Bitcoin

Nicolas Christin on anonymous online market Silk Road

by Jerry Brito on August 28, 2012

Nicolas Christin, Associate Director of the Information Networking Institute at Carnegie Mellon University, discuses the Silk Road anonymous online marketplace. Silk Road is a site where buyers and sellers can exchange goods much like eBay and Craigslist. The difference is that the identity of both the buyers and sellers is anonymous and goods are exchanged for bitcoins rather than traditional currencies. The site has developed a reputation of being a popular online portal for buying and selling drugs because of this anonymity, which has caused some politicians to call for the site to be investigated and closed by law enforcement. Despite all of this, the Silk Road remains a very stable marketplace with a very good track record of consumer satisfaction. Christin conducted an extensive empirical study of the site, which he discusses.

Download

“Traveling the Silk Road: A measurement analysis of a large anonymous online marketplace”, by Chistin
“Underground Website Lets You Buy Any Drug Imaginable”, Wired
“Study estimates $2 million a month in Bitcoin drug sales”, Ars Technica
“Gavin Andresen on Bitcoin”, Surprisingly Free

Reuben Grinberg on the legality of Bitcoin

by Jerry Brito on January 31, 2012 · 9 comments

On the podcast this week, Reuben Grinberg, a recent Yale Law School graduate now in private practice in New York City, discusses his paper, published in the Hastings Science & Technology Law Journal entitled, Bitcoin: An Innovative Alternative Digital Currency. Grinberg first gives a brief overview of Bitcoin, the decentralized, digital currency. According to Grinberg, Bitcoin can maintain sustainability, even though it is not backed by an institution or commodity, but it must overcome several hurdles. Grinberg then discusses the potential security problems and legal issues Bitcoin faces. He also describes some of the unique qualities of Bitcoin, including the ability to conduct transactions anonymously. Grinberg ends the discussion with his thoughts on what Bitcoin could potentially become.

EFF Gone Wobbly on Bitcoin

by Jim Harper on June 21, 2011 · 14 comments

My expectations of the Electronic Frontier Foundation are high. It’s an organization that does a tremendous amount of good, advocating for rights to freely use new technologies. Alas, a blog post about how good EFF is would be as interesting as a newspaper story about the lack of house fires in Springfield. So I’ll share how I feel EFF has gone wobbly on Bitcoin.

Bitcoin, the very interesting distributed digital currency that is inflation-, surveillance-, and confiscation-resistant, has been getting a lot of attention. EFF announced yesterday, though, that it would reverse course and stop accepting donations denominated in Bitcoin.

Its justifications, laid out in a blessedly brief and well-organized blog post, were three: Continue reading →

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Schumer to DOJ: Shut down Silk Road and bitcoin

by Jerry Brito on June 8, 2011 · 10 comments

The day many had expected is finally here. This Reuters headline says it all: [Senators seek crackdown on “Bitcoin” currency](http://www.baltimoresun.com/business/sns-rt-us-financial-bitcoitre7573t3-20110608,0,1767151.story).

The main target of Sens. Chuck Schumer and Joe Manchin is Silk Road–the [online illicit drug bazaar](http://gawker.com/5805928/the-underground-website-where-you-can-buy-any-drug-imaginable) run via the TOR network–but bitcoin, the currency of choice on Silk Road, is also in their sights. (Also, Sens. Roy Blunt and Claire McCaskill [are also getting in on the action.](http://www.fox2now.com/news/ktvi-missouri-lawmakers-want-to-shut-down-drug-dealing-website-20110607,0,2162224.story)) In [a recent letter](http://pastebin.com/VurF7dgr) Schimer and Manchin have asked the DOJ and DEA to shut down Silk Road, and “seize” the website’s domain. More to the point, in his press conference, [which you can watch here](http://www.wpix.com/videobeta/f76e263d-8ab3-4028-bf42-1b18c3eb9b5d/News/RAW-VIDEO-Sen-Schumer-On-Silk-Road), Schumer said that bitcoin is “an online form of money laundering used to disguise the source of money, and to disguise who’s both selling and buying the drug.”

As the DOJ and DEA plan a response and this issue develops, I though I’d offer some initial thoughts:

– Bitcoin is digital cash, and like any form of cash, it can be used for good or for ill. Because, like all cash, it is largely anonymous, it will be used by persons looking to evade official scrutiny. This could be contributing anonymously to unpopular causes like Wikileaks, but it could also mean buying drugs online. We don’t ban hard to trace paper cash because we understand that there’s nothing inherently bad about it; it’s what people do with it that’s can be problematic. Bitcoin should be treated the same way.

That said about what I think ought to be, what’s really interesting is what will be regardless of normative values. That is, can Silk Road and bitcoin “cracked down”?

– The federal government is no doubt going to go after Silk Road. This sets up another “natural experiment” like [the one presented by LulzSec taking bitcoin donations](http://techliberation.com/2011/06/03/bitcoin-silk-road-and-lulzsec-oh-my/). Given that the site exists as a [.onion an anonymous hidden service](http://en.wikipedia.org/wiki/.onion) via TOR, will the feds be able to find who’s behind it and shut it down? We’ll see. They certainly won’t be able to “seize the domain” as Schumer and Manchin’s letter suggests. If a year from now the site is still operating, will we be able to say that government does not “[possess any methods of enforcement we have true reason to fear.](http://www.wired.com/wired/if/declaration/)”

– If the federal government seeks to go after bitcoin, it won’t be able to take down the network. That’s just impossible as far as I can tell. The weakest link in the bitcoin ecosystem, however, are the exchanges, like Mt Gox. These allow you to trade your bitcoins for dollars and vice versa. At this point, there’s not a lot you can buy with bitcoins, so the ability to trade them to a widely accepted currency is important.
According to Gavin Andresen, the lead developer of the bitcoin project, Mt Gox “is careful to comply with all anti-money-laundering laws and regulations.” I’d love to know more about this. As far as I can tell, we know very little about who runs Mt Gox and how they comply with the law.

– Even if the federal government is able to shut down Silk Road and exchanges like Mt Gox, we will quickly see others take their place. Silk Road will be supplanted by another anonymart ([to use Kevin Kelly’s phrase](http://www.kk.org/thetechnium/archives/2011/06/the_stealthy_an.php)), and we’ll see a replay of the drug war we know too well from meatspace. As for exchanges, we’ll see new ones pop up, likely in jurisdictions with liberal banking laws, and it will be interesting to see if Congress tries to make it illegal for financial institutions and payment processors to deal with them, just as they’ve made it illegal to deal with offshore online casinos. What I hope we’ll see emerge is a properly licensed and legally compliant domestic exchange that is as committed to fighting money laundering as Citibank. That would certainly help test bitcoin’s legality. This [great paper by Reuben Grinberg](http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1817857) that gives me hope that, for now at least, there’s nothing inherently illegal about trading bitcoins.

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Bitcoin, Silk Road, and Lulzsec oh my!

by Jerry Brito on June 3, 2011 · 25 comments

Earlier this week, Adrian Chen wrote [a great exclusive](http://gawker.com/5805928/the-underground-website-where-you-can-buy-any-drug-imaginable) for Gawker about the online market for illicit drugs Silk Road. I strongly commend the piece to you. The site is only accessible via the [anonymizing router network TOR](http://en.wikipedia.org/wiki/Tor_(anonymity_network)), although it is [viewable using tor2web](https://ianxz6zefk72ulzz.tor2web.org/). Transactions are made using bitcoins, the virtual digital currency I’ve [previously](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/) [written](http://techliberation.com/2011/04/16/bitcoin-imagine-a-net-without-intermediaries/) about, and which I explain in a [new video for Reason.tv](http://www.youtube.com/watch?v=yYTqvYqXRbY&feature=youtu.be&t=16s) (below), also out this week.

After his piece was published, Chen added the following addendum:

>**Update:** Jeff Garzik, a member of the Bitcoin core development team, says in an email that bitcoin is not as anonymous as the denizens of Silk Road would like to believe. He explains that because all Bitcoin transactions are [recorded](http://en.wikipedia.org/wiki/Bitcoin#Transactions) in a public log, though the identities of all the parties are anonymous, law enforcement could use sophisticated network analysis techniques to parse the transaction flow and track down individual Bitcoin users.

>”Attempting major illicit transactions with bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb,” he says.

I’ve been [asked](https://twitter.com/#!/elidourado/status/76088980852064257) by several folks about this: just how anonymous is bitcoin? My answer is that we don’t exactly know yet. Yes, all transactions are recorded in the public ledger that is the bitcoin network, but all that means is that you can see how many bitcoins were transferred from one account on the network to another account. This tells you nothing about the identity of the persons behind the accounts. Theoretically, you could identify just one person on the network and ask them (or coerce them) to identify the persons from whom they received payments, then go to those persons in turn and ask them who they accepted payment from, etc., until you’ve identified everyone, or just a person of interest. But you can imagine all the reasons this is impractical. More likely, a bitcoin user will be revealed through [identifying information inadvertently revealed](http://forum.bitcoin.org/index.php?topic=8.msg10621#msg10621) in the course of a transaction.

That all said, it seems that this week has also brought us a “natural experiment” that might settle the issue. LulzSec, the hacker group responsible for the [recent PBS hack](http://www.nytimes.com/2011/05/31/technology/31pbs.html), this week [announced](http://www.informationweek.com/news/security/attacks/229900111) that it has compromised the personal information of over a million Sony user accounts and has released a batch of 150,000. Here’s the thing: LulzSec is [accepting donations via Bitcoin](https://twitter.com/#!/LulzSec/status/76388576832651265) and [say they have received](https://twitter.com/#!/LulzSec/status/76667674947633152) over $100 so far. The group’s bitcoin receiving address is 176LRX4WRWD5LWDMbhr94ptb2MW9varCZP. Also, while in control of PBS.org, the group [offered vanity subdomains](https://twitter.com/#!/LulzSec/status/75159378801598464) (e.g. techliberation.pbs.org) for 2 BTC each.

So, here’s a high-profile group the FBI and Secret Service are no doubt itching to get their hands on. A bitcoin receiving address for them is public. I guess we’ll find out how anonymous it is.

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Revisiting the Bitcoin bubble

by Jerry Brito on April 25, 2011 · 12 comments

Here is [a chart](http://bitcoincharts.com/charts/mtgoxUSD#rg180ztgCzm1g10zm2g25) of the Bitcoin-dollar exchange rate for the past six months. The arrow notes the date [my column on the virtual currency](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/) was published in TIME.com. The day after that piece was published, the Bitcoin exchange rate [reached an all time high at $1.19](http://www.bitcoinnews.com/post/4703632837/daily-2011-04-17). Yesterday, just over a week later, [it was pushing $2](http://www.bitcoinnews.com/post/4897524633/daily2011-04-24).

A wiser fella than myself once said, correlation is not causation, and no doubt my article was just a contributing factor in Bitcoin’s recent run-up. It’s simply getting increasingly mainstream attention, and with that more speculators and speculation about mainstream adoption. The chart above lends a lot of credence to Tim Lee’s [bubble critique](http://timothyblee.com/2011/04/18/the-bitcoin-bubble/), so I wanted to make sure I wasn’t giving that argument short shrift.

There may well be a Bitcoin bubble, and it may even be likely. But again, I think that misses the greater point about what Bitcoin represents. Bitcoin may be tulips and the bubble may burst, but the innovation—distributed, anonymous payments—is here to stay. Napster went bust, but its innovation presaged BitTorrent, which is here to stay. Could the Bitcoin project itself go bust? Certainly, but the innovation solving the double-spending problem I’ve been talking about, will be taken up and improved by others, just as other picked up and ran with Napster’s innovation.

I want to start thinking through the practical and legal implications of that innovation. If you don’t think the innovation could ever allow for a useful store of value, then mine is a fool’s errand. I guess I’m betting on the success of a censorship resistant currency.

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Bitcoin, intermediaries, and information control

by Jerry Brito on April 20, 2011 · 36 comments

I’m gratified that my recent writing on the Bitcoin virtual currency project has stirred much conversation and I thought I’d take a moment to continue that conversation.

Tim Lee has written two posts critiquing the viability of Bitcoin from the supply and demand side. Dan Rothschild has responded in part. Tyler Cower also weighed in.

To address Tim I’ll simply say this: Do I think Bitcoin will replace the dollar? No. Might Bitcoin have certain systemic design flaws that might impede its success? Quite possibly. Will Bitcoin become the de facto, manipulation-proof currency of the internet? Who knows. Tim’s posts are a somewhat technical critique of Bitcoin’s long-term feasibility. It’s a great contribution, but since I’m neither a gold bug nor a Bitcoin booster per se, I don’t find it especially interesting.

That all said, what I do think is revolutionary about Bitcoin is that its developers have solved, without the use of a middleman, the double-spending problem faced by virtual currencies. That gives us license to realistically imagine a world without regulable financial intermediaries online.

While Tim overlooks what makes Bitcoin radical, Tom Sydnor groks it viscerally. Writing in a lengthy comment on my post, Tom expresses dismay at what Bitcoin represents and offers what I would, with apologies, characterize as the cyber-conservative response. Continue reading →

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Gavin Andresen on Bitcoin

by Jerry Brito on April 19, 2011 · 2 comments

On the podcast this week, Gavin Andresen, project lead of the open source, decentralized, and anonymous virtual currency project Bitcoin, talks about the project. Andresen explains how the peer-to-peer currency functions and talks about what allows Bitcoin to operate without a central bank, why it doesn’t have to rely on intermediaries, and how it overcomes the double-spending problem. He also discusses the project’s implications for government regulation, what attracted him to the project, and Bitcoin inventor Satoshi Nakomoto’s motivation for creating the currency.

Bitcoin: Imagine a net without intermediaries

by Jerry Brito on April 16, 2011 · 43 comments

Yesterday the FBI effectively [shut down](http://thehill.com/blogs/hillicon-valley/technology/156429-fbi-shuts-down-online-poker-sites) three of the largest gambling sites online and indicted their executives. From a tech policy perspective, these events highlight how central intermediary control is to the regulation of the internet.

Department of Justice lawyers were able to take down the sites using the same tools we’ve [seen DHS use](http://techland.time.com/2011/02/17/operation-protect-our-children-accidentally-shutters-84000-sites/) against alleged pirate and child porn sites: they seize the domain names. Because the sites are hosted overseas (where online gambling is legal), the feds can’t physically shut down the servers, so they do the next best thing. They get a seizure warrant for the domain names that point to the servers and [force the domain name registrars](http://pokerati.com/2011/04/15/poker-panic-11-update-on-domain-name-seizures/) to point them instead to a government IP address, such as [50.17.223.71](http://50.17.223.71). The most popular TLDs, including .com, .net, .org, and .info, have registrars that are American companies within U.S. jurisdiction.

Another intermediary point of control for the federal government are payment processors. The indictments revealed yesterday relate to violations of the [Unlawful Internet Gambling Enforcement Act](http://www.firstamendment.com/site-articles/UIEGA/), which makes it illegal for banks and processors like Visa, MasterCard and PayPal to let consenting adults use their money to gamble online. According to the DOJ, in order to let them bet, the poker sites “arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.” ([PDF](http://www.wired.com/images_blogs/threatlevel/2011/04/scheinbergetalindictmentpr.pdf))

Now, imagine if there were no intermediaries.

[In my TIME.com Techland column today, I write about Bitcoin](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/), a completely decentralized and anonymous virtual currency that I think will be revolutionary.

>Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace.

And if a P2P currency can make it so that there is no fiscal intermediary to regulate, how about a distributed DNS system so that there are no registrars to coerce? This is something Peter Sunde of Pirate Bay fame [has been working on](http://www.wired.co.uk/news/archive/2010-12/02/peter-sunde-p2p-dns). These ideas may sound radical and far-fetched, but if we truly want to see an online regime of “[denationalized liberalism](http://techliberation.com/2010/11/28/mueller%E2%80%99s-networks-and-states-classical-liberalism-for-the-information-age/),” as Milton Mueller puts it, then getting rid of the intermediaries in the net’s infrastructure might be the best path forward.

Again, check out [my piece in TIME](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/) for a thorough explanation of Bitcoin and its implications. I plan to be writing about it a lot more and devote some of my research time to it.

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