Now, I'm a long-time Bitcoin skeptic, and indeed my hot take on bitcoin soon after learning about its existence and the way blockchain works was that it was actually some kind of honeypot invented by the NSA or some other three-letter agency to gather intelligence on global crime networks. (This is also my opinion of TOR.)
\n\n\n\nEven if bitcoin were as anonymous and secure as its proponents proclaimed, its very existence combined with the relative inconvenience of using it (relative to, say, credit and debit cards) would mean that people using it would be hanging a lamp on their activities. Why does this person want to buy or sell stuff anonymously? In WWII much of the most valuable signals intelligence came from not from decrypting messages, but simply by analyzing who was sending messages to whom and using what codes. The NSA's warrantless wiretapping was, first and foremost, tracking traffic endpoints and metadata, not the content of conversations.
\n\n\n\nBut bitcoin turns out to be the absolute opposite of untraceable (by design) and anonymous only in the most useless sense of the word. I.e. you can't tell who a bitcoin wallet belongs to unless they actually want to use that money in the real world. And, as digital as we think we are, all the really important stuff we love, desire, and enjoy, is in the real world, whether it's Lamborghinis, delicious meals, or fancy shoes. Even digital goods, like, say, movies, can't be consumed without physical devices. Even if you directly inject the images into your brain, you're going to need wiring, electricity, and somewhere to sit.
\n\n\n\nSo when you try to convert real-world goods or (more likely) fiat currency into bitcoins or vice versa, you're associating the transaction with a unique bitcoin address, and every bit of value that has ever interacted with that address can be traced to its source or destination through time, forever. That's literally the whole point of the blockchain.
\n\n\n\nNow, these links can be obfuscated by merging money and redistributing it, arguably creating some form of plausible deniability (but also leaving a trail somewhere else, because any such obfuscation also involves interaction with the outside world).
\n\n\n\nImagine that I take cash from lots of people along with notes as to where they want the money to go, I then scramble the cash and pay out the amounts based on the notes and then destroy the notes. But unless everyone is sending the same amount of cash, you can pretty much figure out who paid whom. And if one party is sending a whole bunch of cash and another receives a whole bunch, it's really obvious. You can break up big transactions into lots of small transactions and recombine them later, and you can do all of this stuff at scale but… in practice, unless any such obfuscation is used with absolute discipline and in sufficiently large volumes, it turns out to be pretty straightforward to figure out what's really going on using statistical methods and correlating undisciplined transfers with disciplined transfers.
\n\n\n\nIn practice, these techniques just don't work.
\n\n\n\nNot only can bitcoin transactions be traced, but there are tools for doing it quickly, easily, and at scale. There's even discussion in the book of a secret weapon law enforcement currently has that lets them identify the servers holding wallets used for bitcoin transactions (probably because vendors of these tools have inserted their own servers into bitcoin networks and can statistically analyze the sources of bitcoin of transaction notifications).
\n\n\n\nAnyway, I'm not going to spoil the story. It's just great. It reminds me a lot of Hackers: Heroes of the Computer Revolution by Steven Levy in tracking a bunch of disparate parallel efforts that converge and combine, but more than Hackers it reads like the script of a really great technothriller (not very action-packed, more like brilliant but sometimes disagreeable nerds who sometimes scream at each other, maybe along the lines of The Big Short).
\n\n\n\nI will add that, oddly, the book actually makes me a smidge less skeptical about bitcoin et al (personally, I'd prefer a different cryptocurrency like Ethereum that doesn't waste huge amounts of power to do proof of work) in that stripped of its trappings of anonymity there may well be genuine benefits for truly transparent and secure methods of recording and tracing transactions. In such a world anyone could verify that Starbucks sourced its coffee from ethical sources, Nike wasn't using sweatshops, or that Apple wasn't using rare earth metals from conflict zones…
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