Lol why the fuck does Monero get so much attention on these boards? It's anonymous...so the fuck what? Anon coins are last season, no one gives a fuck. Bitcoin's anonymous enough as it is; cops aren't busting people on Silk Road because their bitcoins weren't anon enough. Do you really think being SUPER anonymous is enough to get the masses flocking to XMR?? Give me a fucking break. What a stupid fucking coin for this board to give so much attention to...damn.
I don't use Monero or CryptoNote or anything like that, but that's a pretty ignorant assessment.
Law enforcement and the NSA absolutely have the capability to do blockchain analysis and deanonymize Bitcoin users when they put effort into it. Combined with the capability to tie Bitcoin addresses with exchanges or services like Coinbase, they very well can tie Bitcoins to your real identity if you use an exchange of some kind and don't use a mixer. This is not just theory. Read information published by blockchain analysts.
This does require other factors, like the cooperation of exchanges, or the NSA simply hacking or tapping the exchanges (and considering the Snowden leaks, that's not even remotely far fetched). In general though, if you are using Bitcoins to fund illegal shit, you can get caught purely through analysis of its blockchain.
Alternative protocols like Zerocoin and CryptoNote, assuming their implementation is perfect (and no implementation ever is), will in fact prevent such analyses and give a much stronger guarantee of anonymity.
Obviously if you don't care that the government can theoretically trace funds you send back to you (in the same way you don't care they can trace USD you send through Bank of America or what have you), then there's no reason to care about an anonymous cryptocurrency. But if you do care, then there is real value in using one. Same goes if you don't want people checking your public address to see how much of a currency you've sent or received.
Good post. I do however think too much attention is given to the anonymity of a virtual currency. I think you said it perfectly by using the word 'theoretically' trace funds. But I think even with just Bitcoin, it wouldn't be too hard to create a wild goose chase of distributed payments that leaves the Feds nowhere. They don't have the resources for this. It's only the Silk Roads, Big players, etc, where they will invest months or years of time, and millions of dollars tracking down the money trail.
But regarding Monero, I'm bullish actually. Out of all the ALTs it has a crazy active community. Stable price, is still mineable. I see XMR going nowhere but up on a 3-6 month outlook.
Strato
Creating said wild goose chase is easy with (reliable) mixers.
The advantage of a fully anonymous cryptocurrency is that you can be lazy and not go through a mixer service, and still get automatic guarantees of privacy. Also, mixers can potentially steal all your coins, or log all mixing, or otherwise act in a malicious fashion.
If you use Bitcoin or a Bitcoin derived cryptocurrency and
don't ever use a mixer or similar third party service, it is not that hard to trace your coins. It's not out of the question that a few smart NSA analysts could create a tool or bot that automatically follows unmixed BTC which is then automatically cross-referenced against Coinbase's or Bitstamp's account records; that way it could generate a database of a large number of Bitcoin users, not just targeted towards darknet market vendors. There are possible theoretical attacks against coins that have gone through mixers, depending on how many addresses are in the mixing pool at once and if you can exclude some of them, but it is definitely a lot harder and would be difficult to automate.
Tracing of unmixed coins, though, really is not theoretical and is being done already by open source researchers who have far less resources at their disposal. Believe it or not, deanonymization attacks against Tor are much more theoretical and more difficult to carry out compared to Bitcoin blockchain analysis.
As for how easily they can tie that to an identity, it depends if they deal with companies like Coinbase on a case-by-case basis ("here's a list of 15 BTC addresses, give us the customer information tied to all of these if you have them") or if they actually have a full view into their database.
Either way, there's a lot of potential for investigation by law enforcement and intelligence agencies, and use of an anonymous currency basically destroys all of that potential.
Interesting. Well I've bought BTC on coinbase, but merely as an investment to hold, or to buy miners which required payment in BTC.
I'm only asking out of curiosity. So let's say someone mines an AltCoin... Let's say XMR, or even one less anonymous for the sake of my interest in this. They then take the Altcoins, send them to Bittrex, and sell for BTC. They then send them out to a paper wallet. Is that trackable? Factor the mining rigs were all on a VPN, a solid VPN. And all transactions were also behind a VPN and TOR.
Or would this erase the tracks... Someone buys BTC on Coinbase. Trackable yes. They then send the BTC to MiningRigRentals, or BetaRigs, where they rent by the hour high end mining farms - mining Litecoin. They point the rented rigs to a pool that the user setup/created account behind a VPN and TOR. They then send those mined Litecoins to Poloniex. And trade them to XC Coin. Which they send to a wallet on a safe computer. Which they then send to Mintpal, and convert to BTC. Whew!!!
My point or question, is what does the above do or not do to erase tracks. Again I'm simply curious, because to me the above scenarios would seem very hard to trace.
Thanks for your input, you seem to be very up on all of this... Interesting stuff.
Strato
I work in information/network security and I deal with the same kinds of things and cases the NSA or FBI might deal with regularly. I don't really have any particular knowledge of Bitcoin that any of you don't, I just know how correlation, investigative techniques, and forensic traces can be used to identify and deanonymize people.
The more "black box" middlemen (coins go in, coins go out, outsiders don't know what happens in between; this in contrast to the blockchain, which is transparent) you add to the chain, obviously the harder things will be to trace. NSA/FBI may have insight into Coinbase and Mintpal, but perhaps not the other services, for example. If they are unable to gain access to even just one of those services, then the trail pretty much falls flat unless the target makes a serious mistake. But of course, the downside is that the more trust you place into third parties, the higher the risk one of those third parties might get hacked or may scam you. If you're running a hypothetical illegal enterprise, you probably don't want to trust that many third parties with your coins or your mining boxes.
The short of it is that laundering like you describe will indeed make analysis much, much harder, but not necessarily impossible if enough resources were devoted to it. In your particular case, a dedicated task force would probably have to be after a specific target for them to go through all the steps necessary that would lead to that person. Of course, in reality, odds are in this hypothetical scenario they will have some other information to go on that's not even Bitcoin related and will just go for the weakest link instead (an email address, a forum account, etc.). There are many more ways to track someone than just "following the money".
An anonymous cryptocurrency simply lets you be lazy, and doesn't require you to trust any third party to retain your anonymity or do some sort of mixing step before receiving currency to your final destination wallet. You very well can be anonymous with Bitcoin, but it's much easier to do so with an anonymous cryptocurrency.
