As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin. The fraction of black market participants who are revealed on the basis of "chain analysis" is still a rounding error.
It all depends what your threat model is. Bitcoin can be traced by sophisticated nation state actors at the cost of tens of millions per intercepted target. If I was Osama bin Laden or El Chapo or a guy who personally pissed off Putin, I probably wouldn't rely on it. But if I was a local drug kingpin in Baltimore, or a corrupt mid-level CCP official, or a Cypriot corporate money launderer, then Bitcoin deanonymization is probably a small risk in the scheme of things. Certainly orders of magnitude less risk than using the traditional banking system.
> But if I was a local drug kingpin in Baltimore, or a corrupt mid-level CCP official, or a Cypriot corporate money launderer, then Bitcoin deanonymization is probably a small risk in the scheme of things. Certainly orders of magnitude less risk than using the traditional banking system.
... for now.
The thing is, 2-3 tx/sec is basically snail mail. That's such a small number of transactions that there's not even a forest to hide within.
As the analytics tools improve the de-anonymization will be faster and more automatic, and that "tens of millions" figure will dwindle down to pennies. State actors can easily combine that data with actual fiat, and you'll be in court before you know it.
The problem is you're committing a ledger of your criminal activity to the cloud forever, and CCing your attorney general, smirking that they'll never figure it out. Of course they will. Either they'll figure it out or ban it. Or both.
It bears repeating explicitly I think: you're not working against today's analysis tools, you're working against whatever analysis tools exist far into the future, since everything is recorded for eternity.
From what I've seen, success in this industry is predicated upon planning, caution, and constantly thinking of ways that people are going to screw you over.
If your first thought when making decisions was "what won't send me to prison" you probably wouldn't be engaging in criminal enterprise in the first place.
Most people who break the law do so because they either don't consider the consequences or accept the rewards as justifying the risks. And plenty of criminals go to prison because they judged wrong. That those who are successful for long periods of time buck this trend is just survivor bias.
Well, it's true that the official manual contains mostly short-term, actionable recommendations, but some of them do have the goal of avoiding long-term consequences.
These can be changed and you can be charged under other crimes which may have different statue of limitations. When the government decides they want you in prison, it doesn't particularly care how it does so. Tax evasion, drug trafficking, funding terrorism, CSA changes, weapons smuggling, or RICO or country equivalent, they'll use which ever seems easiest to get you.
For a buyer, this isn't as big of a deal because you won't have that level of target on your back, but for anyone running a marketplace I don't think statute of limitations will protect you once they figure out who you are.
Even in the ancient Silk Road you could sell contraband effectively using internal, offchain transactions only. The customers pay using offchain transactions using the market, and the vendor can cash out via some trader in the same market.
Basically, if you dont want to deal with the onchain transactions, you could sell the risk of that to someone else and only deal in internal offchain transactions. Dont know if this actually happens though.
Are you sure you understand the content of the link you shared? It’s talking about a hypothetical legal framework, not actually concretely descrambling the input and outputs of a mixer service.
It doesn't matter how good your technical solution is if the law says that the scrambling doesn't matter.
The threat being considered in this thread is a future crackdown on bitcoin and how the blockchain may be used against bitcoin owners. Legal threats seem very relevant.
I don't think people appreciate the fact that government agencies have the cheat codes to the server of life.
While some will try to do everything the legal way, the the wily people who believe they are getting away on some kind of technicality sometimes find themselves charged with a different crime, or maybe just unlucky after a pre-dawn police raid or traffic stop goes south.
So let's say your name is Paul. In this scenario, I steal your bitcoin. I go over to a gold seller named Peter and use your bitcoin to buy gold. You report your bitcoin stolen. The guy who sold me gold owes you bitcoin, but I don't. Effectively I have simply robbed Peter.
Nah in the real world code isn't law. They'll do what they do with stolen cash. They confiscate it, and create a liability on the person who gave it to you. Or squeeze you both.
My read on the article is that they're considering two different frameworks: one where everything that comes out of the mixer is considered fractionally dirty based on the inputs. Or, randomly picking an output and tainting it 100% under the "FIFO" method.
The idea isn't necessarily to de-anonymize the transactions here but to disincentivize people from using mixers. Either a haircut kills a portion of your value, or you lose it all, the idea is you won't do that again.
That doesn't change that legally it still kills all your money, and creates a liability on the person who put in the dirty money. If you figure out who they are it's all you, you're welcome to sue them. If not, you've learned a hard lesson.
Again, the whole problem is that the bad actor can pass off their stolen bitcoin before anyone knows its tainted. So it doesn't matter if you didn't use a mixer, if that bitcoin ever went through a mixer it could potentially be a live hand grenade. People could just mix large numbers of bitcoin periodically so everything is suspect.
You're not solving the problem, you are just introducing new problems that affect other people in the hopes that the entire system becomes unworkable.
In much the same sense that you could abandon your house when you have termites: you're not solving the problem, you're just avoiding it in an incredibly inefficient manner.
Still if you are a corrupt mid-level CCP official you can just say send a bitcoin to account xyz and there's no way of knowing who owns that unless the money is transferred out to something identifiable. It's like Satoshi's bitcoins. There they are on the chain but you can't tell who controls them from that.
The Lightning Network literally exchanges Bitcoin transactions that are withheld from being broadcasted on-chain until channel closure. Bitcoins exchanged via the Lightning Network are just Bitcoins. Saying they are a different kind of "IOU" or token is a lie often employed by alt-coiners trying to push a "Layer 1-only"-Bitcoin fork (e.g. BSV).
The security in the Lightning Network doesn't come from settling on-chain after a transaction happened but from signing over all your money in a Lightning Network channel to the other party should somebody catch you cheating.
The real lie is saying that LN transactions are "just Bitcoins".
They are unconfirmed transactions and there are many ways of losing your funds compared to confirmed ones. Such as having your harddrive corrupted and your node trying to propagate an old state.
Unconfirmed Bitcoin transactions are still Bitcoin transactions, with the advantage that on the Lightning Network you have a built-in protection against doublespends in contrast to accepting 0-conf tx.
You are correct that funds in a Lightning Network wallet are at higher risks than those in a cold wallet, but this applies to all "hot" crypto wallets. Most LN wallets supports "Static Channel Backups" which you only create and store once after setting up a channel. In case your phone goes up in flames, you can use it to safely close your channels and receive your balance.
Nobody is going to accept this as payment for something illicit. They know you've seen the private key. They have no reason not to assume you have something set up to sweep the wallet as soon as they accept the "payment."
“Opendime is a small USB stick that allows you to spend Bitcoin like a dollar bill. Pass it along multiple times. Connect to any USB to check balance. Unseal anytime to spend online. Trust no one.”
> Bitcoin deanonymization is probably a small risk in the scheme of things
its really not.
unlike cash or bearer bonds, _all_ transactions are recorded in perpetuity. That's literally the entire selling point of bitcoin, the ledger is opensource and universal.
Given that virtually all money going into and coming out of bitcoin is through establishments that have financial licenses, its perfectly trivial to trace the flow of money from its first exchange of real cash for bitcoin, to when its used for illicit purposes.
You're currently labouring under the impression that tracing cash flows in the real world is hard. its not, especially for a government. what is hard is proving that its illicit. cash is fungible, as in each unit of currency has no ID. so its much harder to prove that this $1 came from a drug sale.
with bitcoin, you have a public wallet, and a clear lineage of transactions from start to end.
If the currency is acquired through mining, then it doesn't have to flow through an establishment that has a financial license. It can still be traced, but identifying the individual is much more difficult.
The miner reward is sent to a bitcoin address. Anyone can create a bitcoin address without going through any 3rd party so it’s totally anonymous until you spend it.
Isn't that the exact same way crypto works? It has a unique identifier, but as soon as you own it indirectly, on an exchange or something, then that clear link no longer exists. I'm wondering why it wouldn't be a parallel?
Cash is rarely verified. Sure they might do spot checks to see if its a fake. but its rarely tied directly to a deposit.
So when a cash machine gives you money, the ID of the currency not be tied to your account. When you spend that money in a shop, those notes will not be attached as having come from you as a customer.
With bitcoin, that all comes for free, we know when money left your wallet, what addresses it passed through to get to someone's else's. the whole selling point of bitcoin is that you can trace the provenance of each transaction right back to when that coin was originally mined.
For example, if I was to use bitcoin as a bank account replacement, everyone would know my employer, they would know how much money I give to my spouse each month. They would know who I invest with. They would know when I do my shopping at the super market. They would know when I'm having work done at the house. They would know if I got a bonus, and how much.
Some of those things I'm ok with, but a lot of things, I'm not
Bearer bonds aren't really legal in most jurisdictions anymore due to the obvious potential for misuse. It's mostly a hollywood trope now. There are still companies where ownership is determined by bearer shares, usually found in tax havens and such.
can be done, but often isn't. It requires someone to be suspicious to trigger the various institutions to start tracking it.
there is lots of scope for laundering by giving the cash to third parties, before it gets to the banks.
Laundering inside bitcoin is pretty futile, because we can trace from mining to current wallet. we don't even need to trace all bitcoins.
All you have to do is pay for something illicit, and you can trace the flow of money from wallet to wallet, until its either converted into real cash, or held as a "reserve"
I often see this argument as though in the future some advance technology can go back through the ledger and de-anon people.
Outside of some exchange link keeping a name = address record, the public wallet doesn't really expose you as there's no link between an address and a person.
Also, that $1 can be charged with crime and sized directly. Good luck siezing a brainwallet etc.
It sounds like to me that the argument isn't that an advanced technology will go back through the ledger and identify people. It's that once people have been identified/linked to a public wallet, it's really easy to determine how they spent bitcoin because the record is public and permanent.
I agree, but there are people who create bank accounts (and I'm sure Coinbase accounts) with fake ID and use them for illegal proceedings. So while we can trust that the transactions log is accurate, it doesn't always prove a link to an actual person. My concern is someone having their identity stolen (or even just impersonation), used for KYC, then being linked to crimes without any deniability at all.
Plenty of Bitcoins have been sized. People don’t memorize their private keys, they store them somewhere. It’s quite hard to minimize the attack surface of your crypto currency without also risking the coins being lost.
> Bitcoin can be traced by sophisticated nation state actors at the cost of tens of millions per intercepted target.
Please... Bitcoin transactions can be traced by whoever has a laptop and internet. If you want to stay anonymous, there is nothing worse than Bitcoin. Do yourself a favour and switch to Monero and similar which offer some level of privacy. But there is nothing better than the good old bank notes. Anyway, please educate yourself https://en.wikipedia.org/wiki/Bitcoin
How is a guy with a laptop and internet know that the start/end address at e.g. an exchange is connected to me specifically? Sure, they can trace all the transactions of an address but you need more than that to connect the address to a specific person.
Of course, Monero is a better option but even with BTC it's not as trivial as you claim.
It doesn't by itself, but it's a much better start. You can simply match up addresses with activity from other digital systems. That link is present in a global, transparent, up to the minute, cheap to ingest data source (the blockchain).
Comparing that to any other payment system (or combination of) where there is due process in collecting this information (hopefully accurate and valid) you're going to have a much easier time developing tools to detect and alert with Bitcoin.
So you need is a financial institution to give you unrestricted access to their records. And it can't be just any financial institution, it has to be the one used by the person you are targeting. And you don't know what financial institution that is because you are still trying to identify who the address belongs to. So really all you need is unrestricted access to many financial institutions' records.
It's not. All of the DNMs have switched to Monero already. Ransomware is also changing to Monero. Anyone using Bitcoin for illegal stuff at this point will be caught.
Correction: Anyone running a large business using bitcoin for illegal stuff that isn't based some place like Russia is likely to be caught at this point.
Even the 1Feex wallet that has the stolen Mt. Gox funds (now worth $5B) hasn't been touched. Bitcoin has been radioactive for illegal stuff for a while.
Or the owner might just have died or might be in prison. I'm pretty sure that the reason for not moving those coins is because BTC is radioactive. It might be partly a reason, but surely not the only reason. If you really needed the money you could try several methods to launder them.
«As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin»
That is completely unsubstantiated. You have no evidence for that.
It’s a fair inference given the size and rate of known Bitcoin black market busts. In one search, I found a paper that estimates $76B worth of Bitcoin is used in illegal trade per year.
I remember this paper. A major flaw that was pointed out to the authors (and never corrected) is that Bitcoin tumbling services—popular among illicit users—artificially increase the transaction volumes. So if tumbling services puts the BTC on average through 10 transactions, then this will multiply by 10-fold the volume. In other words there wouldn't be $76B transacted annually, but only $7.6B.
Tumbling also makes some of their other figures unbelievable. For example in table 2 they report "181.82%" of all users transactions attempt to use tumbling services... I have little confidence in this paper being accurate.
Darknet markets almost universally advise against using BTC that hasn't been explicitly anonymized, a process that costs money and effort and requires knowhow to do properly. Mixers, tunneling through a private cryptocurrency, or other methods almost all involve transaction fees. Few people are seriously engaging in trading contraband without this overhead.
It can be pretty anonymous too. You can use fiat to buy mining hardware and then it's pretty hard to connect an identity to a wallet if you're careful.
Don't you eventually need fiat? Yes, so you have someone sell NFTs to those untraceable wallets and now you have a legit income stream as an artist. Pay the tax in the place you want your money to end up and you really only need like one person in your destination country to clean as much as you'd like.
You pretty much need to go through a Know your customer(KYC) process to really trade in crypto. At least here in western Europe i had to upload a Id doc, I don't mind it because saving money costs me money, buying satoshis earns me money.
Given cryptos nature of being a public ledger and there more then
enough compute power available everything can probably be traced and backtracked in real-time.
Only in the destination country. Let's say someone in China wanted to move $$$$ out of China for whatever reason. They could use yuan to purchase mining hardware and use that to generate clean wallets with no identity attached. A good friend of this person is an artist in the UK. The artist cashes in the ETH, properly reports taxes from income, and now has a completely clean and clear source of cash. Now if the Chinese person wants to get out of China in a hurry, they can visit their close friend in the UK.
NiceHash shows a profitability of $9/day (1) given $0.08/kwh which is average in China (2). So to get a positive return on your investment assuming a cost of $700 per card, it takes less than 80 days. Never before have you been able to launder and invest your money at the same time.
The questions of number of cards and electricity usage are pretty secondary and easy enough to hide. Go off grid, setup a similar legitimate company, lots of options to hide it.
This is backed by the fact the vast majority of hash power for BTC comes from China (3). There are world wide shortages for sha asics and gpus. I'm not describing a hypothetical.
Googling I see the price of a 3080 is 700 dollars, so this would cost 700 * 90 = 63,000. Plus electricity, which, maybe you can get cheap somehow in China if you have the right friends. Seems like an amount this size is pretty small compared to what you're moving. If you think bitcoin will go up long term then the cost might work out to be negative.
I'm sitting here more like how can I get money into China and access their markets, like pretty much every western capital institution at the moment,
that's the the whole thing about the trade deal phase 1 how can black rock like institutions carve up a bigger piece of the China pie.
Wouldn't be surprised if the US is using its mainstream media machine to sabotage the EU-China deal, so they can also claim up EU part of the China pie.
Its like kind of like the unequal treaties but now china can fight back and as small concession for less aggressive approach, offered a small piece of the China pie for the outsiders to fight over.
Let the outsiders fight among themselves instead of letting them fight together against you.
Isn't the cap like $25k/year/person that's like top 5~10% of the global citizens that can save up like $25k per year.
Western govs are going to let greedy capital pour into China and thus monetarily support the CCP finishing the civil war against the Taiwanese people in a couple of years?
Once the US and EU if/have succeeded in building their own semi conductor supply lines, Taiwan will just be disposed off like some old used condom.
Taiwan's silicon shield and western semi conductor independence are contradicting objectives, sacrificing Taiwan for a bigger piece of the Chinese market is more then worth it from a realist/Mercantilism perspective.
Yeah but the CCP then controls that first island chain and easily squeeze off Japan and SK. US carriers are kept far away by stationing missiles on Taiwan. Thus they can continually stake out control.
The US investing in the Chinese "pie" is useless because they're just feeding the CCP more. CCP will use the power to take over the world. US companies would get eaten by the Chinese companies and US gov would be taken over from within, once mainstream and social media is taken over by CCP hands.
See the US losing is not really my problem, the current cold war was started some years ago and only the future will tell how this will end.
Taiwan will hardly add to the Chinese ant ship missile shield, putting more space assets in the region will offer a more accurate kill chain.
I wouldn't be surprised that South Korea is already in the Eurasian camp or at least neutral there's a reason they are not part of the quad.
Don't listen to words look for the actions of each player, because words are cheap but actions aren't.
But don't be afraid of China taking over US cyberspace, I wouldn't be surprised that the Anglo-Europeans will build their Hadrian fire wall.
To keep the Eurasian troll armies out of their part of the cyber world. This might all grow out of the clean network initiative.
For most non westerns nothing will really change if the king sits in Washington or Beijing. If you think it does you have been drowned in US propaganda. Maybe the biggest historical difference is that Beijing builds, and Washington bombs cities in the global south.
Hah, you clearly don't have a balanced view. US doesn't install pure puppet oligarchs and mass surveillance tech. CCP does whatever it takes to expand economic influence and tighten their autocratic control.
TLDR: CCP doesn't answer to the people. US gov at least has open elections.
I agree that at this moment, a poor person in central africa should not care 1% between US and CCP. But for their descendants, yes they should care.
I believe this is how it works at the beginning, and I consider it as the main use of crypto in China. It was actually easier when exchange was legal in China, you can just buy bitcoin. Even now, you can use AliPay, WeChat and bank transfer to do P2P crypto transaction.
it looks pretty complicated for a person who wants to send money (illegally) out of China and clean it up.
The easiest thing for China would be monitor crypto transactions and stop them from happening.
But suppose you are Chinese and have a good friend in UK who's going to report as legit income the result of your criminal activity in China (criminal as in simply hiding the money from the government, for whatever reason) on your behalf.
Why should you set this complex scheme up when you could simply fly to UK to visit your artist friend, buy one of his artwork with your yuan and you're done?
Or better yet, invite your UK friend to China and give him the money, that he can then deposit on his account.
Purchasing mining hardware or artworks with your money that can be trace back to you it's the exact same thing.
> Why should you set this complex scheme up when you could simply fly to UK to visit your artist friend, buy one of his artwork with your yuan and you're done?
> Or better yet, invite your UK friend to China and give him the money, that he can then deposit on his account.
China has capital controls and dual currencies to prevent these common scenarios. The yuan that the Chinese resident can get from a Chinese bank is devalued outside of China, and it is forbidden to move large quantities anyway (much less than the 1M USD mentioned in the thread).
> China has capital controls and dual currencies to prevent these common scenarios
that's why you buy stuff in yuan and sell the stuff for dollars/euro or other currencies
BTW we are talking about criminal activities here (money laundering), of course there's a price to pay and that price usually is in the 20-40% range (I've checked CNY and CNH and they are being traded at very similar rates right now [1][2])
there's no need to buy hundreds of GPU to mine crypto to do what the OP intended to do
unless OP meant btc it's a cheaper and safer way to launder money, which is a good reason why people could think it's a scam
Binance is a great example because you can just keep creating new accounts to circumvent their KYC limits heh. I'm sure they have no idea.
You just have to take it up with the government in whatever country they're domiciled in. Like any legitimate company, they simply won't tell anyone which country that is, of course.
A more local crypto exchange, when I started buying bitcoin it was harder to get euros in and out of Binance. Seeing how I'm not really a dissident or a rebel and I'm lazy so I'm not going to jump through multiple hoops.
So I don't mind the KYC process so I don't have to jump through hoops, but I do see how nations can use lawfare to attack/monitor crypto currencies, its not that hard to see. You have a open ledger, you have wallet addresses connected to personal identities. They can probably use social media connection graphs to fill in the gaps of unknown wallet addresses. Its a real time financial monitoring tool like the current system, just packaged up as some libertarian/tech bro nirvana escape hatch. Brilliant marketing if you ask me, but I'm just using it as an inflation hedge.
Yeah literally, is it not just a connected graph of transactions? Sounds like smart people can split and roll and all this stuff to their main transaction to try to obfuscate it. But with the proper tool, couldn't the FBI use powerful computers to fill the graph in with human links and deduce a lot from it?
I don't know enough, but the moment I saw I needed to go through a Know your customer process I knew block chain privacy is compromised.
Wouldn't be surprised if there are ways to obfuscate your bitcoins.
Something like wrapped bitcoins or something.
For the time being you already have block chain analytics companies that can trace and back trace transactions.
Hell maybe they can even do it cross chain.
I wouldn't be surprised if a NSA or other nat sec organization can hack something together in a weekend.
> As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin. The fraction of black market participants who are revealed on the basis of "chain analysis" is still a rounding error.
Some bold statements there. Do you have any evidence to provide?
As a local drug kingpin you can employ somebody to spend all day trading bitcoin to strangers for cash at the mall foodcourt and avoid the banking system entirely.
But with cash you'd have an inflation tax on everything you earn.
And depending on where you live you wouldn't be able to make big purchases in cash (in France I think the maximum cash transaction allowed is about 3000€).
BTC or cash you would have to launder your money to make it look like legit and be able to buy a house etc
Of course the other problem of BTC is that transactions are stored forever (as long as the BTC network operates) so it might bite you decades later.
> But with cash you'd have an inflation tax on everything you earn.
This has to be the worst reason a drug dealer would avoid dealing in cash ever. Inflation is literally 2% per annum. Drug dealers pay 20%-50% to launder their money. C'mon now.
With BTC you would need to pay transaction fees, and in practice, anonymization fees (e.g. for mixing services, tunneling through a private cryptocurrency) for many transactions. These would amount to far more than inflation for USD, EUR, etc.
The problem isn't just the transaction fees but markups by exchanges (BTC -> XMR, XMR -> BTC) that each take a cut. Last time I calculated this, even after shopping around for cheaper exchanges it was well over 1% in total fees and probably something closer to 3%, but I'll have to double-check.
I'm beginner, but if both ExchangeA and ExchangeB is investigated by law enforcement, ExA knows sent address and ExB knows received address. So it's not perfect unless you add intermediate private XMR wallet between A and B, isn't it?
I wouldn't. As you mentioned, I would just find an exchange that supports fiat <-> XMR. I'm just responding to the top-level comment that specifically referred to Bitcoin as the preferred currency for these transactions.
Sure, at small scale, not much of a problem. But start moving $$millions, and you'll simultaneously move the market, paying more as you buy and receiving less as you sell.
Sure so now you’ve paid it to their account what happens? They will be investigated for unknown wealth. At some point they’ll need to move that money to the drug dealer - either by cash or another bank transfer.
The only difficult to trace transactions in Bitcoin is from transactions which occur purely in btc and don’t touch anyone with a financial license.
Think drug dealers/gangs recirculating bitcoins mined years ago. Now the tricky part of this is that it would only take knowledge of a few transactions in the networks identity, complete with purpose to start identifying everyone. I’m sure an AG is looking forward to the largest RICO case in history at that point.
I’m sure that folks looking to anonymize are aware of this and take further precautions, I’m also sure that there is someone in the network who is dumb.
If I was in law enforcement I’d make btc address collection a top priority.
The information is there but law enforcement hasn't widely used it for mass arrests -- just not yet. There is also wide evidence of crime on Facebook messages that goes unnoticed but that doesn't mean it is private.
I have a friend who works at local police in Europe, and they already regularly use commercial tools to analyze the blockchain and find what service people used to get the names and so on. This is a mid sized town in Europe, not some major department.
Funny how in the hack space some people explained how to buy drugs with bitcoin, others showed how they can track you anyways.
Why does it cost anything to de-anonymise anyone? Aren’t all transactions observable in the public ledger? Then all you need to do is to observe one transaction and follow the money, or catch the identity of the person when going through a regulated exchange. Am I missing something?
History shows that reducing costs of computing, and the availability of on-demand large scale computing, will make is exponentially cheaper to do such tracing as time goes.
I would not be surprised if there will be agencies that will bid on tracing services.
Looking at how my nation state is moving to tax even more despite having world highest tax rates, I'd say evading taxes and capital controls is going to be a feature for me as well in the not so distant future. Citizens evading getting taxed to financial death is a pretty legit - surely not legal - use of technology.
Imagine if you were a drug dealer smuggling in a million dollars of cocaine into Chicago from Mexico. Great, you got the drugs in, now how do you get the money back out? You'll still have to find a way to move a million dollars all the way, through air, land, and sea. It's so much easier to hide a pen drive or a laptop.
Imagine a tumbler, where fractions of bitcoins are taken in (say 100 bitcoin split into 1000 pieces each) then from 1000 people (including you and you're "illicit" 100 bitcoin) and then you get back 100000 pieces, passed on to another tumbler until eventually you get back 100000 randomized pieces = 100 bitcoin. Where did all those pieces come from and why? How do you connect that in the blockchain ledger to prove the income is illicit?
First problem: transaction fees are currently over $10 per transaction.
Second problem: max transactions per block (2k?). Wouldn’t a single tumbling instance of 100k pieces completely fill 50 bitcoin blocks, effectively browning out the system?
Same thing that happens when a bookie "loses" your bet. Probably nothing. There are illicit activities which use systems of trust based on past behavior just like in the "legal" world and there are usually consequences.
Coinbase, shockingly, violated trust on both sides and is still being hyped. Doesn't take much to understand what a terrible investment that is.
I don't think something that make it worth optimizing for but is intended to optimize criminals activities is really desirable.
Anyway, there's no advantage with crypto, the smuggler didn't smuggle 1 million dollar worth of cocaine from Mexico, cocaine is moved in much larger volumes, if a few pounds are lost, it's part of the business risks, criminals understand it and sometimes facilitate it, so that police can make big splash announcements and everybody is happy.
money is another thing entirely.
that million dollar worth of cocaine has been cut in hundreds of smaller doses, that are being paid mostly in cash.
so now every corner dealer has a pile of cash that use to pay the bigger dealer and so on.
first of all, you can't buy crypto with cash.
You should go through another person who already owns enough to sell them to you, which means another breadcrumb that could lead back to you in case that other person is caught.
also, cash has some disadvantages over a usb pendrive, but one big advantage is that it's harder to lose a briefcase than a usb drive and they don't break as easily.
so the smaller dealers have no incentive to do it.
the average dealer has no incentive on buying crypto to pay the larger dealer, because he gets rid of the cash pretty fast and keeps his cut that invests into criminal but legal activities so that the facade is clean.
the larger dealers have now a pile of cash that need to handle anyway, they can't ignore it and make it disappear just because it takes too much space.
let's go back to the smuggler (probably a cartel man) that moved cocaine from Mexico to Chicago
they have bank accounts in Panama and don't care about moving large sum of money anonymously or through perfectly clean American front men.
The system already works, there was an article the other day on front page titled "The war against money laundering is being lost" (https://news.ycombinator.com/item?id=26786810), so why change it for an asset that has not even a stable value?
I guess they tried at one point, but there's too much attention on them now, so criminals with capital C dropped them and let only their kids play with it so they can pay for their college expenses.
We are still talking about criminals. By "well worth optimizing", I meant worth to them.
I'm not defending that Bitcoin is a solution to moving money, I'm attacking what I perceived to be an argument that it's not a problem for dealers because they can just do to cash as they do to drugs.
> hundreds of millions in drugs and contraband are regularly transacted using Bitcoin. Billions in global capital controls and taxes are evaded every day with Bitcoin
The same applies with fiat. This is a tired argument against cryptocurrencies.
It seems that HN has been upvoting anti-bitcoin content for the past few days now.
>As far as I can tell, hundreds of millions in drugs and contraband are regularly transacted using Bitcoin
What a hilarious claim. Everything else you've said just confirms you've fallen for the "BTC bad" narrative. I wonder how you feel about you-know-who printing unlimited toilet paper money for their own benefits.
That's why Zcash, Dash, Monero, et al. are probably going to pop off. That, or become completely illegal, we'll see... not even sure if that can even be enforced beyond pushing centralized exchanges to delist the coins. Coinbase delisted Ripple a few months ago, and Ripple just 5x'd in the past month, so I'm not sure how effective one-off delisting actually is.
Probably Coinbase is going to relist XRP. That was probably to be beyond conform in regard to their IPO and the SEC investigation in Ripple, now settled ...
As for Zcash and Monero, yes, these are sensibly some more anonymous cryptos, still nothing as anonymous as some simple bank notes .. :-)
Btw, when I see the amount of people thinking that Bitcoin is used (nowadays) for illegal activities, and commenting about it on HN (which has theoretically a more educated audience), this is mind-blowing how little Bitcoin is understood at the moment. It feels like our governments have made a really good job of disinformation
Once upon a time you could actually buy goods and services like pizza and games with BTC, nowadays the most likely reason for an average person to buy bitcoin is to pay the ransom for their locked up computer. Without a legitimate use case (selling your nintendo switch to somebody in venezuela does not count) BTC will be forever associated with the small scale crime scene.
This is definitely not true. The most likely reason for someone to buy BTC is speculation. Darknet markets and ransomware volume is tiny in comparison.
> By and large, this is true in Venezuela. Expats use bitcoin to send remittances back home, where locals convert it to bolivars to buy food and pay bills. With crypto remittances from expats plunging, peer-to-peer cryptocurrency transactions within the country have proven resilient. LocalBitcoins and Paxful trades using bolivars peaked in the first half of 2019, and have since hovered around $20 million.
> “People living in Venezuela are living under a very unstable and predatory government. They suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people who are looking for a way to maintain value,” said Andrea O’Sullivan, director of tech and innovation at James Madison Institute, a Washington think tank.
BTC was never meant to be used to purchase groceries (transaction fees + limitation on the number of tx/s). There are other cryptos which (could) do that very well, however. But large bank transfer may be convenient with Bitcoin: have you ever purchased a used car, not for $500USD, but for $10k+? Arguably, it's a legal, but definitely an edge case. Just giving an example :-)
Speculation is one thing, but BTC is going nowhere and in a world hit by an incoming significant inflation, many have understood that Bitcoin is simply an easy place where to safeguard your wealth if the outlook is at least +5 years, not days / months. That's why people buy Bitcoins at the moment.
Because we don't know enough about Monero? Unless proven otherwise, Monero is anonymous. The IRS is even paying a nice bounty of 625K (but not that much actually as per the IRS resources) for whoever can crack the protocol https://news.ycombinator.com/item?id=25752042#:~:text=IRS%20....
But, there is a string attached. Who knows whether a genius will not have found a solution in 6 months?
One thing is sure, if you buy some drugs with some bank notes, that's not the bank notes which will betray you. If you're into any kind of (highly) illegal activity, Monero is not bad, but bank notes are just safer.
Are they really any better? Zcash has performance issues resulting in fewer people using the private features (privacy is about blending into a crowd. Hard to do that if the crowd is small), dash sounds like a fancier version of normal bitcoin coin laundry. Monero is probably the best but still doesn't provide any math based garuntees, so it's hard to know what it really gives.
Then again, they dont need to provide privacy, just the preception thereof.
(I stopped paying attention to cryptocurrencies a while ago. My opinions may be outdated)
In terms of protocols, not specific coins, privacy is clearly technically viable.
Take Zcash: for its underlying protocol, known as sapling, the performance issues went away. It's about 2.5 seconds to make a fully private transaction on a pixel 3 and you could get it down to 1 second with some optimizations to the underlying circuit. As a coin, Zcash still has privacy adoption problems, but the roots of that aren't some fundamental technical issue: Zcash isn't focusing on usability, leading to the usage problems. That may change.
Also, there are a number of projects coming on line using the same privacy tech. Good privacy is feasible, we have the technical protocols. But product-market-fit niche isn't entirely there yet: the problem is few people grasp then need for on chain privacy yet.
Privacy is a social problem just as much as it is a technical one. If it works in theory but in practise people don't adopt it properly, that means it doesn't work.
A very good point and one I've learned over the years with Zcash. But the social problems, maybe, can change: someone can launch a new coin that fixes them or an existing one can get its act together. Or maybe not.
But it's at least possible if the tech works. So I guess my view is: at least someone has a shot.
There’s still the issue that you need to sync to the full history and look at all the outputs to see if they’re yours right? That’s a real challenge as a light client (which most people are).
For zcash currently, yes. But for the underling tech, no. You scan the blockchain in Zcash to be notified of a payment. But the sender could just as easily send you an out of band message with everything you need to know to spend the money and find the payment.
Not in Mimblewimble coins where sender and receiver must interact to build a transaction. So there's no need to scan unless you just built a tx that is awaiting confirmation.
> In terms of protocols, not specific coins, privacy is clearly technically viable.
Can you provide some link to back this up? I am genuinely interested because in principle public ledgers and privacy seem to be antithetic to one another.
Here's an optimization used in Monero that optimizes the ledger size (initial confidential transaction proofs were too large).
You can have a public ledger but all of the data in it is encrypted and verifiable.
Each transaction, from the creation, to validation has its amounts and wallet ids hidden, the sender and the receiver cannot know anything about wallet contents of each other and receiver has no idea from where the sender is sourcing the coins.
OK, you and I exchanging coins do not know about each other's wallets or even the origin & destination of our transaction.
This anonymity depends on encryption to hide the wallets & transaction, and decryption to verify it, and for the receiver to be able to use the funds in the future.
So, who/what controls those keys? Seems they've just exchanged an open ledger problem for a key management problem - why is this not the case?
The key insight is that you design a cryptographic algorithm that will preserve addition between amounts, even when encrypted but you need to also provide some encrypted data that will allow an independent verifier to validate the whole transaction.
The problem is more nuanced because you need to guarantee that coins aren't produced from thin air.
The problem of the approach in the linked article is that proofs are large. To support encrypted verification (there is no need to decrypt anything in any step of the process) you need thousands of bytes for verifying a 32-bit amount.
Bulletproofs reduced the proof size significantly. There are then additional approaches like MimbleWimble where the proofs on the ledger can be discarded to make it even smaller.
To be honest, I don't see any maths. I see a document titled "investigation" which contains a bibliography consisting of a single forum post from 2013 by someone named Adam, and then the author goes on saying that he has invented some maths that allegedly would allow confidential transactions. Forgive me if I'm a bit sceptical... better wait until some experts review this material.
Sure.
Starting from the academic beginning and then going to commercial usage: Zerocash[0], a paper from 2014 (I'm an author on it), proposes using zksnarks to get a public ledger + privacy with no centralized parties. Instead of identifying the origin of your money on the blockchain and moving it to someone, you just prove in zero-knowledge your payment is correct. This showed strong privacy on a public blockchain was feasible. But slow (2 minutes per payment IIRC)
Three years and much work by others later, it takes ~2 to 3 seconds on a Pixel three to make a zk-proof for a payment. This can be optimized down to 1 second fairly easily (on that you have only my assertion currently)
This is commercially deployed in Zcash (the above mentioned coin with usability and adoption issues), a few other straight up forks, and a new coin called IronFish. And related protocols are in a few things on Ethereum (e.g., Aztec). If you want to test performance numbers, you can download one of these systems and try it yourself (Nighthawk is a decent mobile wallet for Zcash)
Current technical objections (again, beyond criticisms of Zcash as a coin itself)
1) Current ZK proofs require trusted setup. New ZK proofs developed by engineers at Zcash removed this[1]. So its not longer an issue for the technology (or for Zcash once it's deployed)
2) you have to scan the blockchain to get notified of payments. No, this happens to be how Zcash does it. As I said in a separate comment, it's easy to send payment notifications out of band.
3) Vague objections about "scale." Even though zksnarks take a second or two to prove, they are very fast to verify. So adding privacy doesn't make blockchain's scaling problems worse. And the privacy tech is agnostic to the underlying consensus layer, so if you ever get a blockchain to scale, you can put privacy on it.
4) Other approaches(Monero/RingCt/Coinjoin) are better. The major problem is these don't offer strong privacy, just obfuscation. See [2] if you want a 20 minute talk on the issues or [3] for a blog post covering the same
5) There's an inflation risk. Yes, once you hide the values of a payment, because you want privacy, if the crypto breaks, things can go wrong. This is true of any serious approach to privacy. So you want to very carefully vet the crypto design. But if you don't hide payment values, you get no privacy and your blockchain is twitter for your bank account.
"Monero is probably the best but still doesn't provide any math based garuntees,"
Can you elaborate on why you say this and what you mean by it? From what i've seen no entities, including governments, have been able to crack Monero's privacy, so i'm pretty interested if there's an obvious flaw.
> privacy is about blending into a crowd. Hard to do that if the crowd is small
Hard to do that if the crowd is all criminals lol. I often say BTC is only used for speculation and crime. At least the criminals in BTC can hide among the speculators. Zcash and Monero are literally only used by criminals and a handful of die hard ancaps. That gives you nowhere to hide.
It's the equivalent of trying to cash out El Chapo Bux. Simple possession is enough to pretty much guarantee anyone looking you've been involved in one crime or another.
The thing about the law is, as Lavrentiy Beria (Stalin's head of the secret police) said, "You bring me the man, I'll find you the crime." Once someone's looking at you, it's too late.
Except as privacy coins are delisted from exchanges more and more.
The ownership of the monero itself may be granted the presumption of innocence however if you have a bunch of El Chapo Bux they'll just start digging for other things.
Delistings are irrelevant and ineffective. Monero usage wouldnt be legally enough to start an investigation, by far most users really are just speculators
haha, of course it's enough to start an investigation. The police don't need probable cause to start an investigation. They need probable cause to obtain a warrant. Quite different. Remember, basically everything's a crime. The set of crimes in the US is actually uncountable (a few have tried). All you need to get convicted of something is to attract attention. I guarantee you've committed a handful of felonies today. [1]
delisting doesn't really change anything. The real threat would be if exchanges started blocking accounts that received BTC deposits from known monero-BTC exchange accounts.
Luckily, they can't really do that, since people would be able to poison an arbitrary BTC wallet just by sending them a quantity of BTC laundered via monero. But it'd be a pretty expensive poison pill.
BTC to XMR, sure. But XMR to BTC is the value proposition -- if you've made a fortune doing something illegal, you'll want to have access to the BTC market somehow.
Right now, you can probably do that without being sent to prison. It's a matter of using one of the many conversion websites to go from XMR to BTC, then depositing to your exchange and selling it. (I don't know how you'd explain it on a tax form, but maybe you can think of something clever.)
But if exchanges start actively cracking down on any account that deposits BTC in response to XMR transactions (i.e. the exchange maintains a known list of wallets used by those conversion websites), they can start putting accounts on hold if those accounts have received large quantities of BTC from any of those XMR-related BTC wallets.
Also with the lightning network you can mix and change different crypto currencies, and it can be really hard to trace the provenance of the coins. Not something an exchange can do automatically.
> the exchange maintains a known list of wallets used by those conversion websites
Remember that new wallet can be created for each transactions. So even if they'd try to do that, it wouldn't work.
You can certainly map clusters of BTC wallets. It doesn’t matter if you create a new wallet for that purpose, since those new wallets are contaminated by the transaction history. Basically, from the exchange’s view, they’d bucket the wallets into either “looks like mixing; hold the account” or “seems legit.”
Most wallets aren’t used for any high volume transactions; most account holders at Coinbase have no need for that. So it’s certainly possible to map out the network and partition it into known good / known bad categories, and handle the middle ground manually.
In other words, yes, XRP is very clever. That’s not the problem. The problem is, you’ll someday find it very hard to convert large quantities of XMR to USD without risking jail time.
> So it’s certainly possible to map out the network and partition it into known good / known bad categories
You can't do this sort of analysis on the XMR blockchain. Can't see who's actually sending or receiving money. Can't see the transaction amounts. Can't see how much money any given wallet contains. Can't taint coins by association with criminal activities. Without exchange metadata it's impossible to correlate transactions with any certainty.
There's essentially nothing that can be done about it. Will governments become oppressive enough to jail people for the crime of using a medium of exchange they can't control? I'm not even sure that'd be enough to stop it.
I sign up for the converter, and say "Here's some XMR. Give me BTC."
At that point, some BTC wallet gives me BTC. I now know which wallet is being used by the XMR converter. And I know all the other metadata as a result.
The ideal scenario is everyone using monero for everything. Why send money to an exchange at all when we can send monero to each other directly? There should be no need to swap monero for other forms of money.
This is the original cryptocurrency dream. Monero is the only coin that has a shot at actually achieving this.
You have exact corect purposes here: no governemint ought to be having surveilance on financial transaction. They are even atempt to removeing cash for to grow surveilance. This is horible and we must have stopping it.
Decentralized Exchanges are a matter of time. The best the current establishment can do is provide a superior UX for a DEX or on-off ramps to the traditional markets.
We do see it though. There's Uniswap and Bancor on ETH. The trading volumes are in the billions of United States dollars per day. There is also Bisq as a decentralized fiat onramp for BTC and XMR (and soon on-chain atomic swaps). Today it is possible to completely interact with the crypto ecosystem without centralized exchanges.
If you're worried about the code changing, you can run e.g. ETH nodes yourself, download the DEX frontends, and run the DEX locally.
I think it is good for criminals to have a separate system like monero. Then law enforcement and intelligence can attack it without worries about disrupting the legitimate system.
One-liner with no arguments for why you believe so, great comment! Why don't you tell us why this is a "one-takes-it-all" market and why specifically Monero?
Because Monero's the only coin that can't actually be traced or tainted. Looks like even government agencies haven't been able to break it yet. It's also actually useful as currency due to low transaction fees.
No, they are recorded. The government needs a warrant after convincing a judge that there is probable cause that you have committed a crime before they can pull your bank records. When you use crypto, you're just broadcasting every transaction to the world, so they can just watch.
Using bitcoin to avoid government surveillance is like saving your passport on a billboard to avoid hackers.
> The government needs a warrant after convincing a judge that there is probable cause that you have committed a crime before they can pull your bank records.
Unfortunately, transaction records like financial records are currently afforded a very low level of legal protection in the U.S., so the "warrant" and "probable cause" parts don't describe current practice. (That would be the case for a telephone wiretap, or a search of your home, but not for access to your financial records.)
One thing that I don't think the press ever managed to chase down -- following the Snowden revelations -- is the rumor that there was also a "bulk financial records program" which would have involved intelligence agencies and/or law enforcement getting access to search all bank transactions, without any individualized suspicion. (Recall that one thing Snowden revealed is that there was a bulk telephone records program, in which telephone metadata was turned over to the government in bulk, without individualized suspicion, which the government justified in part due to the third-party doctrine.)
In the government's view, the third-party doctrine means that it's never a fourth amendment violation if the government compels access to most kinds of transaction data in the possession of some kind of service provider or intermediary. (Some of those kinds of data may have higher levels of statutory protection but the government's position, as I understand it, has been that it's not an infringement of your fourth amendment rights even if those protections are circumvented or ignored.)
The Third Party Doctrine does not apply to Bank Records since the Right to Financial Privacy Act was enacted in 1978. Cops need a warrant to pull your bank records.
Thanks, I didn't know about that and I'll have to look at that some more.
(Technically the third party doctrine would still apply in any case, because this would be a statutory protection rather than a constitutional protection.)
Yeah, most times the Third Party Doctrine comes up these days afaik is with location tracking services.
EG, technically cops don't need a warrant or subpoena to ask Google where you were on a particular day. Though, in practice, they often still get one because they know that it's kinda unfair and judicial or statutory protections are probably coming soon and they don't want to jeopardize the prosecution should the law change during the investigation.
For example, the January 6 insurrectionists are largely being caught through location data obtained under warrant from Google. Do they technically need the warrant? No. And if they were investigating, like, shoplifters, they probably wouldn't have bothered to get one. But they don't want to let thousands of insurrectionists off the hook in case this is the case where the courts decide to flip.
not everywhere. In some places in Europe (e.g. Germany) the IRS is able to pull up your banking history without the bank having to notify you, and they can query a subset of the info (time of account opening, current deposit, personal info) without even notifying the bank.
AFAIK in Germany they can ask you to submit your banking history for tax purposes (for example they have doubts about your declaration), if you fail to submit it or refuse, they can go to the bank, but you are notified way before they go through the bank and if you comply with the request, they don't go to the bank at all.
Also the request must be authorized by the state tax office, it's not like every government employee can request and obtain the list of all of your transactions.
quick googling would show that your knowledge on this is dated (laws changed in mid 2000). See linked article[1] (or many other articles like it - it was a huge topic at the time creating much outrage).
The bank will not be informed of the invasion of privacy (the excuse is so that banking customers don't have any negative impact when they realize customers get probed - it's probably more to avoid spooking the public about the frequency of how often this happens).
> Also the request must be authorized by the state tax office, it's not like every government employee can request and obtain the list of all of your transactions.
you're mistaken. These are the organs which have automated access (in addition to the IRS):
- social services
- job center
- bailiff
- state attorney
- customs authorities
it's designed to put pressure on low income groups in society, while the HNWI's and corporate big fish can cloak themselves with an armor of impenetrable offshore tools[2].
Only if they can't get you with public information. Suppose that your transactions reveal enough about you to allow the government to profile you, arrange a stake out (and thus get you in another way) or something like that. Or you could have left some trace in a direction which is not that much protected (like you bought something physical which has been delivered to you).
> BitCoin's major purpose is as a hedge to massive fiat printing
Do you know what else is a great inflation hedge? An index of stocks. Unlike BTC, the stocks also pay dividends, are backed by real economic activity, enjoy massively lower volatility, don't suffer from large fees, are never going to be banned, aren't tainted by endemic fraud and scam, and even produce a tiny bit of societal good. Stocks are objectively a better inflation hedge than BTC in just about every aspect, apart from not being a novel tech bro toy.
I like to think of it like this: am I going to give my money to a network of computers that will make heat and burn coal just to maintain a small global ledger, or will I give my money to an organization of people who will presumably try to build a better life for themselves and others, and maybe accidentally burn some funds along the way? I'm giving my money to people.
So you only participate in IPOs? Otherwise you probably buying your shares from a market maker, which runs computers that make heat and burn coal to take advantage of a small difference between buy and ask price.
With bank ledgers, the computation energy is a minimized side effect that does not even show up as a rounding error in the financial reports of companies, and they do tens of thousands of transactions per second.
For cryptocurrencies, burning the energy is a key feature - 100% correlated to the proof of work and increasing by design. This achieves handfuls of transactions per second with energy burn exceeding that of nations.
Children's cartoons make better representations of the real world than that post.
In a 'normal' economy that would make sense. However, Central Banks have gotten involved in buying stocks and as such, stock values have been hugely inflated. Many companies that might have otherwise not succeeded in a 'normal' market might have been able to survive due to QE. Which is part of the reason why more and more investors try to find alternative investment opportunities like metals and crypto.
I'm confused. Isn't the US dollars something like a legally-backed "we-owe-you" of US goods and services? Why else do non-US residents value the USD? And why does EURUSD vary with relative economic output of the two countries?
I can issue fiat money myself. Here: "I owe you 5 CKD." What is the value of that? Zero. You don't know me, you have no reason to trust me, you cannot take my IOU to court and force my property to be seized. Your 5 CKD is worthless, in contrast to 5 USD.
> I'm confused. Isn't the US dollars something like a legally-backed "we-owe-you" of US goods and services?
Not at all. You can't take your dollars to the issuer (the Federal Reserve) and have them redeemed for goods and services. They are not redeemable, hence not "backed". Fiat simply means not backed.
> Why else do non-US residents value the USD?
Do you mean why they demand USD? For different reasons. One reason is to pay for goods and services imported from the US. Another reason is to use it as reserve currency.
> And why does EURUSD vary with relative economic output of the two countries?
The value of fiat money is maintained by the issuer though. How does this happen? The Government demands payments of tax etc in this issued money. Means you need to have this funny money otherwise you go to jail. After a while we also get used to it as "an accepted means of exchange". But the value of course will quickly evaporate if the authority of the Government goes.
The ability to pay taxes with a currency is indeed one of the reasons people will demand that currency, but this doesn't mean its value is maintained by the government. History has shown repeatedly that a currency's value can collapse while people are still required to pay taxes with it.
Extraordinary. I will tell the people of Venezuela and Argentina to drop their savings in Bitcoin and get stocks. Such a great idea, they will see the benefits within the year.
I wouldn't have anything if I would receive any of it. But otherwise it seems to devalue the fiat I own so we have to come up to solutions to counterbalance that.
It apparently doesn’t, look at the inflation of japan and how much they’ve printed money and you will see that there are many more factors than impact inflation.
probably the potential of rampant inflation. When a government summons trillions of dollars into existence (like most governments have been doing throughout the pandemic) it dilutes the underlying value of every single unit of currency in circulation. Its not nearly as simple as "double the money supply == halve your current cash's value", but some amount of dilution and inflation are definitely happening. BTC is theoretically a good hedge against this as it is deflationary by design.
I learned the other day that this is not necessarily true, as long as the money printed creates value. Japan is an example: they have printed tons of money and haven’t had inflation.
I have read about that too and know that there is quite a big debate about inflation. I still think that modern economic systems are sufficiently complex that there is no one person or government on the planet smart enough to allocate printed money in a way that is always 100% efficient - some amount of dilution is absolutely going to occur when you just will a couple trillion dollars into existence and inject it into the economy. Hopefully the value is greater than the dilution, but its not always going to work that way - this is what a well balanced portfolio will counter.
There is potential for hyperinflation, just like having a police force means there is a potential for extrajudicial killings and all sorts of nasty stuff. The thing is when was the last time a western country experienced hyperinflation? I think Germany in the 1930s. Hyperinflation is a made-up problem.
Who said anything about hyperinflation? Regular inflation occurs constantly (and by design) and must be compensated for. If you just leave your cash in a checking account and walk away for 10 years you will come back to radically less buying power than when you left it - the number might be the same, but the total money supply will have grown tremendously thus reducing that money's buying power. According to inflation estimates $1 USD in 1970 was equivalent to almost $7 USD in 2021 value. The point of an investment portfolio is to outpace this dilution so that your wealth grows and you are not diluted into ruin by the printing of new money. A balanced portfolio that has some percentage allocated to instruments that tend to hold a steady value or grow inversely to inflation are critical. BTC is shaping up to be a good choice to add alongside of gold and other precious metals which have historically been used for this purpose. It is short term VERY volatile, but long term it has consistently WAY outpaced inflation.
No. The point of an investment portfolio is not to outpace inflation. The point of investing (in general) is to trade an amount of present consumption for a greater amount of future consumption. This is true whether the inflation rate is positive, negative or zero. If you simply save and hedge against inflation (i.e. you invest in something that provides a real rate of return of zero), then it means you're trading an amount of present consumption for the same amount of future consumption. In other words, you lose because you're not getting compensated for delaying consumption. At any rate, neither gold nor BTC are considered good investments by people who know anything about economics and finance, since neither of these assets provide income, but of course feel free to invest your money in whatever you like.
Hyperinflation can happen in any society if the productive capability of the society goes to the shitters. Printing money does not trigger such a collapse though. So if anyone is scared of hyperinflation, look at how industries and services in the country do instead of at how the money supply change.
> The thing is when was the last time a western country experienced hyperinflation?
So it's alright because western countries aren't suffering any side effects?
> Hyperinflation is a made-up problem.
My country suffered hyperinflation multiple times. It was so bad we had to create new currencies with every iteration. I think the most recent episode happened in the 90s or so.
It definitely devalues your hard work, it becomes very difficult to save. Some people don't want to go into debt because they don't engage in usurious transactions.
In fact, I've never met anyone who wants to go into debt, and yet here we are in the real world where "The bottom half of Americans combined have a negative net worth,"
In objective reality, setting aside philosophical objections to usury, since inflation devalues debt as well as savings it is a net benefit to the above mentioned Americans.
You want to own all of those if possible, but for normal working people bitcoin is easy way to convert fiat into a asset.
Given each bitcoin breaks down into 100 million sathosis you can always buy/sell parts of a bitcoin. Doing the same with other assets classes is harder or not even possible.
Fiat is typically contrasted with commodity or representational currencies. The key element is that fiat has no intrinsic value. It's usually issued by a government, but need not be. The value comes from faith.
Bitcoin meets all the qualifications save government issuance. The bits themselves have no value. The currency's value is based on faith in both the underlying computations and in the existence of a market for trading bitcoin.
Wikipedia gives the definition "often by government regulation" (implying not necessarily) citing Goldberg, Dror (2005). "Famous Myths of "Fiat Money"". Journal of Money, Credit and Banking. 37 (5): 957–967. doi:10.1353/mcb.2005.0052. JSTOR 3839155. S2CID 54713138.
technically they didn't say that bitcoin wasn't fiat, but that it hedged against massive fiat printing, presumably referring to the fixed issuance schedule.
the idea being that the schedule is known, and therefore, in comparison to something that can change and have large issuance, you can be confident that the particular cause of "because a whole bunch got printed unexpectedly" won't cause it to become devalued, as opposed to other options.
Doesn't mean that other things couldn't cause it to be devalued.
(and, of course, if the network consensus shifts in a way that changes the issuance rate... though perhaps it wouldn't really "be bitcoin" if that happened.)
It seems that you think I'm arguing in favor of BTC being successful in the long term. That's not what I'm doing. I'm explaining the idea of it being a hedge against the printing. I'm not advocating for buying it on that basis, or on any basis.
All I'm doing, is explaining as best I can, why someone might see it as a "hedge" against large amounts of money printing.
If it is valued by people at some time (it has a price that people are buying and selling it at, whether in exchange for some currency like USD or for pizzas), and the value for the USD (in the sense of "how many pizzas / market-basket-of-goods does it buy?") is going down as a result of the quantity of money being printed-and-introduced-into-the-economy being unexpectedly very large, if that sort of event isn't positively correlated (as in, in the probabilities that people assign to future outcomes) with the value (in the same sense of number of pizzas) of btc going down, that could be something people see as merit-worthy in it.
People conceivably could want to hold something which is both easily exchangable, and highly subdivisible, and which has such a property, .... provided that they didn't expect the number of pizzas it buys to rapidly decrease.
I do wonder though, why there isn't simply a common financial instrument which pays out with the price of some market basket of goods at a designated time? It seems like such an instrument would serve much the same appeal.
Perhaps the issue is that, in order for people to be willing to issue such an asset, one would have to pay them a large amount to account for the risk that they are taking on?
There's also the issue that one would presumably have to keep actively buying more of such an instrument if one wanted to hold large portions of it over time.
Right, it’s more like being backed by a derivative of energy; based on local power prices, seasonal variation and political climate. It’s a strange concept. Redefines “backed”. Backed means ‘security of value’ and this in bitcoin comes from mathematics of cryptography and energy in proof of work.
I've heard this before and tbh I think it's like issuing receipts for 1 (one) barrel of oil that has already been consumed. Like, yeah, someone spent effort making it, but what does that do for me?
From a mathematical crypto standpoint it's sorta good, but again what value has been created? It's not like the blockchain is now saving us time and effort in factorization that can be applied to real world problems that would otherwise need to be recalculated regularly, which is a pity.
Of course you can truthfully say fiat currencies are totally notional, but as a practical matter the value of a fiat currency reposes economic stability and security offered by whatever government issues it (which may or may not be valued by other people).
A backed currency means another entity is willing to guarantee they will trade the currency for something else. In the example of the gold standard, this means the government would exchange dollars for a certain fixed amount of gold. This meant that dollars could be worth more than gold, but theoretically wouldn’t fall below their fixed value in gold, because at that point people would trade them in for the gold.
You can’t just redefine backed to mean something that is expensive to produce. If something is expensive to produce it also doesn’t mean it has any intrinsic value.
(I’m also not arguing that modern fiat currencies are backed - in fact they are not backed by definition! I just get frustrated by all the fake economic mumbo-jumbo about Bitcoin).
This expands the definition of "backed by" into meaninglessness.
I used to be able to trade dollars for gold and vice versa, at a fixed price, guaranteed.
I can't trade bitcoin for 'math'. No-one is storing energy reserves in case there's a run on people converting bitcoin to energy. Bitcoin is not backed by anything.
You're arguing semantics, switching between a strict definition of "backed" and thinking of value as it suits you.
And if you want to be that picky, Bitcoin is backed by math and energy (or at least heat). You can exchange bitcoin at any time by doing a 1 satoshi transaction and pay the transaction fees. As a result, you will redeem the answer to a very specific math problem and some heat that will be delivered to you at the rate of diffusion through the atmosphere.
> You're arguing semantics, switching between a strict definition of "backed" and thinking of value as it suits you.
Can you show me where I'm swapping? I don't think I am. It's not semantics anyway, its a fundamental definition of what a backed currency means! The value of my car isn't backed by all the petrol I have used in it, nor is bitcoin backed by the electricity used to produce it.
> You can exchange bitcoin at any time by doing a 1 satoshi transaction and pay the transaction fees. As a result, you will redeem the answer to a very specific math problem and some heat that will be delivered to you at the rate of diffusion through the atmosphere.
This is not what backing means - at all. Backing doesn't mean "is expensive to make", it means its value "has a direct correspondence to the cost of another commodity".
So a few questions to test if it is backed:
* Is the price of bitcoin directly linked to the cost of electricity? (No - there is a relationship between bitcoin price and the amount of energy used for bitcoin mining, but I can't track electricity and use that to guess what the cost of a bitcoin is and visa-versa). Meanwhile, Tether IS backed by USD so I can use the historic value of tether in BTC to act as a proxy to understand how much BTC cost in USD.
* Have we seen the cost of bitcoin track global electricity prices? (No!)
* If abundant cheap energy is discovered tomorrow, does bitcoin become valueless? (I believe no, it maintains value!)
Almost all modern currencies aren't backed, nor do they need to be, so this is a weird hill to fight for.
Given how electricity has pretty much become synonymous with labor. I would say Bitcoin is backed by electricity given how Iran and Venezuela are doing oil/gas etc trade with bitcoin seems like you actually can get commodities out of it.
A number of voices from government and surveillance circles, like Thiel et al, have come forward lately to caution about "big problems" with Bitcoin. I have to conclude that Bitcoin is actually winning, and these people are just spreading FUD in an effort to crush something they can't control.
When the US government declares you a problem and is serious about it you're many things, but winning is probably not one of them.
It's pretty trivial to make Bitcoin virtually useless. Pass some laws that effectively render it useless to corporate entities and it's basically banished to the shadow realm. Won't stop criminals from using it, but you can regulate crypto to hell for 99% of the population.
The world is more than US alone. Convert your BTC into Euros, and then you can take those euro's to dollars.
The law fighting internet stuff seems very difficult. Just look at the rich media companies. Name me a movie or song and I'll download it. Even with all their money and laws they couldn't stop this. So how would you expect them to stop internet money.
Even if it's technically feasible to implement I imagine the population would not respond well to the government seizing millions of fortunes overnight. I would guess public opinion toward btc is fairly neutral or positive at the moment. Although it seems like certain entities are attempting to change that with all the recent environmental bitcoin FUD articles.
The government cannot make bitcoin worthless through legislation. The government can make bitcoin worthless through an attack that costs less than 1% of the DoD budget though.
> Cocaine is a highly inelastic good. Bitcoin is highly elastic. It's trivial to ban goods with elastic demand.
What do people use Bitcoin for? Buying drugs online! If the demand for drugs is inelastic, then presumably the demand for a way to buy them online is somewhat inelastic too?
I would think that BTC is not used only for buying drugs. If my numbers are correct daily BTC transaction volume is 290K or 15B€ or 750 tones of cocaine at 20€/g. Thats a lot of cocaine. In 2018 its estimayed that worldwide 1.7k tones were produced totally.
Thiel recently said something to the effect that it's possible bitcoin could be a tool for China to threaten the stability of the US dollar. Interestingly, he is an investor in a crypto startup[1] that (if its intents are read uncharitably) aims, with a stablecoin, to do something similar to the economy of Venezuela and other South American countries that have extremely inflation-prone currencies/have experienced hyperinflation. Mass adoption in Venezuela is the current goal of this project. At least as far as I can see, success for this project would mean some significant chunk of the Venezuelan population transacting in a currency controlled by a company based in California.
Just to bring some perspective, JP Morgan alone transfers the equivalent of the U.S. real gross domestic product each week. $2.8T per day, just by one bank.
Bitcoin+all of crypto combined is nowhere close to that scale. Bitcoin sees around 300k transactions per day. It's miniscule.
Minor nit, but you are comparing amount transferred vs number of transactions. Yes, there is a difference of several orders of magnitude, in favor of usd.
Fair - it's hard to get accurate info on the sum value of the transactions. Even if every transaction was a full bitcoin, it's still only $17B per day. Or still just six tenths of one percent of what JPM processes daily.
what if each of those BTC trasactions will be $1M ? btc is not going to be used to buy groceries obviously, and its slow tech will not become an issue for international trasactions. Banks still take days to clear their own international transactions and it hasnt stopped their adoption
The fee does not depend on transaction value, so the greater the value transferred the smaller the fee in percent. Bank transfer fees are a percentage of value transferred, in my experience.
The US is the only country that has a vested interest in keeping the dollar as the one and only reserve currency, so these reactions were expected. However, bitcoin is winning in the sense that even the US cannot afford to miss out now.
The US has been trying to reduce the usage of the USD as a reserve currency (it's the largest such currency but not the only one - EUR, GBP and JPY are also used) due to it not having any real benefit to the US while exposing its economy to the effects of financial crises around the world, which tend to lead to countries purchasing dollars and driving the price up which makes imports more expensive.
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Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”?
> A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies...
> The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult.
Couldn't it be the opposite? Bitcoin is losing, so they say this to get people to think Bitcoin is good so they'll use it instead of much harder to analyze crypto?
Whenever someone talks about Bitcoin you know that they’re full of shit, because they could be talking about more modern cryptocurrencies but instead decided to talk about a legacy one.
The mainstream is confused by the sheer number of coins available. For example, I have never heard of zcash or aztek. I have no idea what they're about or how long they've existed, or whether or not they're a scam.
I understand there are different uses for all of these coins, vaguely. But I also have no idea which are scams, which are not, and which are good for what I need. Further, I have zero idea where to even start to evaluate those three points, let alone the trading process.
And a lot of that issue is because crypto zealots are sort of awful to deal with, because many times they are needlessly condescending. Ask for help in crypto forums, and you get responses such as, "don't be clueless" or "use [insert weirdly named coin here], obviously [zero references to follow this statement]."
Also, the number of people shilling various coins is genuinely startling. Too many people have too much invested in too many coins for me to be comfortable that I'm not being scammed.
Source: I am as mainstream as it gets with this stuff.
Zcash privacy features aren't even on by default. You have to explicitly choose to make private transactions. This isn't good for a coin with Tor-like properties such an anonymity set. In practice, that set will be small enough for users to stand out and be identified.
The link you provided literally has one option, "Connect", outside of the GDPR cookie banner.
I can't even see what this website is doing and you expect people to just trust their money with these types of actors? I think that says more about you than "the mainstream".
BCH is a scam. Not because they advertise that the removal of the block size limit comes without any costs, but because it regularly splits after influential but narcissistic 'leaders' attempt to grab more power and because its community continues to justify deceitful tactics to promote BCH and trick people into buying BCH when they expected Bitcoin.
Slightly off topic but SEC is going after small competition to YouTube LBRY and Odysee platform by claiming their LBRY Credits are "securities" and thus need to be regulated. If this happens to LBRY, then other cryptocurrencies will be next.
There are very specific requirements with strong precedent (see: Howey Test https://www.investopedia.com/terms/h/howey-test.asp) that must be met to be considered a security, and it is very clear that currencies like Bitcoin don't meet them. If various bodies wish to regulate it, there are plenty easier and stronger tools to use than securities laws. With that said, many companies involved in minting their own cryptocurrency (primarily during the IPO craze a few years ago) did sell unregistered securities in plain sight, often committing massive fraud alongside it, and it's no surprise that the SEC has been catching up with it over the last few years.
Most of your comment is okay but the last line in your comment seems to making a slight allegation that LBRY did something fraudulent which is not what happened nor is being accused here by the SEC. Nor is this a recent development. SEC has been harassing LBRY since May of 2018 and they have spent over a million in legal fees so far.
If this harassment continues, how any startup will be able to continue fighting bigger fish like YouTube, FB etc is beyond me.
> ...how any startup will be able to continue fighting bigger fish like YouTube, FB etc is beyond me.
Maybe by not selling unlicensed securities. Like bitchute is doing, or daily motion, or rumble, or even peertube.
I'm not saying that selling unlicensed securities should be illegal, but it currently is, and if you look at LBRY, there's a strong case that it did sell an unlicensed security.
that's okay, the market hasn't seemed to really care about any of that. its been a Sword of Damocles hanging over many tokens heads, and sometimes they've dropped pretty hard on the teams and the market shrugged it off.
the issue is that actual unregistered securities can't be traded by custodial exchanges, and registered securities have to be traded by broker dealers, and none of that exists or has any liquidity in crypto land.
but the autonomous non-custodial exchanges have more volume and liquidity now anyway
I don't see how SEC could regulate cryptos much more than they already do. I suppose the could force US exchanges to disable withdrawals like the Chinese government did a while ago for Chinese exchanges. Other than that there's nothing they can do regulation wise.
I always wondered about this, and figured I was missing something. If every transaction is recorded for eternity, then tracking funds is just a matter of linking wallets to individuals, which while that may be difficult, it's not impossible. Certainly not with the kind of funds that three letter agencies command.
I always assumed the closest you could get to anonymity with any blockchain based coin is to use a burner wallet, and convert it cash as soon as the transaction is complete--but that's just using cash with extra steps.
And the fact that it's recorded for eternity means that maybe you don't have enough information to link people to the transaction today, but the information will keep accumulating...
Monero solves this with ring signatures. Every transaction is automatically signed by a lot of wallets and there's no way to tell from which wallet the coins are actually coming from.
How I understand it, please correct me if I'm wrong :
All transactions are visible, sure, but Bitcoin also enables mass dilution and mass money washing.
Let's say there is a bitcoin address A on which you have identified that 50% of the Bitcoins are legit, and 50% came from a suspicious flagged address B.
Now what? Do you also flag A as "suspicious". What if A also made thausands other payments, do you flag all the recipients as suspicious?
Let's say you are drastic and your external system only allows payments from the addresses with a 100% verifiable and clean history. Now all I have to do as an attacker is to make a payment to your address from a flagged address I own, and all your bitcoins are also now flagged for life.
You quickly end up flagging the whole address base as suspicious, because there is no way to :
- block deposit
- differentiate Bitcoin X from Bitcoin Z
I guess something like smart contracts could change the rules, but that would be a completely new network and token
You are missing the concept of a UTXO, but that's a bit besides the point.
You are in general correct.
However, there is currently no market price difference for "untainted coins". Some are expecting a secondary market to appear, some are not. A lot to uncover in this area!
Bitcoin has become more successful as an investment or store-of-value than as an "anonymous" payment option. Even within the cryptos, there are already better options than Bitcoin if someone is worried about transaction monitoring.
Headline is misleading. The whitepaper by the CIA director emphasizes that the US should not outlaw crypto, because China would then capture all the value that the US would miss out on.
What Litecoin provides is far from what Monero provides.
And confidentiality isn't the same as fungibility. To be fungible all transactions need protection, so it cannot be opt-in. This is what Monero provides.
Being opt-in is a feature, not a bug. Because of Monero's privacy not being opt-in, there are so many exchanges that simply blacklist it. But being a hybrid coin will mean that you can use privacy when transacting, but can disable privacy when you need to interact with exchanges.
> What Litecoin provides is far from what Monero provides.
Monero's privacy technology is a bit more nuanced than Litecoin, but again, this is also a feature, not a bug. Litecoin's technology being simple means it's more difficult to get wrong, and also allows for scalability overhaul improvements, which cannot be applied to Monero (read the MimbleWimble whitepaper for more info on this).
There's always a tradeoff. MWEB allows for scalability whereas Monero won't be able to handle the same amount of traffic MWEB or Litecoin can handle. Also, for people to use XMR, they'll need access to XMR and they do not have that in the U.S.
You can buy Monero from Kraken in the US just fine.
Also, Monero actually focused on on-chain scaling with it's dynamic blocksize, as opposed to Litecoin that follows the Bitcoin way of second layer scaling.
Doesn't anyone else here think that this is a damm good thing. Getting rid of unsavoury characters and thier businesses would be good for Bitcoin in the long run and attract more asset managers to include this in their portfolio.
Does anyone know what's going on with the kovri project that's suppose implement I2p tunneling for monero? It seems like the project stalled and the developer dropped off the face of the earth.
or it's probably why the NSA published a paper on digital cash, cause bailing out banks and reinsurance companies is really fun and a positive for future generations.
And yes mayebe, but not in this case for every crypto. We all should ought to be using Monero, escape digital financail system that government can be tracking every transaction. There ought not to be any way for tracking of transaction for to be happening.
Wait what? Who has ever been caught from analysing the blockchain? Everyone uses local crypto exchanges to cashout/cashin and burner wallets. It's literally paying/receiving cash but with extra steps.
It all depends what your threat model is. Bitcoin can be traced by sophisticated nation state actors at the cost of tens of millions per intercepted target. If I was Osama bin Laden or El Chapo or a guy who personally pissed off Putin, I probably wouldn't rely on it. But if I was a local drug kingpin in Baltimore, or a corrupt mid-level CCP official, or a Cypriot corporate money launderer, then Bitcoin deanonymization is probably a small risk in the scheme of things. Certainly orders of magnitude less risk than using the traditional banking system.