The first NY DFS panel of the day, and the third panel so far, was a bit disheartening. The panel included Cyrus Vance, Jr, who is the DA for NY, and Richard Zable, the Deputy US Attorney for the Southern District of NY, and focused on how law enforcement approaches Bitcoin. The first argument law enforcement made was that, though they have made significant arrests in recent cases -- including the Silk Road, BitInstant, and Liberty Reserve -- they feel that for there to have been serious crime in a currency so young tells them that there are a lot of criminals theyre not catching. Essentially, they made the argument that criminals are always more advanced -- one step ahead -- and for them to catch any criminals in an area tells them that there must be a lot of criminals theyre not catching in that same area. They urged regulators to pass legislation that helps to level the playing field by providing them with more control and mandates more identity disclosure. If one were to follow this argument, if there is any crime in any area, there must be a lot more criminals than we realize. If there are a lot more criminals than we realize, then law enforcement needs more legislation so it can identify them (they could be anyone). If law enforcement has the right amount of control and access to information, criminals can be identified and crime can be eliminated. Therefore, a police state would be the ideal answer. As with some of yesterdays discussion, the flaw in this argument is that there will always be crime, because there will always be criminals. Assuming that everyone could be a potential criminal because you dont have access to all the information on them is not only a paranoid response, its also a response that leads to more good people to want to become criminals because theyll be treated the same way either way. The second argument law enforcement made was that tools like Tor, coin tumblers, and pseudo-anonymous Bitcoin payment addresses, make it very difficult for law enforcement to tie an activity to a specific person behind the keyboard. They argued that this, combined with the possibility of Bitcoin and crypto-currencies becoming a currency of choice for national commerce makes this a major problem. This argument is ironic for a few reasons: First, Tors main funding came from the government itself -- from the US Naval Research Laboratory and the National Science Foundation. In fact, its likely a tool that NSA agents use to conceal their identities when working domestically or abroad. Second, as for coin tumblers or laundries, a major beneficial use case is law enforcement itself. If criminals are so advanced, wouldnt it be fairly obvious to them if the police suddenly purchased $100,000 in BTC and sent it to the criminal without first running it through a laundry to make the trail less obvious? Im by no means a fan of laundries -- I do agree that there are not many legitimate use cases for them in normal commerce -- but they are just as much a tool for law enforcement as they are a tool for criminals. Third, on the topic of the Bitcoin block chain, the fact that addresses are not tied to identities is a necessary side effect of having a public ledger in the first place. If the ledger was public *AND* so was everyones information, no one would use the currency. Do you really want to disclose how much money you make or have in your account to your boss, your friends, and your family? Did it benefit shoppers at Target to have their information forcibly made public by the recent credit card breach? The central issue with this second argument from law enforcement is that Tor, tumblers, and an anonymous blockchain are all tools that have their place. The tools can be used for good or bad, the tools themselves are not designed for one particular purpose or another, and law enforcement can use the tools just as well as criminals can. To draw a parallel, what about hacking and network penetration? Each year, thousands of hackers around the world break into systems, wreak havoc, and cause financial loss. Yet, the NSA and the FBI employ white hat hackers to break into criminal networks to do the same sorts of things and catch criminals. Is it not the case, then, that the intent with which the tools are used is more important than the fact that the tools exist?
Posted on: Wed, 29 Jan 2014 16:37:18 +0000
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