When I read that the FBI had seized $2.3 million in Bitcoin paid to Colonial Pipeline hackers earlier this week, my first thought was: This proves that Bitcoin can't be free from the powers that be, because it rides on rails that they control.
Because as it happens, that's the title of a post I wrote back in 2011, citing the observations of Bill Maurer, who's now Director at the Institute for Money, Technology and Financial Inclusion at UC Irvine, and one of the world's foremost experts on alternative/experimental forms of money and finance.
"Indeed," Bill tells me now, "the Colonial Pipeline case demonstrates that the much-touted anonymity of the Bitcoin blockchain is illusory: given the right analytics and determination, an algorithm can deduce the addresses associated with specific transactions--especially big, highly publicized ones where the amounts transacted, and in what chunks, are known (since presumably Colonial Pipeline told the federal authorities in what pieces they transferred the ransom)."
That's due to the nature of transactions like these, he went on:
"Bitcoin transactions are not like, 'Here's $4M of my total stash of fungible $100M,' but, 'Here's THESE pieces of Bitcoin adding up to $4M' which makes it easier to spot transactional patterns than, say, actual physical cash. In this case it seems the FBI also got the private key(s) associated with some or all of the transactions, which means that they somehow got access, and I'd guess it's either through an informant or just plain sloppiness on the part of the attackers, by, say, having their private key on an accessible device or server somewhere."
Or to put it another way: This shows that Bitcoin transactions are not any more anonymous than real world currency transactions -- especially when the authorities have a very good reason to trace them.
But surely there still are legitimate uses for Bitcoin that don't require anonymity, right? After all -- as every single Bitcoin evangelist in your life has probably told you -- El Salvador just made Bitcoin an official currency in the country.
So does that show Bitcoin can become a means for purchasing goods and services? Maurer believes there's much more (and much less) to that move:
"El Salvador's adoption of Bitcoin has more to do with efforts there and elsewhere in Latin America to attract wealthy techno-libertarian investors than anything about financial inclusion or remittances (which is what the official line has been)," he tells me, and gives me more backstory.
"Concurrent with the declaration that Bitcoin is legal tender, El Salvador's president also laid out the welcome mat for crypto-entrepreneurs willing to invest in the country... for a certain amount in Bitcoin, you get permanent legal residency. Given the high barriers to actually using Bitcoin for anything--no one will accept it in payment, and you need to be pretty tech savvy to buy and send it-- I don't see it becoming a pathway for remittances, like the president has been touting. The real angle here is providing a tax-free, safe haven for the ultrawealthy Bitcoin bros to take it easy and rake in more crypto-millions in the tropics."
That sounds exactly right. Maybe you're skeptical of what Dr. Maurer says, but then, if you believed him in 2011, you would not have been surprised by what the FBI was just able to do.
I'm continually amused at how few people understand FinCEN, and it's role in how they regulate digital currencies of any kind, including the Linden Dollar.
Posted by: Joey1058 | Friday, June 11, 2021 at 12:15 PM