Weekend Economists Examine (E)sc(h)atology January 24-26, 2014

[Demeter]

17. Some Bytes about Bitcoin

Bitcoin is not optimized for privacy

http://www.ianwelsh.net/bitcoin-is-not-optimized-for-privacy/


Just another quick note: Bitcoins keep track of every single transaction. That information is filed into the bitcoin itself.

Do not think that this is anonymous money, it is anything but. You’re still best off using cash for anonymous transactions or buying one use cards, etc… for online anonymous transactions.

China got bitcoin right. It is a virtual good. You could just as easily use any other virtual good to transfer money out of a country, so long as there is a liquid market you trust.

Follow The Bitcoins: How We Got Busted Buying Drugs On Silk Road's Black Market

http://www.forbes.com/sites/andygreenberg/2013/09/05/follow-the-bitcoins-how-we-got-busted-buying-drugs-on-silk-roads-black-market/

The crypto-currency Bitcoin has become the preferred payment method for much of the online underground, hailed by none other than the administrator of the booming Silk Road black market as the key to making his illicit business possible. But spending Bitcoins to anonymously score drugs online isn’t as simple as it’s often made out to be.

We at Forbes should know: We tried, and we got caught.

To be clear, we weren’t caught by law enforcement–so far at least, our experiment last month in ordering small amounts of marijuana from three different Bitcoin-based online black markets hasn’t resulted in anyone getting arrested. But a few weeks after those purchases, I asked Sarah Meiklejohn, a Bitcoin-focused computer science researcher at the University of California at San Diego, to put the privacy of our black market transactions to the test by tracing the digital breadcrumbs that Bitcoin leaves behind. The result of her analysis: On Silk Road, and possibly on smaller competitor markets, our online drug buys were visible to practically anyone who took the time to look. “There are ways of using Bitcoin privately,” says Meiklejohn. “But if you’re a casual Bitcoin user, you’re probably not hiding your activity very well.”

Bitcoin’s privacy properties are a kind of paradox: Every Bitcoin transaction that occurs in the entire payment network is recorded in the “blockchain,” Bitcoin’s decentralized mechanism for tracking who has what coins when, and preventing fraud and counterfeiting. But the transactions are recorded only as addresses, which aren’t necessarily tied to anyone’s identity–hence Bitcoin’s use for anonymous and often illegal applications...

Jack Lew and Jamie Dimon warn of Bitcoin dangers


THE QUESTION ARISES: DANGER TO WHOM? TO JACK LEW AND JAMIE DIMON?

http://www.ft.com/intl/cms/s/0/a00df0fc-8496-11e3-b72e-00144feab7de.html??siteedition=uk

Bitcoin has been tossed into the virtual gutter at the World Economic Forum in Davos this week, as top US financial leaders warned the vitrual currency could be used to fund terrorism and predicted that regulation would put it out of business.

Jack Lew, US Treasury secretary, said: “From the government’s point of view, we have to make sure it does not become an avenue to funding illegal activities or to funding activities that have malign purposes like terrorist activities...“It is an anonymous form of transaction and it offers places for people to hide,” Mr Lew said in an interview with CNBC at Davos.

Jamie Dimon, JPMorgan chairman and chief executive, told the same channel: “The question isn’t whether we accept it. The question is do we even participate with people who facilitate Bitcoin?” Ultimately, Mr Dimon said, Bitcoin would be subjected to the same regulatory standards as other payment systems and “that will probably be the end of them”. Regulatory uncertainty has deterred banks from offering services to virtual currency start-ups. But Mr Dimon’s cautious approach contrasts with rival Wells Fargo, which recently launched a group to examine how it might safely offer Bitcoin-related services or banking arrangements to virtual currency entrepreneurs.

The JPMorgan boss said: “Governments put a huge amount of pressure on banks, and so, to know who your client is, anti-money laundering, did you do real reviews of that? Obviously it’s almost impossible with something like that.” He added that Bitcoin was “a terrible store of value” that “can be replicated over and over”, and that according to reports, “a lot of it is being used for illicit purposes”.