What is bitcoin?
Created in 2009, Bitcoin (BTC) is a digital currency operating through peer-to-peer technology. Unlike the traditional currencies we know, it does not rely on bank or government operations, but instead, on cryptography.
To those who are interested in the convenience of transacting through the internet, BTC is a big help since it was designed with the ambition of being an alternative to the existing remittance systems we currently have. Even better, it is free from central control but functions as fine as traditional currencies.
Problems with BTC
More than a decade passed, and bitcoin has now become one of the top financial assets the public considers. However, there have been multiple criticisms with regard to the crypto coin. These include the virtual currency’s regulations, safety, and anonymity.
In this article, our goal is to focus on the issue of BTC being referred to as “anonymous”. Meaning, can criminals use it for their advantage?
Well, let us tell you right now. The answer is no, they are not anonymous. The law can trace bitcoin and illegal activities can’t be covered.
Sample Case
There are many cases involving bitcoin. There are hacking situations, fraudulent acts, and illegal use of bitcoins in private institutions, including on and offline transactions. Let us focus on one of the top cases in the field.
In the Republic of Korea (ROK), there is a man named Jong Woo Son. He runs the largest child porn site ever caught by the Federal Bureau of Investigation, “Welcome to Video”. The law enforcers raided Son’s house and saw 250000 tape recordings as evidence. He was then declared guilty in 2019 and will also be indicted in the United States should he flee into the country.
How did the Federal know about this case in the first place? Well, because of bitcoin. With its blockchain, the criminal had profits coming from as much as one million bitcoin locations. Take note that each virtual address or location is unique. Now, since the blockchain is transparent to each user, the enforcers bought and sent the payment to the porn site’s crypto wallet.
They, then, traced to which crypto trading platform it was transferred to and for the record, it was Coinbase. On this platform, Mr. Son was forced to comply with anti-money laundering control by providing his self-identification credentials.
Taking off the Disguise
We mentioned earlier that bitcoin is not anonymous. Instead, it is something that rhymes with said word – pseudonymous. What is a pseudonym? It refers to someone or something that uses a fake or fictitious name, a disguise we may say.
This gave an upper hand to the authorities in tracing bitcoin. How? It is via the two different key codes a single BTC has – public and private.
For a background, public code refers to crypto being identified on a blockchain. The latter refers to those who have the necessity to transfer crypto from one virtual pocket to a second one.
This 2-key code structure made the online payment process possible for every digital coin by allowing them to be sent straightforwardly without any intervention from financial companies or banks. Meaning, the process cuts off the 3rd party involvement from a transaction, only relying on the two main parties who sends and receives the payment. Therefore, this does not involve any trust to both parties as every transaction is recorded on a blockchain.
Having this concept being publicly known prevents double-spending — which is a scheme where an individual uses a single cryptocurrency more than once. Hence, its anonymity is indeed not true since the crypto coin can be traced from when and where it was acquired until when it will be transferred.
The problem is that its owner will still not be disclosed during the tracing. It will be, though, when a person’s identification credentials will be required through a privatized key code. The said code is for one-time use only and will be burned once used. After so, a current one will be released when the new owner receives it. Thus, both people in the trade will not have any idea of who sent it or received it, but there will still be evidence that a cryptocurrency settlement has been done due to the blockchain.
We said that the owners are not disclosed, rather, they are covered by the publicized key codes that are accompanied by privatized ones- a pseudonym it is.
However, it is also worth noting that though there are private key codes, they are different from rightful or legally recognized owners.
Nevertheless, several cryptocurrency holders get away with this. For example, Monero is a private cryptocurrency company that is considered to be the best at hiding transactions. The secret is that they mix business solutions and split the arrangement string by sending BTCs from a certain class of separate holders and then trading them in a random sequence.
Finding the Exit Lane
Cryptocurrency tokens such as BTCs are convertible to cash. However, remember that the process involves taxation and of course, a 3rd party broker. To explain this clearly, the 3rd party will act as the intermediary between the exchange of your coin and the money to be sent to your bank account. These 3rd party vendors require identification proof before an individual can withdraw and it usually takes two to three business days to process the request.
Take note that this meticulous requirement got the trust of experts of the field because of its safe and reliable fund security.
This made it possible for the criminal we mentioned earlier to be caught. The Korean criminal got out of his hiding when he intended to cash out his acquired bitcoins.
Another case where bitcoin is involved is of the couple Heather and Ilya Lichtenstein. They were caught when they tried to checkout a USD 500 worth Walmart card via cryptocurrency. Based on the investigation, they plundered USD 4.5B of crypto from Bitfinex trading in the year 2016 and were taken into custody on February 8th of the current year.
We can also look into another case where a person was tracked down since he used an e-mail address that is connected to a virtual wallet.
See how the law enforcers took bitcoin as their trump card? Online trading may be possible with crypto, but it is difficult to use it illegally in our society without intervention from a 3rd party. This is because there is a thing called “Know-Your-Customer” which requires people to submit their identification credentials to those licensed money transfer institutions.
The only way to skip the legal process is by letting your money be handled by criminals.
Studies in tracing illegal blockchain activities are not yet done. In fact, it is just starting. Experts and regulators are highly invested in how the industry works – from small details to general information. Patterns are also being observed to solve the puzzle of its complexity.
The good thing is, they are now identifying the hacks and secrets of crypto, even before platform designers and hackers do.