letter agency in 2015. But just five years later, Chainalysis is now the cryptocurrency-tracing equivalent of Palantir, the data analytics company flush with lucrative government software contracts.
https://www.coindesk.com/inside-chainalysis-multimillion-dollar-relationship-with-the-us-government

maybe a handful of them have some government ties but majority of them are just opportunists who have found an area that wasn't saturated already and started a business to make money. that's why we see all these chainanalysis services grow like mushrooms over the past couple of years. and that's why most of their services are pretty crappy too.

its a bad news for these  exchanges and people who want to day trade bitcoin not for bitcoin or bitcoin users.
another thing to keep in mind is that the entire system is not mature enough yet. for example how many major popular bitcoin exchanges we have? it is still only a handful. so they all have the power and don't have to compete with anything. if instead the number of exchanges was 50 (keep in mind that it is a global market) and they had to compete to get customers and stay afloat then they could never lose business by closing an account just because it contained a history of coinjoin transactions. additionally if majority of users were using coinjoins and other privacy oriented things then again these exchanges had to close all accounts instead of a select few.

with that said i believe that slowly but surely things will change. for example if we look back a couple of years ago (eg. 2012-2013) there were only 1 big exchange (85% of volume) and a bunch of small ones but today there are more users, more exchanges,... this is just a period that we should get past before people realize  bitcoin is not just something you trade on a centralized exchange to make fiat profit.

There have been multiple examples of exchanges, Binance in particular, "flagging" coins and asking users to video document how their coins ended up with them.
This is pretty bloody rich coming from the same exchange that does not care two hoots about having been used to launder hacked coins like the latest Ravencoin debacle.

The way I see it, we need more people participating in mixing or this will get out of hand.

In my humble opinion, Bitcoin was never intended to be linked with the fiat currencies world:
Chancellor on brink of second bailout for banks
This is where it all started, Bitcoin is here to replace to old financial world. Of course, I am not being naive, I do recognize that for the majority of us is not possible to live fully on Bitcoin. But that should always be our end goal.
I am pretty confident that one day we will be using Bitcoin only financial instruments or, at least, that's my dream since being into BTC.
 

In the end, yes! Just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

The obvious answer to this is to not convert back and forth between BTC and fiat and just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

It's bad news for centralized exchanges. More and more people will be refused service or will rightly stop using them over their shady practices of allowing deposits and then freezing accounts. Such people will move to decentralized exchanges and peer-to-peer trading. The growth of these things is only good for bitcoin and good for privacy.

If your wallet is demanding KYC, then you should find a new wallet immediately.

Nonsense. Privacy is a fundamental right for everyone, regardless if you are doing anything illegal or not. If you don't think you need privacy, then please post a PDF of your most recent bank statement.

I guess your concerns are valid ones. As I've already stated previously, this all started when the link between fiat currencies and crypto got created. 1BTC is 1BTC only when transacting in the Bitcoin realm, otherwise when, for whichever reason, one needs to exchange BTC for fiat, all that we have discussed is unavoidable.
Let's see how this unfolds.

See the thing is Bitcoins is not Private, contrary to popular belief Bitcoins is semi-transparent at the same time any transaction can be tracked and rechecked by a number of people which is actually a good thing since this way transactions can be rechecked . This is good when it comes to tackling the problem of corruption or tracking some problematic users but at the same time this has:

- Increased value of Virgin coins
- Incorrectly blaming people for receiving tainted coins even though they might not have any hand in the illegal stuff

People have been using the mixing and blending services now more than ever. Other than that even wallets are now linked to the banks and banks to the particular ID of a person which is very easy to link.

This is an issue that does need to be resolved but for a normal bitcoiner I do believe until and unless you are not involved with any illegal activities it is of any significance.

...

Thank you all for your replies!   


o_e_l_e_o and Karartma1

I mix "most" of the BTC I get, though usually not right away (if I buy $300 worth with my cell phone for example).  And for the same reasons mentioned: making it harder for criminals to track finances and for better general privacy.  I do hope that others, preferably many others, will mix their BTC as well to make more BTC equal to others...

witcher-sense and Karartma1

Thanks as well for the links provided.  I now have some reading (likely too advanced for me, still...).

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General comment.  I sense, have no proof of course, that all this "analysis", KYC/AML, PofFunds, etc. is all aimed at making BTC less useful.  And by the "usual suspects" (.gov and/or banks).

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.  If the exchanges get overly picky about sources of BTC and make it harder to cash out, then that is bad news AFAIC.

They just collect wide list of addresses on diffrent "hirisk" sites and monitor their addresses. Totally unhonest

The only reason it is an issue is because people continue to use and support centralized exchanges which engage in this kind of privacy invading behavior. If everyone stopped using exchanges like Coinbase which shut down accounts whenever they decide they don't like how you are spending you own money, then they would quickly adapt to stop doing it or they would cease to function. If you use bitcoin without trusting any third parties with your money, as it was intended, then this becomes a non-issue. As time goes on, this becomes an increasingly nonsensical position for exchanges to hold. As coins are forever being split and consolidated, mixed together, coinjoined together, and so on, at some point pretty much every bitcoin in active circulation will be "tainted" according to these algorithms.

If everyone took their privacy seriously and mixed all their coins, this kind of "tainting" would become immediately useless.

Some do not understand what BTC really is, continuing to mislead others.

I hope you used sarcasm when you used the word in a nutshell  I knew most of those documents already but missed a few. Thanks for sharing: I will occupy many hours in the next weeks to read everything you posted.
Allow me to add a report from CipherTrace to the compilation: gives an idea of how those intelligence companies use their data.
https://ciphertrace.com/wp-content/uploads/2020/06/spring-2020-cryptocurrency-anti-money-laundering-report.pdf

Screenshot from OP originally belongs to this thread, and here you can see exactly what it is about. It is more than obvious that there is a great demand for better software that analyzes transactions on blockchain, not only for internal use of large crypto companies - but also for ordinary users who want to check if their coins are clean before sending them to exchange and take risks having their account frozen.

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And how do they do it? Well, considering that they have been working on it since 2012, there is no doubt that they have perfected various methods to date - witcher_sense is posted methods that are known to the public, and there should be no doubt that there are those that are still unknown.

In a nutshell, this is how they do that:

[PDF]Automatic Bitcoin Address Clustering
https://www.researchgate.net/publication/322670022_Automatic_Bitcoin_Address_Clustering/link/5ab338feaca272171001ceba/download

[PDF]btctrackr : Finding and Displaying Clusters in Bitcoin
https://www.cs.princeton.edu/~arvindn/teaching/spring-2014-privacy-technologies/btctrackr.pdf

[PDF]Breaking Bad: De-Anonymising Entity Types on the Bitcoin Blockchain
Using Supervised Machine Learning
https://core.ac.uk/download/pdf/143481278.pdf

[PDF]Unsupervised Clustering of Bitcoin Transaction Data
https://www2.atmos.umd.edu/~ide/data/teaching/amsc663/14fall/amsc663_14proposalpresentation_stefan_poikonen.pdf

[PDF]Bitcoin Blockchain Analysis
https://is.muni.cz/th/v2dsl/bp_petkanic.pdf

[PDF]Deanonymization and linkability of cryptocurrency transactions based on network analysis
https://orbilu.uni.lu/bitstream/10993/39724/1/biryukov-tikhomirov-deanonymization-and-linkability.pdf

[PDF]BITSCOPE: Scaling Bitcoin Address De-anonymization using Multi-Resolution Clustering
https://izgzhen.github.io/bitscope-public/paper.pdf

[PDF]Evaluating User Privacy in Bitcoin
http://book.itep.ru/depository/bitcoin/User_privacy_in_bitcoin.pdf

[PDF]User Categorization and Community Detection in Bitcoin Network
http://snap.stanford.edu/class/cs224w-2017/projects/cs224w-62-final.pdf

[PDF]Unsupervised Learning for Robust Bitcoin Fraud Detection
https://digifors.cs.up.ac.za/issa/2016/Proceedings/Full/paper%2074.pdf

[PDF]Applying the ETL Process to Blockchain Data. Prospect and Findings
https://res.mdpi.com/d_attachment/information/information-11-00204/article_deploy/information-11-00204.pdf

It is basically a hit&miss strategy with them.. They look at the Blockchain history of the source coins and they compare it to common known Bitcoin addresses (exit addresses) from casinos and also mixer services and if it originated from there, they taint it.

People like myself will use mixer services to protect myself and not for criminal reasons and most of my coins will be tainted according to their methods. (You have a right to mix the coins you received to destroy the bread crumb trail to your main hoard, so there is nothing wrong with that)

Just imagine if you bought something online with bitcoins and the owner of that site can trace your Blockchain history back to your main hoard to see how many coins you have. (Easy if all your transactions are linked back to a bitcoin address with a fat balance)  

Blockchain analysis companies have been funded largely by governments (guess why). I saw their tools in action and they are incredibly accurate. You guys should never forget that every public blockchain is basically a time chain where all transactions are linked together. AI and machine learning, given the right inputs, can do crazy shit with data.
They have deep analytics on every blockchain tx ever made and don't forget many exchanges (if not all) do real-time tx monitoring giving your coins scores as the ones you see in that image. They go back and forth, doing many hops, to judge if your coins are clean enough. Then, never forget, under AML requirements they link your blockchain profile to your financial situation: if things do not match you will be asked for the SoF. Quoting below what I wrote elsewhere on the matter

The thing with blockchain analysis is, the more addresses are analyzed, the easier it is to find the source of coins. It's like some kind of puzzle where you have missing pieces.

These addresses are tagged by certain parties, most of them probably being blockchain analysis companies and authorities. One issue I personally see is that they can be wrongfully flagged - it's like receiving a $5 bill from a complete stranger and being accused of being part of some kind of crime proxy because the said bill has been used before you in some kind of crime.

Most people don't know that using previously used addresses in new transactions actually links the present to the past of a Bitcoin owner. That, along with some information such as addresses that belong to a certain company/individual, helps with finding out the source of someone's coins.

This is only possible for any known addresses. So I must say that such analysis are flawed and can't be 100% true! Also it is incorrect to tag all coins coming from casinos as dirty! These are generalization that simply doesn't make sense because not all casinos are illegal. This fungibility crisis is a smart business technique by the mining companies which are fetching them some premium over the actual market price. The less we think about it, the faster it will go away!

Nobody(except the authorities) has the authority to claim what BTC are "dirty".In reality,companies like Coinbase can abuse their users by claiming that clean Bitcoins are dirty and blocking their accounts for no reason(which is illegal and Coinbase must be sued).
Mixers might not provide protection,since most mixers might get banned after a few years,since they are used for mostly illegal activities.Getting "dirty darkweb bitcoins" thru a BTC mixer can be considered money laundering and sooner or later,the authorities will ban mixers...

Pretty much every analytic service is independent, and are mostly worthless and shouldn't worry you -- exchanges and most people wouldn't care about their findings.

Large firms like Chainanalysis and Coinbase have their own analytics and being tagged by them could actually carry consequences, but their methods aren't public. We can only reasonably assume that they follow movement, and are probably a lot more sophisticated (they can probably reasonably guess when coins change hands, etc.) than tools available for the public.