New way to launder Bitcoin

500px-Bitcoin.svgBitcoin has been trying to take a firm grasp in the global market as one of the first and definitely most popular virtual currencies. With no single entity controlling Bitcoin, it is recognized as a decentralized currency. One of the main appeals of the currency is its potential for anonymous transactions. Wallets that hold Bitcoins are just numbers.

Bitcoins are not entirely anonymous though. All transactions are publicly logged so if somebody tracks an illegal purchase, the transaction can be traced to the public address of a Bitcoin wallet. While the wallet address is only a number, it can be looked up to search for other sensitive information people around on the Internet.

Law enforcement has the currency on their radar and wants to regulate it. Last year in February, the FBI seized 144,000 Bitcoins (or $63 million as of press time) from a virtual marketplace called Silk Road, allegedly run by Ross William Ulbricht (also known as the Dread Pirate Roberts).

Silk Road is a website that resides in the deep Internet obfuscated by the Tor network, a system designed to mask people’s IP addresses through multi-layered encryption. By doing this, people spying have trouble finding out who Tor users are communicating with and what they are

talking about. People use the Silk Road website on the Tor network as an Internet black market. A wide variety of products are available, ranging from legal mundane products like clothing and posters to seriously illegal products like Schedule I drugs and hacking software/hardware.

While the website’s design seems scary, the people behind them are capable of human error. Since suspicious targets are visible and public transactions are available to track over the Internet, it is reasonably easy to connect the dots of a purchase such as a Bitcoin transaction of a bank withdrawal made by the same person. The original Silk Road might have lasted a lot longer if Dread Pirate Roberts was more careful with releasing breadcrumbs of sensitive information. Ulbricht was arrested because he used the same username on Stack Overflow, a website for asking programming questions.

To deal with the inherent security flaws with Bitcoins and law enforcement, a group of coders with radical political ideals named unSystem came up with a project last year called Dark Wallet. To deal with Bitcoin’s system of public transactions to prevent fraud, Dark Wallet obscures transactions to prevent identification, functioning as money laundering software.

While freely available for downloading online, every transaction done with the software is paired with another random user’s transaction as one Bitcoin

transfer. Furthermore, the single transfer is then encrypted before leaving to the desired destinations. People also interested in confusing eavesdroppers can also use a feature called CoinJoin with their Bitcoins that uses the same transaction blending to just send funds to another account the user owns rather than making a payment.

By using this function continuously with legitimate transactions, the likelihood of identifying an illegal purchase drops dramatically. The software is still in its early stages, though; soon it might start using Tor integration, the same network that is used to access hidden websites like Silk Road, to use multi-layered encryption on top of this layered encryption.

While the details of the Bitcoin are flawed and unstable, the concept is important. The currency is meant to let people spend money without government surveillance. The United States was founded on independence and privacy. Thus, anything people can do to further these ideals should be embraced, not scrutinized by enforcement. Even though Dark Wallet is targeted to users as money laundering software, the necessity for technology like this and future versions is necessary for oppressive networking environments such as a government censoring its citizens at a time of crisis.

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