A group of Cambridge researchers have come up with a decidedly flawed way of “tracking” Bitcoin that has been involved in crimes – even when a “mixing” service has been used. Their solution relies on a precedent borrowed from nineteenth century English law. However, rather than actually track specific Bitcoin, the group instead have attempted to redefine what constitutes a “tainted” Bitcoin.
Problematic Research
For the first five years of Bitcoin’s existence, countless articles appeared claiming that this new digital monetary system was entirely anonymous. Fortunately, that false narrative has largely been replaced by a more realistic one – that Bitcoin can be used with a reasonable degree of anonymity if various precautions and tools are used. These include peer-to-peer exchanges, VPNs, and above all, coin mixing platforms.
The Cambridge cybersecurity researchers now believe that even coins that have been through mixers can be tracked – providing legislators use different parameters to define a tainted coin. Mixers work by jumbling many users’ coins together and sending them back at random to those who sent them. This way it would be impossible for any coins that have been involved in a crime to be tracked as any of the receivers involved could now possess them.
The Cambridge team have dug through the history books and found an example that would conveniently (although arguably unfairly) define a tainted coin. The precedent, known as Clayton’s Case, comes from an 1816 court decision on a case dealing with bankrupt companies. It states that when a financial firm declares bankruptcy, the first customer to be paid back from whatever funds the company still has should be the one that put money in first.
The team argue that this same principle could be applied to Bitcoin mixing services – if the third transaction in the group of coins to be mixed contains a coin that was involved in a crime then the third person to be paid out would then be in possession of the “tainted”coin. According to Ross Anderson, the lead researcher in the group, if there was a risk of facing charges or having coins that were involved in crimes by using such a mixer, innocent people would stop using them.
However, such thinking is hugely reductionist. Firstly, it relies on legal bodies following this idea for defining what is and what isn’t a “tainted” coin. Secondly, if governments do use this methodology, it completely strips away a person’s ability to use Bitcoin with any degree of anonymity. Sarah Meiklejohn, a professor of cryptography at University College London told Wired:
“It basically destroys all privacy solutions for Bitcoin… The default level of anonymity in Bitcoin is not very high, and there are legitimate reasons for people to want to make it higher. It’s not a good thing for everyone to have no anonymity.”
Despite the glaring flaws in the Cambridge group’s proposal for “tracking” Bitcoin, they are planning to publish software later this year that uses the methodology. Anderson commented:
“The software we’re going to publish will let you know whether your favourite bitcoin was ever owned by Ross Ulbricht or Mt. Gox.”
In reality, the software will simply tell you that one of your Bitcoin was mixed with potentially hundreds of others at the same time as one involved in a crime. It would then be up to legislators to decide whether to punish an individual based on this information. We don’t need to tell you how unjust it would be to end up having it confiscated or facing charges based on such spurious reasoning
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