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Why the FBI should be worried about Bitcoin

Summary: A leaked document from the FBI shows concern that cyber criminals treat Bitcoin as just another payment option alongside established virtual currencies. With no centralised authority, detecting suspicious activity can be problematic.

Eileen Brown

By Eileen Brown for Social Business |

A leaked document from the FBI highlights the concern that the government has about increased criminal activity using the Bitcoin network.

Credit: Bitcoin

Credit: Bitcoin

The FBI is concerned that cyber criminals will come to treat Bitcoin as just another payment option alongside traditional and established virtual currencies. With no centralised authority, detecting suspicious activity and obtaining transaction records is problematic.

An Intelligence Assessment report dated 24th April 2012 and graded as: 'Unclassified/For Official Use Only' has appeared on the Internet.

Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activities documents the challenges the FBI face in tracing suspicious activities.

Bitcoin is a digital peer-to-peer currency created in 2009, and one of the first implementations of a concept called crypto-currency. No central authority issues new money or tracks transactions.

Transactions are managed centrally by the network itself in a publicly distributed database called the block chain.

Sites such as Wikileaks, Free Software Foundation and Freenet accept donations in Bitcoin. There are no historical records of account owners or their actual location. There are no monitoring capabilities in place to identify suspicious monetary patterns.

Bitcoin uses public-key cryptography. The coin contains the owners public key and transactions are recorded by the network to ensure that the coin cannot be spent twice by the same person. It is not a 'get rich quick' scheme, but rather an opportunity to trade goods and services for virtual currency.

There are opportunities for criminals to transfer, launder or steal bitcoins and target Bitcoin services using malware such as Infostealer.Coinbit -- especially as the bitcoin wallet is stored in an unencrypted form on the user's PC.

The Bitcoin network hides details of any transaction by publishing multiple unique addresses to the network. Only if the sender or the recipient decides to publish details, is the transaction known. The whole network knows how much has been transferred, but not by whom or to whom.

It is not entirely anonymous, however care can be taken to ensure anonymity is increased. According to the FBI document users can:

  • Create and use a new Bitcoin address for each incoming payment.
  • Route all Bitcoin traffic through an anonymizer.
  • Combine the balance of old Bitcoin addresses into a new address to make new payments.
  • Use a specialized money laundering service.
  • Use a third-party eWallet service to consolidate addresses. Some third-party services offer the option of creating an eWallet that allows users to consolidate many bitcoin address and store and easily access their bitcoins from any device.
  • Individuals can create Bitcoin clients to seamlessly increase anonymity (such as allowing user to choose which Bitcoin addresses to make payments from), making it easier for non-technically savvy users to anonymize their Bitcoin transactions.

There is a maximum number of 23 million bitcoins that can be generated and in circulation. Currently there are over eight million Bitcoins in circulation. Bitcoin might be the future of currency but there are a lot of issues that need to be addressed first.

The challenge of discovering who has sent the bitcoin is not totally impossible to discover. With careful passive analysis of the publicly available data set, it is possible to map many users to public-keys. The centralised services such as the exchanges and wallet services are capable of identifying considerable portions of user activity.

So your transactions can be identified with careful analysis of activity tracking which takes time and money. If the transactions are ignored by law enforcement agencies, then Bitcoin will be considered a safe haven for hackers and criminals to freely conduct their activities.

The challenge for the FBI will be whether it has have the extra resources and funding available to track down the criminals it so badly needs to find.

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Topics: Government US, Government

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10 comments
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  • article doesn't really match title

    so why should the FBI be afraid of Bitcoin?
    Austen52094
    Reply Vote

    • Maybe along the lines that

      if the FBI doesn't have the resources and funding available to track down the criminals, they'll start using it more as ir requires much more effort to find the bad guy at the other end?
      William Farrel
      Reply Vote

    • For the same reason that Hawala Money Transfers are suspect

      a number of hawaladars have been indicted for money laundering, as well as hawala's potential to facilitate terrorists from transfering money.
      Your Non Advocate
      Reply Vote

  • Cure is worse than the disease

    Essentially the US authorities track almost every financial transaction in the US and much of Europe. They don't exercise total control (yet) but it's probably not far off. Between now and then, there are a number of things they want to deal with, including Bitcoin and all other forms of internet-based money systems. Most have already been suborned into allowing government taps on all transactions, Bitcoin is one of the few holdouts.

    The other "bad thing" on their list is cash money. The FBI and DEA have produced several recommendations to "control" cash transactions in addition to the laws already on the books. They include making the possession of more than $300 cash a misdemeanor offense and $5000 cash a felony!

    So, when does your money belong to the authorities and not to you? When they want it to appears to be the answer. The citizens have surrendered just about every freedom in the "wars" on drugs, terrorism, you name it.
    terry flores
    Reply Vote

    • Source for your claim?

      Care to provide a reputable source for your claim that the FBI has recommended making possession of more than $300 cash a misdemeanor? Or, is that just another urban legend?
      bkshort@...
      Reply Vote

      • Urban legend

        Could you imagine the outrage if you are forced to get a bank account?

        I heard that on their list is bicycles. The FBI and DEA have produced several recommendations to "control" auto transactions in addition to the laws already on the books. They include making the possession of a bike a misdemeanor offense, and a motocycle a felony!

        This way they can force people to buy cars, push money to the auto industry!
        William Farrel
        Reply Vote

    • Here is the truth about cash

      There is no limit to the amount you can carry, and even on flights overseas or accross the border you can carry as much as you like. If it is 10,000 or more, then you have to declare that through customs.

      [b]Any[/b] amount of money can be confiscated from your person if you are arrested for a suspected crime, but it goes without saying that anything on your person could be confiscated if it's suspected to be procedes of a crime.
      William Farrel
      Reply Vote

    • Government thugs

      We see the same command and control mentality emerging in Europe: in Spain, they've just decreed at no transactions over (I think) Euro 2,500 can be in cash.

      The biggest threat to the freedom of the people is the government.

      Sadly there are so many natural born serfs who are happy to go along.
      bilejones
      Reply Vote

  • FBI WATCH Making cruelty visible

    Nichols says bombing was FBI op

    Detailed confession filed in S.L. about Oklahoma City plot


    By Geoffrey Fattah, Deseret News
    Feb. 22 2007

    The only surviving convicted criminal in the April 19, 1995, bombing of the Alfred P. Murrah Federal Building in Oklahoma City is saying his co-conspirator, Timothy McVeigh, told him he was taking orders from a top FBI official in orchestrating the bombing.

    The only surviving convicted criminal in the April 19, 1995, bombing of the Alfred P. Murrah Federal Building in Oklahoma City is saying his co-conspirator, Timothy McVeigh, told him he was taking orders from a top FBI official in orchestrating the bombing.

    A declaration from Terry Lynn Nichols, filed in U.S. District Court in Salt Lake City, has proven to be one of the most detailed confessions by Nichols to date about his involvement in the bombing as well as the involvement of others.

    The declaration was filed as part of Salt Lake City attorney Jesse Trentadue's pending wrongful death suit against the government for the death of his brother in a federal corrections facility in Oklahoma City. Trentadue claims his brother was killed during an interrogation by FBI agents when agents mistook his brother for a suspect in the Oklahoma City bombing investigation.

    The most shocking allegation in the 19-page signed declaration is Nichols' assertion that the whole bombing plot was an FBI operation and that McVeigh let slip during a bout of anger that he was taking instruction from former FBI official Larry Potts.

    Potts was no stranger to
    msfreeh
    Reply Vote

  • Bitcoin was a fad, IMO.

    "Bitcoin might be the future of currency but there are a lot of issues that need to be addressed first."

    Eh, no. I doubt Bitcoin will ever become the future of currency. It's a neat technology in concept, but in practice nobody except a few geeky websites accept it.

    I can't pay my bills in bitcoin.
    None of my banks, physical or online, accept bitcoin.
    My employer won't pay me in bitcoin.
    None of the stores in my area take bitcoin.
    None of the websites I buy stuff from take bitcoin.

    For all intents and purposes, I can do nothing with bitcoin.

    Bitcoin has been around for three years, and still hasn't taken off - I label it as a fad, a flop, a failure to become widely accepted.

    Sorry, no - it's not the future of currency. It may want to be, but it's not. Criminals and geeks are probably the only people that will ever use it.
    CobraA1
    Reply Vote
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