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Do NOT Use Bitcoin Assuming It Is Anonymous

2018 January 27
by Ian Welsh

Blockchain is a fundamentally totalitarian technology. It keeps track of every transaction ever made. Some crypto-currencies are better than others, but Bitcoin isn’t particularly anonymous.

Researchers at Qatar University and the country’s Hamad Bin Khalifa University earlier this week published findings that show just how easy it may be to dredge up evidence of years-old bitcoin transactions when spenders didn’t carefully launder their payments. In well over 100 cases, they could connect someone’s bitcoin payment on a dark web site to that person’s public account. In more than 20 instances, they say, they could easily link those public accounts to transactions specifically on the Silk Road, finding even some purchasers’ specific names and locations.

The researchers point out that they used only easily spotted addresses and simple matching techniques. They didn’t exploit, for instance, methods that other researchers have proposed for making less obvious connections between bitcoin addresses that identify “clusters” of addresses associated with dark web black markets. Nor could they use the means available to law enforcement to compel online services like the popular bitcoin wallet company Coinbase to cough up secret bitcoin addresses. “Our analysis shows a lower bound of what can be found,” Boshmaf says. More well-resourced and motivated hunters could potentially trace even more would-be anonymous bitcoin spenders, even years later.

The most anonymous technology for making untraceable purchases is known as “cash,’ which is why multiple countries are moving to phase it out (India being the largest), making it difficult, in particular, to make large purchases. Even places like the US and Canada, with their 10K reporting limit, haven’t raised that limit in decades, while inflation has made 10k a smaller and smaller amount of money.

Blockchains are far easier to use for totalitarian purposes than for non-totalitarian purposes. If you intend to use them for anonymity you MUST have done the necessary research into how to do so.

In general, using the internet for anything you want to remain private is dicey. The internet is not set up for it, and most powerful private and public actors in the world don’t want you to have any privacy. Understand this in your bones: What you do online is tracked, it is hard to make it anonymous, and it is often stored for long periods, so even if they can’t track it today, or choose not to, if you become of interest or techniques change, everything you’ve done online, now for decades, may turn into an open book.

This is becoming true offline as well, with the rise of surveillance cameras, often equipped with audio and permanent storage, combined with biometrics and pattern matching. The new AIs, while they aren’t going sentient, are extremely good at this sort of activity.

Still, offline is a harder problem, cash transfers are easier to conceal and harder to track, if you’re smart.

Know this, understand this, and act on this politically. Anyone who wants to remove cash is the enemy of anyone who values freedom. Anyone who wants blanket surveillance is the enemy of freedom.

There are no exceptions to this. This is law, natural law. Learn it in your bones, and use it to recognize the actual enemies of freedom.

Align yourself as you choose, but understand that the big killing and oppression is generally done by large actors, not by lone predators from whom government promises to protect you.

Government is a great slave. But as a master, it is a terror. If you don’t control your government, someone else will. And right now, someone else does.


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32 Responses leave one →
  1. Lemonhead permalink
    January 27, 2018

    Every Ian bitcoin post preceded a great run in price. You sir have made me a lot of money, and for that I thank you!

  2. Ian Welsh permalink*
    January 28, 2018

    Eh, I own some bitcoin. So I hope you are right, and you know how to thank me!

  3. realitychecker permalink
    January 28, 2018

    Very generous of you, Lemonhead. Ian certainly deserves his cut.

    What % do you think would be appropriate?

  4. Herman permalink
    January 28, 2018

    Thanks Ian, this needs to be said. Bitcoin is popular in the so-called “alt-community” because many members of that community are tech savvy and spend a lot of time online. But people need to remember that no matter how tech savvy you think you are the government is probably paying someone who is likely as good or better to track you online.

    Even with the explosion of drones and surveillance cameras and other surveillance tech you still have more freedom in the real world hence the superiority of physical cash. Call me a dinosaur but I see the war on cash as one of today’s biggest issues. If you care about your freedom you must oppose attempts to do away with physical cash.

    Understand that the attack on cash, like the attack on most liberties, will be made using arguments that sound sensible. The elites will say that eliminating cash will reduce crime, especially drug dealing and money laundering. They will say that it will be more convenient for consumers. They will try to appeal to left-wingers by saying that it will make it easier to tax the rich. They will appeal to right-wingers by saying that eliminating cash will allow us to reduce government bureaucracy. Finally, there will be a major PR campaign by corporations and government entities to make cash seem less “cool,” something for old people. Expect more commercials with happy, hip young people using their cards to pay for everything.

  5. different clue permalink
    January 28, 2018

    For people who aren’t moved by the Freedom argument for cash, perhaps Class War-Class Revenge arguments will work.

    I buy things with cash from non-chain independently-owned places of bussiness. The Lords of Card Credit charge every merchant who accepts Card Credit a 2% or so “merchant swipe fee” right off the top of whatever price is charged onto the Card. Since a lot of little single-spot bussinesses eke out a few-percent profit to begin with, paying by Card can reduce their profit on your purchase by 50% or so. Meaning also that if you pay cash, you just doubled the miserable little survival profit they made on your transaction.

    The more people who pay cash, the more money and power can remain with the merchants who are paid in that cash, and the more money and power is kept away from the Lords of Card Credit.

    Every dollar is a bullet on the field of economic combat. Don’t you want the small merchants to have more bullets, and the Lords of Credit to have fewer bullets?

  6. Mojave Wolf permalink
    January 28, 2018

    As a (very) small business owner, I wish to applaud Different Clue’s additional rationale for cash, though I certainly agree with the anti-surveillance freedom argument as well.

  7. Rich permalink
    January 28, 2018

    India’s move from cash is the Big Deal because their action signaled the first substantially disruption to “exchange currency psychology” since 1971 when the dollar went fiat. Fiat and speculative, both terms reflect all the same impact on human economic behavior as the end result shifts individual responses in a particular direction. Perhaps the bigger question should be who is positioning Bitcoin to become “the gold standard” for all cryptocurrency basis as most national currencies backed by gold reserves before 1971? Perhaps the battle has just been joined on this financial field of battle?

  8. Ian Welsh permalink*
    January 28, 2018

    I should note that one of my best friends helped launch Ethereum, and another worked for the bitcoin foundation in the early years. Both are now involved in ICO startups (not scam ones, as best I can tell.)

    I don’t have a lot of crypto-currency (about .2 btc + a bit of other stuff), but it’s generally in my interest for the sphere to succeed, since my friends doing well is good for me and I care about my friends.

    So when I criticize it, it’s against interest, not for it.

  9. January 28, 2018

    Basically, the point is, a lot of ideological Bitcoin boosters hate human politics and wanted to use a deflationary system to entice sufficient numbers of people to adopt a system designed to have certain political decisions encoded in advance. Some of them got rich doing this, but Bitcoin is still not a currency. You may not believe in politics, but politics believes in you!

  10. Dizzily permalink
    January 28, 2018

    Ian, I’ve been wondering if you could articulate how Vinay’s views on the blockchain differ from yours regarding its use for totalitarianism. Given how he is spending his time, does he believe the opposite to you in this regard?

  11. Ian Welsh permalink*
    January 29, 2018

    I actually haven’t discussed it in detail w/Vinay, but I know he is aware of the potential. Vinay is less concerned with the authoritarian possibilities, however, because his focus is human survival. Having given up on the possibility of using government/NGOs to do the work necessary, Vinay has decided that it is necessary get rich so he has the ability to at least do some of the work himself.

    (Facebook is the best place to follow Vinay.)

  12. Nick permalink
    January 29, 2018

    I agree that cryptocurrency has a high probability of aiding authoritarianism and that most bitcoin transactions are traceable also agree that a war on cash is a war on freedom…. That said if you get up to speed on crypto you can interact with high probability of anonymity, at present if using bitcoin it involves some extensive measures such as tumbling your coin then rolling your own private key by hand and generating public hash offline on non spectre infected computer… Whether such measures can be automated and made consumer friendly and whether those measures will be tolerated by authorities without said network being ripped out node by node remains is another subject entirely. personally I don’t know enough to see what way the tech will evolve other than to see that technically both routes are a possibility.

  13. StewartM permalink
    January 29, 2018

    Have to quibble with DC and Mandos here. I acknowledge what they are saying about giving the big bad boys money with each swipe, but I’m not going back willingly to a world where I have to carry cash. It’s not only inconvenient, but dangerous. I remember traveling with it, and having to divide the cash up and hiding it in various places both on me and not-on-me so that I was robbed or suffered some other calamity, I wouldn’t be penniless and with no way whatsoever to recover my loss.

    And this was within the US, not some faraway country. Going back to cash is like outlawing cryptography; the big boys still had their ciphers but you didn’t. The big boys in the cash-only world still could move around cash securely but you couldn’t.

    I draw an analogy with smartphones. Yes, I gripe about what smartphones–locked-down, user rights-only, proprietary hardware and software, are doing to our computing. But you’re not going to get people to abandon smartphones. The best you can achieve is to regulate them to open up the software and hardware. Similarly, you have to regulate credit cards and make it less of a free ride for the money sharks (who not only charge the merchants a fee, but push the risk for theft onto them as well). If the credit cards vendors had to pay for losses due to credit card theft by themselves they’d be a lot more security-conscious than what they are now.

  14. Chiron permalink
    January 29, 2018

    Robert just died, I no other American journalist did more to combat the empire propaganda machine.

  15. Fred permalink
    January 29, 2018

    I don’t agree with Ian all the time, but today he’s “right on the money”.

  16. nihil obstet permalink
    January 29, 2018

    On credit card fees — as we need post office banking, we need the post office banks to provide credit/debit card services as nearly free as possible. Government took over the issue of “banknotes”, aka currency, without charging us to print bills or mint money. They should provide payment options as well as part of enabling commerce. This is especially true because so much government assistance is provided through cards, and the banks have been ripping the poor off in ways that are startling even for a kleptocracy.

    As seductive as the notion of invisibility to government is, I don’t believe it’s possible enough to insure freedom. We have to control the government rather than trying to work around its tentacles.

  17. different clue permalink
    January 30, 2018

    @StewartM,

    I live in what I perceive to be a reasonably safe area. The various places I want to go to are within bus, bike or walking distance . . . including the credit union I visit semi-frequently to withdraw smallish amounts of cash for daily buying of this or that. I also use checks and/or credit cards when appropriate. And on the rare occasions when I travel longer, I travel with fairly little cash.

    So I am not a cash-only purist. I am just lifting a finger here and there where/when I reasonably can to spend cash in the independent stand-alone places which need the cash support. That way I can support what needs supporting and withhold some support from what is too much supported already.

    You are of course free to live in the cashless-level world you choose to live in. I will continue defending myself as best as I routinely feasibly can against the Credit world’s effort to destroy the some-cash/some-freedom/ some-anonymity world I still like to live in.

    This is a little off the point Ian Welsh is making, which is that if you use cryptocurrency, as is your perfect right, don’t think your transactions will be anonymous. They will not be. Cash is more anonymous than any other impersonal medium of exchange there is. So of course the omni-surveillers wish to exterminate it.

  18. Billikin permalink
    January 30, 2018

    It is true that Bitcoin is fiat masquerading as gold. It is not backed by anything. It will almost surely go the way of the Continental Dollar.

    Not so minor correction. The year for going off the gold standard was not 1971, but 1931, in the wake of the Great Depression. William Jennings Bryan was right about its oppressive effects. The US and Germany went off it in 1933. France waited until 1937 and suffered as a result.

  19. Billikin permalink
    January 30, 2018

    Without going into the international politics of 1971, it was Nixon, at the urging of Milton Friedman, who stopped redeeming dollars for gold at a fixed price.

  20. January 30, 2018

    I find the “use cash to save retailers profits” arguments nonsense. If you are running a retail business and your mark up can’t take a 2% hit find another business. The independent retailers I use typically offer some form of discounts for cash and offer loyalty discounts to regulars in various forms. The companies that seem to want to care about the 2% are the aggressive multinationals like Costco and other large retailers.

    Many small retailers and businesses are terrible and managing cash means managing a float so you have change. This might mean a farmers market installs a change machine or works with the local banks so the on site ATM gives out some 5’s and 10’s. As far as I can tell this smells like work, and many small retailers seem to have an aversion to this. Easier to bitch about VISA fees when your bank machine dispenses 50’s and you have no change.

    The other question for you Ian is for most of us law abiding citizens, who cares? Why do you care that I bought a small loaf of rye bread yesterday and a large loaf of white 3 days ago? Please explain the evils of a cashless society? Cashless and totalitarianism do not necessarily go together.

  21. Ian Welsh permalink*
    January 30, 2018

    I consider, and am not alone, the 1971 going off a currency backed by gold to be going off the gold standard.

    https://www.richmondfed.org/faqs/gold_silver

    No, when the United States stopped selling gold to foreign official holders of dollars at the rate of $35 an ounce in 1971, it brought the gold exchange standard to an end. In 1973, the United States officially ended its adherence to the gold standard. Many other industrialized nations also switched from a system of fixed exchange rates to a system of floating rates. In August 1974, President Ford repealed the prohibition on the public’s owning gold or engaging in gold transactions. Today, no country bans private ownership of gold.

    A1 — well, it’s good that you are the sort of person who says “I’m not doing anything wrong so I don’t mind being tracked.” But that argument is such a canard that if you need it debunked I refer you to a Google search. 1984 ho!

  22. different clue permalink
    January 30, 2018

    @A1,

    You are free to dismiss my argument for cash purchasing from small and tiny retailers to be nonsense. And I am free to dismiss your argument. And I do. I don’t care what you think of my argument and I don’t care what you think of me.

    If small and tiny retailers consider my argument to be a good one from their own selfish survival perspective, then I feel validated by that opinion on their part. Because they are in a position to actually have an opinion worth having.

  23. Billikin permalink
    January 30, 2018

    After WWII nations did not return to the gold standard such as they had before the Great Depression. In the aftermath of the Crash of 29 ships carried gold across the ocean to keep up with international payments between governments on the gold standard. After WWII the US Dollar became the world’s “reserve” currency, and only the US went on the gold standard while nations maintained fixed exchange rates by default, with the possibility of alteration. Nixon also changed the US exchange rate. The post WWII setup was more flexible than the gold standard of post WWI.

    Anyway, what Rich said, that I disagreed with, was that “most national currencies {were} backed by gold reserves before 1971.” That was true before 1931, not 1971.

    And as far as Bitcoin goes, it is only fool’s gold.

  24. Rich permalink
    January 30, 2018

    Gold is also fools gold unless a group of humans ascribe value to it notwithstanding its relative scarcity in the cosmos.

  25. Ian Welsh permalink*
    January 31, 2018

    I know a TON of small businesses here in Toronto that either only take cash, or limite debit/credit to larger purchases.

    Perhaps they know their own business well enough to know their self interest.

  26. V. Arnold permalink
    January 31, 2018

    Gold is also fools gold unless a group of humans ascribe value to it notwithstanding its relative scarcity in the cosmos.

    You’re ignorane is showing. Gold has been a store of value for more than 5,000 years.
    You’ve a lot to learn; I’d suggestDavid Graebers; Debt; the first 5,000 years as a place to start.

  27. V. Arnold permalink
    January 31, 2018

    Ignorance; my bad.

  28. Mongo permalink
    January 31, 2018

    One thing about Blockchain technology: it fits neatly into the proliferation and development of specific kinds of political systems. Take a look at Vinjay Gupta’s article in Harvard Business Review, specifically the last third of it:

    https://hbr.org/2017/02/a-brief-history-of-blockchain

  29. Billikin permalink
    January 31, 2018

    Rich: “Gold is also fools gold unless a group of humans ascribe value to it notwithstanding its relative scarcity in the cosmos.”

    V. Arnold: “Gold has been a store of value for more than 5,000 years.”

    Even before gold was monetized, it was highly valued. IIRC, there is a letter back hen from one of the kings in what is now called the Middle East to an Egyptian pharaoh saying something like, “Uncle, please send me some gold. You have so much.”

  30. Rich permalink
    January 31, 2018

    Thanks Daddy.

  31. Rich permalink
    January 31, 2018

    You’re describing another form of hysteria or brainwashing.
    Where on Earth is gold formed, V.arnold? No fair googling, buddy.

  32. Billikin permalink
    February 7, 2018

    Bitcoin: How low can you go? 😉

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