Software developers have an amazing way with words. While people in other trades form chambers or associations, they join “communities,” the name given to the loosely organized groups that collaborate on the open source software that rocks our technological society.
As marketing parlance goes, it’s hard to beat; there are few warmer and more diffuse appellations in English. Think of communities and good things come to mind: families having a picnic in the park, kids at the local school raising money for charity, friends helping each other after a storm.
But some developers are less friendly than others, and we could use new words for them. An example of this comes from the world of blockchains, where there are communities currently working to thwart anti-money laundering law enforcement by creating so-called privacy coins, cryptocurrencies designed to be difficult to track or trace. .
The threat posed by privacy coins can be deduced from the fine print of a federal criminal complaint presented this month, which accuses a New York Pair of Wash Profits of the August 2016 hack of the Bitfinex exchange that generated $4.5 billion worth of bitcoins at the time the government acted. Among the techniques they allegedly used was converting some of the bitcoin into “anonymity-enhanced virtual currency,” the filing says, the most notable example being a privacy coin called Monero.
Lawyers for Ilya Lichtenstein and Heather Morgan have described the evidence against them as weak. But case it has been hailed as a triumph for law enforcement and that is true, to a degree. His arrest and the seizure of $3.6 billion in bitcoin allegedly under his control demonstrated the ability of authorities to respond to blockchain thefts and recover profits. Just as the FBI secured the nation’s banks against John Dillinger of the last century, high-tech crime fighters are making strides in protecting cryptocurrency platforms from hackers today.
The authorities benefited from the fact that the blockchains are public. They could track the stolen bitcoin because they never let it out of their sight; the proceeds from the hack were moved to the “1CGA4s wallet” and most of it stayed there. The hard part was linking the loot to the alleged perpetrators. Based on his reading of the complaint, Tom Robinson, chief scientist at Ellipticala blockchain intelligence firm, said it believed the break in the case came in 2017 when US officials shut down a “dark web” site called alpha bay. “It was necessary to trace the stolen bitcoins through AlphaBay to link these funds to the two alleged launderers,” he said.
However, stopping hackers is not the same as stopping traditional type criminals from using crypto to move their money across national borders or to hide their origins. The importance of the Bitfinex case in that battle is less certain due to what seems to have happened with the alleged launderers Monero, which obscures the identities of its owners through the use of “ring signatures”, which means that multiple parties are involved in signing a transaction, making it difficult to know who initiated it.
According to government documentation, Robinson suspects that the privacy coin was not tracked by authorities. Whether they couldn’t crack the Monero community crypto or didn’t have to, Robinson believes the result could increase crypto’s appeal to bad actors.
“This could push launderers and criminals to use Monero to a greater extent; they will see how traceable bitcoin was in this case and this will push them to use Monero instead,” he said. “We have to accept that there is untraceable digital money. The question is how we deal with it.”
I would suggest that before more taxpayer funds are spent on another money laundering investigation involving privacy coins, and I bet the Bitfinex bust didn’t come cheap, one of our congressional committees or someone in the executive branch of the government should convene Monero Community representatives to talk about things.
A little dialogue could go a long way.
There are reasons to be concerned about the protection of personal privacy on the public blockchain, and according to his writings, members of the Monero community mean well. “Monero’s cutting-edge cryptography obfuscates every layer of a transaction,” they say on their website, to empower people in “oppressive countries or depressed economies” and protect “consumers and businesses from price gouging, exploitation of the supply chain, economic discrimination, or the like”.
At the same time, elected government representatives must make it clear that even software developers have responsibilities to the wider community. Money laundering is the way big criminals get away with their ill-gotten gains. Giving up the fight against it would give victory to kleptocrats, terrorists, gangsters, drug dealers and pimps.