What could be the impact of the distribution of "tainted" Bitcoinica coins?

7

The hacker was distributing them in IRC recently, and sent some to the Bitcoin Faucet. Is this a reliable method for evading the "Bitcoin Police"?

Here's a forum thread discussing the distribution and a pastebin of the IRC conversation. Pasted below is just the beginning of the pastebin content:

<BitcoinicaHacker> Who wants free bitcoins courtesy of bitcoinica?
<grepix> who doesn't!
<BitcoinicaHacker> post your btc addr
<nanotube> i think bitcoinica wants free bitcoins courtesy of bitcoinica
<Phraust> oooh, i'll take some: 18LSrqYfUwt4q52CvSWXkSqNiDMGDADAao
<BitcoinicaHacker> d43282f1ec433cb896ddf7d4a88faa4a202c97ac6e60568eaecfd1df53d82ef6
<Phraust> sweet, many thanks.
<OneMiner> 121VuNzJi7ihM6FTv28oruemfw4fp4rvPZ I'll take a piece of that. :P
<BitcoinicaHacker> f87f87a6e053157140bd509952c999e56344fe4fa90eaf47288bbcdda7689514
<BitcoinicaHacker> 74358a453321026b197549a250c3aa65b60187f8d4ba4578de1b1422eec2937d
<OneMiner> Thank you very much.
<b00bsman> BitcoinicaHacker, wie ist der Kuchen?
<brwyatt> 12KTki1xe5xVoQneEZy2CED8Ep87ifubx7 I'll give it a try.
<brwyatt> He really wasn't kidding. o.O
<BitcoinicaHacker> 8694268cfe0aa51d7ecb3749b8f4bc8ebe7c56cc8e920f1b7b34862f9992e004
<OneMiner> Ya, seems legit.
<grepix> the BTC def showed up, but for all we know this is just a lazy trolling :D
<brwyatt> yeah
<OneMiner> The balance of the account suggests otherwise.

Eric Blank

Posted 2012-05-21T00:09:45.433

Reputation: 71

Not sure how this would be evading. The thief was not exchanging coins or trading, is was a one way transfer. There was no "evading" of anything, it looks like. – Stephen Gornick – 2012-05-21T03:48:37.697

2The suspicion is that his motive is to mix as many of the stolen coins into the Bitcoin economy as possible, so that people cannot assume that Bitcoins traceable to the theft were obtained illegitimately. The people who receive these coins will presumably spend, mix, and deposit them. – David Schwartz – 2012-05-21T06:47:08.700

lol, +1 for "seems legit" – o0'. – 2012-05-22T19:30:48.263

Answers

5

I don't think there's really any need to do this to evade "Bitcoin police". Bitcoins are fungible and one is as good as another. Any attempt to track tainted Bitcoins is, at least in my opinion, doomed to fail.

[Imagine] if the FBI regularly published a list of serial numbers of currency that would no longer be honored. Banks would refuse to accept bills on the list, and soon so would grocery stores and so on. That hundred dollar bill you got from the bank, now sitting in your wallet, could appear on that list at any time because the person who deposited it at the bank right before you withdrew might have stolen it.

Think about what using currency would be like in such a world. Could you even have ATM machines? In fact, it would be the death of cash -- forcing people to use cash only for small amounts of money they could afford to lose. Such "tainting", if it hit the Bitcoin world, would similarly be the death of Bitcoin if it caught on in any significant way. - Tainted coins - Who dictates that a coin is tainted?

This also suggests an interesting way to defeat any attempt to taint Bitcoins, assuming such an attempt wasn't doomed anyway. Just take a chunk of the tainted coins and start transferring them to random, active accounts. The standard client doesn't make it particularly easy to quarantine coins nor does it hold newly-received coins separately from old ones. So when you make your normal payments, you pretty much can't help but spend some of the coins you received unsolicited. Soon lots of innocent users would be spending "tainted" coins and innocent merchants would be redeeming them at exchanges, which have to resell them.

David Schwartz

Posted 2012-05-21T00:09:45.433

Reputation: 46 931

Asked: 2012-05-21T00:09:45.433

Viewed: 308 times

Active: 2012-05-22T00:10:49.367