Tuesday, January 28, 2014

Laundering Money with Bitcoin

My Bitcoin address
Bitcoin is quickly becoming a way to generate (mine) and transfer funds over the Internet. Anyone can download the Bitcoin ledger detailing every payment ever made since day one, but who actually sent and received the funds is anonymous. It's literally the equivalent of digital cash. Each dollar bill I spend in the real world may be serialized, but I usually don't know the identity of the person I give it to and they don't know my identity – plus, there's no identifiable audit trail.

With the anonymity of Bitcoin comes problems similar to dealing with cash, such as losing it or money laundering. Entrepreneurs are setting up Bitcoin exchanges so people can convert Bitcoin to traditional currency and vice versa. This is how Bitcoin users get money into and out of the system. The big danger for entrepreneurs who run a Bitcoin exchange is that they may end up getting arrested if they do business with a known money launderer which is exactly what happened this week.

At lunch, today, I was discussing Bitcoin with some fellow technologists. Specifically, we talked about a college student who made over $24,000, last month, simply by waving a sign on TV with his Bitcoin address. As we discussed this we realized that this is a perfect way to launder money. Since each Bitcoin address is anonymous it makes it easier to launder money. Here's how it would work if you have a large amount of money to launder.

1. Deposit your funds, in relatively small amounts, across multiple Bitcoin accounts (you can generate an unlimited number of Bitcoin accounts). Perhaps one Bitcoin account for each transaction.

2. Advertise your Bitcoin address anywhere popular (online, in the newspaper, on TV, etc).

3. Send all of the funds in your multiple Bitcoin accounts to a single Bitcoin address.

4. Withdraw your bitcoins as cash and claim they were all anonymous donations, but don't forget to pay your taxes.

Can simply advertising your Bitcoin address result in strangers sending you Bitcoin? It did for that college student I mentioned above and it worked for me when I tweeted out my Bitcoin address and a stranger sent me 0.0001 Bitcoin (worth about 8¢).

For the record, this is my Bitcoin address:

Also, you can send me a Bitcoin using this QR code:

Bitcoin address requesting 1 BTC.

No comments: