Bitcoin is not a hotbed of crime but a powerful tool for law enforcement

Jason Weinstein is a partner at Steptoe & Johnson and a former Deputy Assistant Attorney General for Cybercrime and Organized Crime at the Department of Justice. He is the Director of the Bitcoin Alliance and serves on the advisory boards of the Chamber of Digital Commerce, Coin Center, and BitFury.

Weinstein discussed why he believes the “anonymous” nature of Bitcoin hides the fact that the technology is actually better suited to the needs of law enforcement.

Bitcoin’s image problem

If you ask the average person what comes to mind when they think of Bitcoin, the three most common responses would probably be “anonymous,” “untraceable,” and “currency for criminals.” However, all of these common ideas about Bitcoin are actually misconceptions.

Yes, any of the above answers are wrong.

This may be a matter of perception, but it could have real consequences as it could affect the attitudes of investors, legislators, regulators, law enforcement agencies and the public toward the technology.

We need to address these cognitive issues head on.

Old problems, new opportunities

Any technology worth adopting will be used to commit crimes early on. But law enforcement agencies have historically had to adapt to keep up with the times to combat criminals and terrorists who use "new-school" technology to commit "old-school" crimes.

From pagers, cell phones, email, and online chat to mobile devices and PayPal, to name just a few, law enforcement technology has always evolved to keep up with new technologies that were designed for legitimate purposes and are often exploited by criminal activity.

There are many more examples like this, but perhaps the biggest problem is the Internet itself. Perhaps the biggest challenge facing law enforcement in investigating Internet crimes is anonymity. In fact, "keyboard crime", any crime committed through the Internet, poses a great challenge to law enforcement in tracing.

Every day, law enforcement and prosecutors struggle to link strings of numbers and characters to a specific person - whether it's an ICQ chat name, an IP address, a MAC address, or even an email address. This process is made more difficult when that person uses multiple IP addresses or chat nicknames, or employs anonymizing technologies such as proxies or TOR.

Internet communication service providers do not have requirements such as "know your customer information", which is not conducive to the investigation of law enforcement agencies, so law enforcement officers are not 100% sure about the accuracy of user information in their hands.

Yet law enforcement officials and prosecutors have successfully navigated these difficulties, often by analyzing multiple data sources in an effort to zero in on a target.

Bitcoin provides a new twist on this old problem.

Ironically, despite the fact that crime and terrorism have exploited the Internet since its inception, no one considers the Internet to be a “criminal network.”

Instead, people think of the Internet as a place where we work, shop, socialize, communicate, consume entertainment, and learn. Once cybercrime such as ransomware or other cyberattacks occur and Bitcoin happens to be used as a payment medium, such cases are defined by the media and policymakers as Bitcoin problems rather than Internet or cybercrime problems.

Bitcoin itself is not the problem; on the contrary, Bitcoin has unique advantages.

Wait, isn’t Bitcoin anonymous?

It is often said that Bitcoin is not truly anonymous, but exists in the form of a nickname.

A user's Bitcoin address is like an account number that accompanies the user. If that address can be linked to a certain user, then all transactions made by that person using that address can be identified and tracked.

In fact, if an individual uses a wallet service to access the blockchain, then that Bitcoin address is essentially like a bank account number because the exchange or wallet service keeps a record of the addresses used by that user, just like a bank keeps a record of bank account owners.

This is not a perfect analogy, as a person can have any number of Bitcoin addresses, but most likely only a finite number of bank accounts.

But just like with banks, law enforcement can obtain information about users using a certain address through subpoena or other legal process. That’s why we’ve seen and will continue to see law enforcement activity on the blockchain — to bring an exchange or wallet service into compliance so that the information data is there when law enforcement serves a subpoena.

But what if someone obtains Bitcoin through unauthorized channels? What if the user uses anonymity-enhancing techniques such as multiple addresses or mixing services? Even then, that person is not truly anonymous.

Of course, individuals exchanging Bitcoin (regardless of how it was obtained) for legal tender may not leave a trace, but transactions on the blockchain will definitely leave a trace.

Existing and rapidly developing technologies will help to link these users to their Bitcoin addresses and transactions; using transaction pattern analysis and other means to establish connections between multiple addresses of the same user; mining social media and public resource data; and analyzing the IP addresses from which transactions were conducted.

For mixing services, users trust that such services will not defraud them and will not keep records that can be obtained by law enforcement. Of course, the Bitcoin you get from such services may be dirty and already under the monitoring of law enforcement.

And this is the real advantage of Bitcoin: blockchain is traceable, searchable and eternal.

Whether law enforcement identifies the owner of an address tomorrow or two years from tomorrow, they can then trace every transaction involving that address all the way back to the source.

In addition, because the ledger is public, law enforcement does not have to worry about any legal procedures to access the data. And because the ledger is borderless, law enforcement can obtain data without going through foreign government departments. This allows law enforcement to "follow the money" to obtain data, which is absolutely impossible if cash transactions are used.

Law enforcement’s capabilities in this area will only grow, especially as new analytical tools are developed.

Of course, innovators will come up with new ways to increase privacy, whether it’s the Bitcoin blockchain or other types of digital currencies, so law enforcement will continue to evolve to adapt to the challenges of new technologies.

In the early days of the commercial application of the Internet, law enforcement agencies received help from Internet companies to learn how Internet technology works so that they can improve their ability to combat the abuse of Internet technology for criminal purposes. This took a long time to reduce people's concerns about the Internet. Through the Blockchain Alliance, we are trying to do the same thing.

The more people learn about blockchain, the more they realize that this technology is more friendly to police than criminals. So if we look at Bitcoin from a long-term perspective, if we face the facts, we can change the current common misconceptions about Bitcoin.

This is an important step in “making blockchain real.”