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10
Some services, such as bitcoinlaundry.com, claim that they can launder your bitcoins.
Since all bitcoin transactions are publicly logged, how is this done? Wouldn't it be possible to trace back the transactions and find out the initial address?
24
Say I received 10 bitcoins on a Bitcoin address I publicly advertise for donations. Anyone looking at the blockchain can put that address in a search engine and find me. Now say I want to use those 10 bitcoins to buy drugs. If the drug dealer's bitcoins are traced, they'll point right back to me.
Now I can create a lot of accounts if I want. And I can pass the 10 bitcoins I received through those accounts and then to the drug dealer. But likely because those accounts aren't used anywhere else, the trail would still lead right from the drug dealer to me.
Now suppose I put my 10 bitcoins in an account created just for me by a Bitcoin laundering service. And you and Fred do the same thing. Then the service sends my coins to Fred and your coins to me. Then I spend the coins I got on drugs. Now the trail looks exactly the same as in the non-laundering example, except the trail leads straight to you instead of me -- a pretty good deal for me, not so much for you.
8
If you purchase a bunch of Bitcoins with dirty money, and then sell the Bitcoins for clean money - you have essentially laundered your money with Bitcoins. You can then claim that your income came from Bitcoin mining, and it would be difficult to investigate.
It is exceedingly difficult to anonymize your Bitcoin transactions. I think the appeal is that it adds an extra hoop for the IRS to jump through.
Not only is it possible and proven that people can trace transaction origins, but it will likely be easier to do in the future if the Bitcoin core remains unchanged in this respect.
Bitcoin anonymity is a fallacy.
3That doesn't mean Bitcoin cannot be used to effectively launder money. It is probably more effective and efficient than traditional methods. – Alex Waters – 2011-08-30T22:11:04.667
1 @AlexWaters, *"Bitcoin anonymity is a fallacy"? Then why is BTER Hacker still not caught?
1Likely because either A) The people investigating aren't using the latest methods to triangulate users or B) the hacker used additional measures (such as tor) which are outside the scope of what comes in the bitcoin package. – Alex Waters – 2016-02-22T16:53:34.947
Carl Force and Shaun Bridges thought the same way you did… They are now in jail. – user2284570 – 2018-07-11T20:34:51.560
@user2284570 just to clarify: I am in no way endorsing money laundering.
This website is for technical discussions generally of a scientific nature. Your reasoning would imply that I support some kind of ideology; when I am just describing my understanding of it.
Having an interest in WWII does not turn a historian into a Nazi. – Alex Waters – 2018-11-05T21:07:58.160
What I mean is when they tried your answer they ended up getting caught. So the way you’re describing isn’t a real way to launder Bitcoins. – user2284570 – 2018-11-11T16:33:47.300
I'm just describing a method of money laundering, I'm certainly not saying it is effective or a good idea.
Similarly, I could describe how people sell controlled substances -- but that doesn't mean that I'm prescribing a way for people to sell controlled substances. – Alex Waters – 2018-12-17T20:38:25.403
6
It will always be possible to trace a transaction back to its initial wallet. This is a design choice by the Bitcoin team, and could have been avoided (see the answers to this question for more). However, there could be some legal ways of avoiding this, because if they money goes through several wallets, even if you can't hide the wallets, you could deny ownership of the earlier ones, and argue that this was a random gift somebody gave to you.
9It's also possible to perform "offline" transactions such as exchanging BitBills or otherwise exchanging keypairs rather than coins. Since these transactions do not appear on the network until the BitBill (or other device) is "redeemed" by sending coins to a new address, they are no more traceable than cash transactions. Even purchasing a bitbill with one wallet and then redeeming it on another adds plausible deniability. – David Perry – 2011-08-30T22:13:45.650
@David that is a good point, I was just trying to separate the technical part of tracing transactions from wallet to wallet, with the legal part of trace-ability. – Artem Kaznatcheev – 2011-08-30T22:17:19.593
5
Simply transferring bitcoins into an exchange or large private Bitcoin service has the net effect of breaking the trail of Bitcoin addresses. If your real identity is associated with an address you can send your bitcoins to an exchange and then send them back to yourself at a new address. It will appear that you cashed in the bitcoins at your first address, because you sent them to a known currency exchange address. The Bitcoin trail of the coins after that are clearly not associated with you. As long as you don't associate your true identity with your second address, it is indistinguishable from anyone who's bought bitcoins on that exchange even if you got some of your own coins back.
However, it's important to note that even this would probably not thwart a dedicated legal investigation. It just makes it more difficult to jump back and forth between the money trails in different currencies. Law enforcement could get a warent to search the records of the exchange which would quickly reveal the transaction. This would work just as well for a Bitcoin laundering service. If the service didn't retain your identity and a record of the transactions then they would be guilty of money laundering laws in most countries, so those services are highly motivated to maintain accurate records.
3Interesting thought: money laundering laws apply to services that actually handle money, but Bitcoin is not legally considered "money" anywhere yet. Governments probably do not want to legitimise Bitcoin by calling it money but will still want to apply AML laws. – Neil Bartlett – 2011-09-11T01:04:41.383
1@Joshua, Citation needed for "If the service didn't retain your identity and a record of the transactions then they would be guilty of money laundering laws". As it is, it is completely false. There's a lot of bitcoin washers out there and none of them asks for your identity, even those that don't run on .onion addresses. – Pacerier – 2016-02-21T18:33:10.317
1 @Pacerier. By whom is citation needed? It is well documented AML law. You might try googling first if you are in need of citations. You may also try here: https://en.wikipedia.org/wiki/Money_laundering, and https://en.wikipedia.org/wiki/Know_your_customer.
3
It's funny, but Bitcoin laundering services are most likley used by people wishing to do illegal activities.
So all the Bitcoin transactions on that laundering site are probably illegal and are criminal. Even though Fred would be caught for buying marijuana for Bob, whilst Bob would be caught for buying coke for Fred.
So all the police have to do is target everyone on the Bitcoin laundering website instead of one person. Then everyone will be caught paying for someone else's criminal transactions.
Unless the Bitcoin laundering site also had a twin sister site that did legal exchanges, and they mixed both of them up together.
It seems very much like normal money laundering services that banks offer.
The key is not having your real identity connected to any of the transactions, and then when exchanging your bitcoins for real money, using a fake ID to do so.
1 There's totally legit reasons for anonymity. Indeed, the world would be a better place when people can expect privacy with how they spend their money. Aside from the humorous example by bitlaundry, some legit reasons for anonymity: 1) a normal company who doesn't want people knowing how much salary they are paying their employees, or how much money they are paying their suppliers, and etc. 2) People donating to certain political/religious parties or nonprofit organizations may want to do it anonymously.
13) People who like their health records to be anonymous would also want to ensure that payment to healthcare services are anonymous, as it can be used to deduce their health problems. 4) Just like health privacy, people can expect anonymity for other goods/services that they purchase. Say you purchase a shoe, or a house, and you don't want people to know how much you paid for those items. – Pacerier – 2016-02-21T19:24:43.117
15) People hosting political sites which airs their political views may not want to be associated with their political views. Some indeed may have real need to be anonymous. 6) David Shwartz above has listed another example: anyone asking for donations are exposing themselves to black money. Instead of wasting time and money dealing with the FBI (clarifying with them that you are a legit person), it can be much cheaper to just spend x% of the donation on washing. – Pacerier – 2016-02-21T19:24:45.460
2
Bitcoin exposes many flaws in the current financial system, as it was designed to be an ideal. Yes all transaction are always visible after laundering - however the problem of matching entry and exit points is "computationally irreducible", to borrow a phrase from Stephen Wolfram, so the efforts of KYC and AML are kind of hopeless once funds go into any of the the blockchain systems and get pooled.
More funds in private hands would be a good thing. A notable reason why we labor under a top heavy world is because of ever growing state plunder by an entity that is answerable to nobody :
"Warfare, Welfare, and the State by Robert Higgs" http://www.youtube.com/watch?v=b7SA_5WeGZ0
Sarah
1Although the first paragraph of your answer is good, the latter section is irrelevant to the question itself. – None – 2013-06-24T14:28:32.390
1
It is actually much easier to launder Bitcoins. Just transfer your Bitcoins to an exchange site like cryptsy or btc-e, then exchange your Bitcoins into another currency like Litecoin for example. Now transfer these coins to another exchange site and exchange the coins back into Bitcoin. I think no one can find out the inital source now :)
1Unless they are able to get your account information for both sites. – Murch – 2014-01-06T03:36:30.273
I think that this actually does work, however it'll require time washing for the anonymity to be strong. Also, either one of Exchange1 or Exchange2 must cooperate by not keeping logs that associate the same trader account with both the bitcoin address and litecoin address.
@Murch, He's saying to create a new account on the exchanges and access them only with Tor. – Pacerier – 2016-02-21T19:12:51.463
@Pacerier: In fact, he does not mention Tor. – Murch – 2016-02-22T08:19:43.563
1
You get bitcoins from 2 or more sources and give their bitcoins to each other. Now expand that and do it many times and you can launder bitcoins.
0
There is a website called BitCoinCache.com that lets you launder bitcoins . I think they only charge like a .9 % commission rate too.
The site seems to be down....... – Pacerier – 2014-06-02T09:27:14.697
"fine me"? Do you mean "find me"? – Peter Mortensen – 2014-01-04T17:01:16.943
2@DavidSchwartz, From your answer, doesn't that mean that all of the people involved with the launder service are now "blackmarked" and subject to legal action even though some of them are completely innocent? – Pacerier – 2014-06-02T09:18:31.620
3@Pacerier Precisely, which makes the black marks provably meaningless. If you can cast suspicion on lots and lots of people, most of whom are likely innocent, that suspicion becomes very, very weak. – David Schwartz – 2014-06-02T16:58:34.647
6but more likely that you and Fred and 50 other people will receive small amounts of each others coins' plus freshly mined coins spread out over multiple transactions. It is still possible to trace all those links, but more difficult, with multiple layers of plausible deniability. – lemonginger – 2011-09-01T14:58:34.093
8If you have a good mix of people, you can create a confusing mess. The downside is that many "bad trails" will lead to you. The upside is that hopefully it will be clear that they're trying to read through a mess and thus not seeing anything useful. – David Schwartz – 2011-09-01T15:09:23.007
@DavidSchwartz, Then your answer should include that info it... as it stands, the answer looks like a severely incomplete story. Also the time delay is an important mention.
– Pacerier – 2016-02-21T19:14:35.270