It's an interesting question. In the more classic sense, what proceeds should be stripped if you get cash in exchange for drugs and use that cash to buy GME calls which skyrocket?
On the one hand it's all "blood money" / tainted, but the actual proceeds at the time of the crime have a specific value.
> “The lesson to be learned from this is to keep the value in bitcoin, that the profit from the crime should be 36 bitcoin, regardless of what value the bitcoin has at the time,” [the prosecutor] reportedly said.
It sounds like the police tripped a loophole in law by liquidating some of the BTC. Sounds like if the police had HODL'd they'd have been fine defending it as just look, these were the assets he had, we seized them. But since they liquidated, the defense got to say, hey, you already got the full proceeds.
My interpretation of the article is that the court recognized the proceeds in terms of Swedish Kroner at the time that the BTC were seized, so was unable to account for the increasing value of BTC in terms of Kroner - they had not legally seized ~$1.7m, they had legally seized $137,000, and so had to pay back the difference.
From the article - "The lesson to be learned from this is to keep the value in bitcoin, that the profit from the crime should be 36 bitcoin, regardless of what value the bitcoin has at the time".
In fact it makes it seem the fault of the prosecutor even and not the court. Quotes from the prosecutor from the Telegraph article.
> "It has led to consequences I was not able to foresee at the time."
> "I think we should probably invest in an internal education in the [prosecution] authority, as cryptocurrency will be a factor we'll be dealing with to a much greater extent than we are today. The more we increase the level of knowledge within the organization, the fewer mistakes we will make."
I'm not familiar with the swedish legal system (and not a lawyer), but often you can only be convicted for things the prosecution requests/accuses you of. Otherwise you can't defend yourself in court.
So the prosecution ordered the bitcoin to be seized as proceeds of the crime, but not in a correct way, so the court ruling contained the same wording that a specific value in swedish Kronen shall be seized. Had the prosecution demanded the seizure in terms of Bitcoin instead, the court would probably have approved it too. However, at this point it's too late to change the ruling. Courts exist to settle things, and one can't simply re-roll a prosecution case unless there were grave mistakes.
It's not that the police liquidated the BTC, it's that the argument that was made in court was for the current cash value of the BTC. Instead of arguing that the value of the crime was 36 bitcoin the prosecutor argued that if was $137000 which was equivalent at the time.
One interesting consequence is that the drug dealer would have had to pay the difference if bitcoin had dropped in value instead of rising.
As an American it's a bit surprising to me that Sweden actually follows the quaint notion of justice and rule of law. Sounds like they even require property taken to be specifically listed and related to a crime as proven in a court of law. In the US authorities would've likely been able to keep all the BTC, and also could've seized the drug dealers home and car if they had any.
In Florida (and many other states) it was/is common practice that any excuse police made could be used to seize almost any of a person's property, essentially on the spot. Generally without even needing to arrest the person or charge them with a crime or get a warrant. Just based on "suspicion" on the cops behalf.
Thank good Ole "rule of law" President Reagan and the war on drugs for that one. See:
I don't think the dealer would have to pay the difference in value if it lost value.
Otherwise, you'd have to pay for the loss in value of a seized car if it's sold only years later or the loss in value of gold bars seized if the market on those crashed in the meantime.
I don't see why the drug dealer would get the money back if it gained value but not have to pay the difference if it lost value. Presumably the prosecutor/court's handling of other assets is different which is why it's stated in the article that education about cryptocurrencies is needed.
Another possibility is that this really only arises as a result of the fact that the drug dealer received payment in bitcoin whereas it's less likely a drug dealer would be paid in gold or cars.
The state seized X $ of assets from you and notes as such. After 6 months, they finally get to auction it off, it is now worth X + Y $. Since the state seized X $ of assets, they ought to give back the Y $. They got what they wanted as they have seized X $ not X + Y $.
If the assets are now worth X - Y $ (Y <= X) then nothing happens, as the state has seized the amount X from you already. They got what they wanted back then and that it is worth less is not your fault.
Simply because the legal paperwork listed the value in Swedish crowns rather than in bitcoins.
As I understand this article, the same would have happened if the legal paperwork listed the value of the house in crowns, and then the housing market rose and the house tripled in value.
The only unusual thing with Bitcoins, is that the value thereof has risen to quite extreme proportions.
Oh, I understand why it's happened in this particular case. It's a loophole they'll be closing for sure. My comments were directed at the parent:
> what proceeds should be stripped if you get cash in exchange for drugs and use that cash to buy GME calls which skyrocket?
> but the actual proceeds at the time of the crime have a specific value
The specific value at the time is, in nearly every other situation, irrelevant. The mistake was putting a claim to a monetary value of *asset* rather than the *asset* itself.
It sounds like in Sweden you can only strip the value of asset (value in Swedish Krona, I imagine) related to the crime directly not the asset class itself.
A guess at why it's like that would be - people flow value of drugs/illicit goods, rarely holding the value for long. This means the prosecutor wants to set an amount for "all drug deals they can convict for" and then try to seize that value.
Clearly before crypto the only thing that would wildly fluctuate vs the country's currency is stocks. No one's doing drug deals in stocks so the law was written in value. If they did seize things like stocks it's clear they had a process to sell the liquid asset (they tried to sell the BTC), but they couldn't get their ducks in order to sell it, haha.
I'm sure there's going to be a change to the law to seize the asset as a whole instead of pegging it to some particular value.
I guess the flip side to this has historically played in the favour of the authorities. Ill-gotten gains would be laundered through a casino where you’d turn it all over over the course of several hours playing a game with a low house edge. You’d lose a bit to the house, but now have some potential legitimacy to how you have the funds.
I assume under this approach the authorities would have claimed the full amount you started with and not what you were now left with. Crypto just happens to have been a casino where people have been winning.
They can do either, but they have to actually decide what they do. In this partivular case their was no established best practise of how to do, and the choice that was made backfired. They will alter their behaviour.
Is it an interesting question? That prosecutor’s department in that country booked the value in fiat at the time and didn't have a mechanism for booking the value in the asset.
People have been saying they have their own nexus currencies for the whole last decade, and others spent too much time ignoring that in. Now it bit Sweden in the ass, for now.
It's interesting (to me), because of the whole idea that crypto are in fact cryptocurrencies.
So unlike buying a house or buying stock options, the argument can be made that the crypto is itself the medium of exchange and therefore the value in fiat is irrelevant.
But this also means that if the crypto drops in price while the cops are HODLing it, they lose out.
my question is whether we should consider these crypto clean, or whether we should stop trying to determine if crypto provenance is clean or not as it doesn't seem possible to rely on the due process of every municipality worldwide, unless the state is deemed as the crypto washer - magically cleaning all crypto as it temporarily seizes and auctions them or returns them - in which case a state will take advantage of that
You give them the full BTC in return even if you have to buy the coins again. If the value goes up, you cash it out and return what the BTC was valued at the time of seizure and pocket the rest.
See, I can play cops and robbers too. However, growing up I thought it was two distinct groups. The cops on one side, and the robbers on the other. As an adult, I see it was just two descriptions of the same group.
Perhaps they would been liable for making up the difference? Although they could have then argued if the police had liquidated the bitcoin at the time of seizure, there wouldn't have been a loss.
So, who's going to enforce the gov't follow through? I don't know the intricacies of Sweden's gov't separation of powers and what not, but what kind of recourse is available to force the gov't to do this?
In the US if the court really wants to I think it can start tossing government officials in prison for defying court orders for contempt of court. That's a fairly common feature of European courts and their descendants AFAIK. It's a very bad sign when that starts happening though, it's the system starting to fall apart.
This will not be an issue for the drug dealer. The part of the government who deals with this is separate from police and prosecutor and is the same organization which helps the electricity company getting their money if the home owner doesn't pay.
Corruption is relatively low in Sweden and in this branch I consider it essentially non-existant.
The courts/police don't have to pay back any interest made when they seize cash do they? Or appreciated value of products/cars/whatever seized? Seems like a pretty obvious thing to me in this case that any profits made were made after seizure and have nothing to do with the original owner?
The prosecutor admitted it was a mistake and that she needs more education and won't do it again in future. But also attempted to deny responsibility by pretending she couldn't have known bitcoin value might go up.
If the government considers the value in crytocurrency for sentences, it will have a hard time justifying that you must pay your capital gain the the fiat currency of the country and not in the crytocurrency in which it was made.
This correct, to me that would mean paying taxes when switching between fiat and cryptocurrency which I support as one option.
What I dont support is taxing when switching in between crytocurrencies. Which in the analogy would be me exchanging my potatoes for carrots. Imagine if I had to pay taxes on my exchanged potatoes while I didnt make a dime on that.
Is it to stop you paying for your carrots, or your rent (et al), in potatoes.. or trading your potatoes for gold rather than fiat to avoid taxation? Governments are incentivised to force all transactions in terms of fiat.
That said, I agree it's frustrating that you are liable for what are unrealised price changes (IMO it's not profit until it's in the bank).
> Which in the analogy would be me exchanging my potatoes for carrots.
In the United States and in many other jurisdictions, if you realize a profit through commodity exchange, you owe tax on the fair market value of the exchange.
Does anyone understand the legal logic behind such a risky decision? I mean, if they confiscate an asset, why wouldn't they just hold onto it until the legal process is settled?
If it was a car that they confiscated, would they still have the car or would they also need to buy the car today? I am honestly curious as to how this makes any legal sense.
Yes. It makes sense if you think of it as debt - he had a debt of $137000 and they had seized assets to cover the debt. The assets covered more than the debt so the remainder was paid back. If the assets hadn't covered the debt he would have had to cover it separately.
But why would it be a debt? They stripped him of the proceeds of the drug deals: 36 bitcoins. Why is the cash value of those bitcoins at the time of seizure relevant? If they had seized his car, and it depreciated between when they seized and auctioned it, does he owe them the difference too? Why should the legal system treat seized assets as equivalent monetary value debts?
It's a debt because the way the legal system carried out stripping him of his earnings was to give him a fine equal to the value of the BTC at the time. This was of course a mistake which is why this whole thing blew up, but in practice that's how it was handled.
It seems wrong to both seize the assets and then also force the defendant to pay a debt from those assets. If bitcoin goes down then they would be on the hook for a massive amount of money that they don't have. I doubt the defendant would be able to tell the prosecutors to sell the assets if, say, bitcoin crashed last year.
Absolutely, but it also seems wrong that assets gained through criminal activities are now being paid out completely clean to the convicted criminal. As the prosecutor is quoted saying in the article it's a mistake to convert a variable value asset into a fixed price, especially when Swedish government inefficiency leads to the asset being liquidated 2 years later.
> it also seems wrong that assets gained through criminal activities are now being paid out completely clean to the convicted criminal.
That's the key indeed. I think I get it now! Anyway, the simple thing would be counting btc if btc is confiscated and counting cars if cars are confiscated. Then I don't see how it could blow up, but I guess it just can't be that simple.
Reading the story, it appears that the bitcoins were held by the police and only recently were some sold for cash.
"But by the time the Swedish Enforcement Authority began auctioning off the crypto, bitcoin had skyrocketed in value — and only three had to be sold to amount to the value that was booked as the dealer’s profit at the time of his arrest."
If the police confiscated everything you owned to cover a fine for $100, isn't it reasonable to get the difference back?
> They seem mad because they missed an opportunity to make 1.6M then.
I think it's more that they're mad because someone managed to make and keep 7 figures profit from a crime that they were caught doing purely because the justice system screwed up.
It's hard to keep the "crime doesn't pay" messaging when stuff like that happens.
>If the police confiscated everything you owned to cover a fine for $100, isn't it reasonable to get the difference back?
Legally this is correct and exactly what happened.
The reason this is becoming an issue is that all the bitcoins that were seized were from selling drugs. The point of the fine is to match the profit of the crime so reasonably it should have taken all of the bitcoin regardless of the underlying value.
If he had sold drugs for a gold ring and then the price of gold went up, should he have gotten a bit of the ring back?
It's not clear from the article that the drug dealer sold drugs for bitcoins. It seems a little more likely that he converted money into bitcoins, and the authorities didn't know how to trace the proceeds through a fungible asset. This is literally the definition of money laundering.
I don't read Swedish, but the Google translation says, "the police managed to secure 36 bitcoins which, according to the chamber prosecutor, come from the men's drug sales."
That seems to be an assertion the prosecutor made, but I see no facts to support that statement. Prosecutors say those sorts of things all the time in order to win cases.
Are you saying the prosecutor is correct or that the translation is false?
Since the court ordered the dealer to pay the equivalent of 36 bitcoins I'm assuming that the court found it well enough established that the bitcoin came from the drug sales.
that's why you seize the Ferrari, it seems they instead, hey, you have a Ferrari worth 100k, you now owe us 100k and will sell the Ferrari to get that 100k, and then they sell it and get 200k, you now have to give them the 100k because you only asked for the 100k, not the Ferrari.
As they say in the article, next time, if they seize 36 bitcoin, then you have to give up 36 bitcoin, not the dollar value they are worth at the time.
They can't be easily traced to a particular person is what they mean. Detached from names it's largely meaningless like an encrypted chat, technically the data's all there but it needs other data to be usefully tracked.
It's way easier to correlate activity to a particular person with a blockchain than with traditional banking. There are no administrative hoops to getting access to transaction data.
Anything you tumble, you can (provably) de-tumble. It's just expensive and time-consuming (re-building the blockchain state, yadda yadda). Crypto banking is less anonymous than actual banking, especially if you actually want to pull your money into fiat and need to go through an exchange.
Bitcoin Cash has CashFusion, which does not rely on a central server, and since transactions are less than a cent, you can shuffle your coins as much as you want.
I'd love to see an analysis of the real-world numbers, though I suspect you may be right. Note also it's a function of time (ie if you run the maker side yourself you will participate in others' joins and slowly work up your anonymity set). Over several weeks/months it may be viable to obfuscate even significant amounts.
not really? If you have a transaction that has five equally sized inputs A_{1...5} and five equally sized outputs B_{1...5}, then the max extent you can "provably" de-tumble B_1 is saying "there's a 20% chance that it came from A_1, 20% chance it came from A_2, ..."
> there's a 20% chance that it came from A_1, 20% chance it came from A_2, ...
You can't do this[1], as the blockchain does its best to be perfectly deterministic. Best you can do is get an oracle to get you a random seed (which you'll see publicly in the oracle token), so you'll know exactly "what went where."
Explain to me why there would need to be a smart contract with an unpredictable source of randomness for this to work. Coinjoins are running well on Bitcoin, mind you.
The transaction chains are generally constructed off-chain.
For Ethereum you can do fancier things with zk constructs, like Aztec and Tornado Cash.
> Anything you tumble, you can (provably) de-tumble.
Source? Enough CoinJoins (Wasabi+Joinmarket) and I don’t think so. Note CJ work a bit different than the oldschool custodial tumblers. Combining CJs with LN (reverse) submarine swap for another layer.
With large enough anyonymity sets you should have plausible deniability. This is also a bit time-consuming, more so the larger the amount; there’s no way to do a complete end-to-end transaction of billions of dollars untracably in mere hours without standing out I think. But if you have days/weeks to break the link I think it’s def doable and done.
Obviously make one single mistake and you’re out, but that’s in the nature of these things.
If I’m wrong I’d very much appreciate something substantial.
Right, and it doesn't even require actual tumblers. Any service where you can deposit and then withdraw bitcoin can be used as a tumbler: gambling sites, exchanges, bitcoin marketplaces etc. Each time this is done the link is broken, and to de-tumble you need transaction history from each of those services. It's like if you want to deanonymize someone who connects to Internet though 10 VPNs: you need logs for ALL 10 VPNs to deanonymize the user. Criminals can also exchange bitcoin to Monero through anonymous exchanges, let it sit for a while and then exchange back over time.
I'm under the impression that this isn't true if the currency is converted to a privacy coin first and then tumbled. Though of course if not done properly then the chain's state can be determined. Though I'm sure this is even more time consuming and expensive to determine.
I don't really know, but putting myself in a criminal's shoes, I don't like the idea that my transactions stay in plain view forever. It makes statistical attacks very, very easy. It also makes me vulnerable as-of-yet-undiscovered statistical attacks.
BitCoin is arguably the worst thing for organized crime.
Tell that to the guys that have been launching coin/token scams to the tune of hundreds of millions of dollars and are now buying out traditional companies with their flash cash.
We will soon be living in a world where crime is the norm.
In current_year people use cryptographically secure tumbler-like services like Tornado Cash. Everyone will just assume you're a criminal if your funds come from Tornado Cash and you don't prove the origin before then though.
Maybe: even assuming that the one you use isn’t run by the FBI, compromised, or sloppy with their security, it’s still easy to block transactions which trace back to one and that both lowers the value of those coins and increases the risk of using them.
Some people will say they aren’t doing anything big enough to warrant attention but that’s forgetting that everyone using a tumbler is paying extra to help anonymous strangers launder money. If anyone involved attracts attention it’ll bring scrutiny to everyone else, and potentially the need to prove that you were “just” committing a small-scale crime and didn’t know that most of the other coins being tumbled belonged to a cartel.
This is exactly the potential danger of countries creating their own digital currency. If they aren't privacy coins then said government has a ledger of every single transaction that its citizens have made. And in that case the gov will know what IDs correspond to which names. Of course if the country adopts a privacy coin this would in turn be a great win for privacy. Of course there's still the danger of if we can ensure that privacy and ensure that it stays that way. So this is something many need to consider during discussions about the FedCoin and Digital Yuan. The "crypto" in "cryptocurrency" isn't necessarily the same "crypto" as we understand in privacy. E.g. Bank transactions are cryptographically secure, but not private.
It can almost always be easily traced to a particular person. if you're using it, you probably bought it from somewhere and spent it somewhere. Mixers/coinjoins can launder it but it is risk-prone and time-consuming, and a redflag.
> It can almost always be easily traced to a particular person
Once KYC gets involved.
If I receive coins in my desktop wallet for the cookies I'm selling, how will anyone know who I am? Of course they're not much use until I cash out and then it's a different story.
> Of course they're not much use until I cash out...
Or you could use the currency as a currency. Sure, there are a lot more flour suppliers who exclusively accept USD vs ones that take BTC - but compared to the way things were 10 years ago...
It sounds like your definition of "cashing out" means "do anything that has historically involved counterparty risk". Unless you really think a warehouse manager would insist on carding you for several pallets of dishwashing detergent...
That sounds like exactly the kind of thing that raises some eyes.
You usually need some form of distributor's license to not have to pay sales tax on the transaction. That license requires identification.
Of course you could refuse that and just pay the sales tax, but who does that? I would be a little surprised if they even had the means to do it. Warehouses normally sell to distributors, who have distributor's licenses so they don't pay sales tax. Why would they have a system to collect sales tax and send it to the government? That transaction is going to stand out, a lot. Trying to pay for it in Bitcoin is only going to make it worse.
Unless, of course, you're trying to pay the warehouse manager to help you steal the dishwashing detergent. There's no papertrail, but remarkably high counterparty risk. Plus at the end you're stuck with a bunch of hot dishwashing detergent that you're going to have to offload.
Having worked for a company that did a lot of contract work for small-item/high-value RMA (which regularly gets sold to 2nd tier outlets), drop shipping, LTL freight, etc: it was totally normal for a rental box truck to roll up to the dock and get loaded after the driver presented an invoice matching what was on record. What tax jurisdiction was being operated under or level of needless personal data collection happened before that was up to whoever ran whichever digital storefront they used, all the shipping dock cared about was the invoice number. I don't know what incentive anyone would have had to give the purchaser the third degree - assuming the risk of a clawback was mitigated... so they'd doubly not care about a BTC based sale.
Way back in the day I took some profit by purchasing something like $50k in server hardware that needed to be bought one way or the other. Nothing but a "ship to" address and a BTC private key. Was I trying to secretly launder money? Nope, just a boring business transaction that didn't involve VISA. Was it to cheat the tax man? Nope, the IRS had very pointed refused to issue tax guidance up to that point (and continued to do so for years) - so I just paid the long term capital gains when doing the other paperwork one does in a self funded a business venture.
I always wonder about the people who assume cryptocurrency is something that needs a level of law enforcement scrutiny beyond any other method of payment, how much misinformation was required to yield that result, and if they'll be able to adapt to the inevitable.
It isn't a problem. I guess it potentially could be a problem if I had been buying a fleet of cigarette boats that ended up being used for drug running. Or if I could be personally embarrassed in the event that the transaction linked a wallet that I was publicly known to control to a German dungeon porn emporium's hot wallet. So if you wanna do those things - be mindful of the public ledger thing. It is funny whenever an "influencer" gets paid to promote a scamcoin and predictably flaunts his wad - accidentally sharing far more than he knew was possible.
It sounds to me like you tried to purchase from a seller who expected to be paid in USD, not BTC (which doesn't need a "processor"). Do you really not know why this is a silly complaint - especially given the context?
Not really an option for these underground cookie markets. The seller on the other hand does have people's details because they need to send the goods somewhere. The buyer would have no idea who he's dealing with.
Overnighted cash drops to a PO box are fairly reliable. Localbitcoins and its spinoffs used to be a popular option, but it seems they're a shell of their former selves.
It's definitely a lot more difficult nowadays, though.
> Localbitcoins and its spinoffs used to be a popular option, but it seems they're a shell of their former selves
It's because KYC requirements and money changing regulation were applied to people selling btc in any real quantity. Someone I knew caught a case a few years ago for doing essentially the localbitcoin (and not telling the undercover to leave when the cop implied he got the money from selling drugs... allegedly).
It is easier now afaik. Localbitcoins itself is essentially deprecated but there are always alternatives, and a lot more people now than there were in 2013 and so
> If I receive coins in my desktop wallet for the cookies I'm selling, how will anyone know who I am?
If I bought cookies from you and paid with crypto you have to know the address I want you to send the cookies to. Or I have to pick them up in person and you'll see me. Either case greatly reduces anonymity.
This vulnerability doesn't exactly exist for all crypto. Privacy coins aren't necessarily unique (or at least for practical purposes). The uniqueness of the coin is what allows it to be tracked. That's why we know where the GOX coins are and this is why that hacker can't use those coins. As soon as they try to turn that into real money we got 'em.
> That's why we know where the GOX coins are and this is why that hacker can't use those coins. As soon as they try to turn that into real money we got 'em.
What stops them from converting the coins into something else (e.g. some other cryptocurrency or commodity) in a jurisdiction that doesn't do KYC, and then converting that into dollars? Or just dumping it into a cryptocurrency tumbler?
The whole concept of tracing the source of money is kind of ridiculous. If somebody robs a bank and the bank robber buys a shoe and the shoemaker buys a cake and the baker buys a portrait and the artist buys a screw driver and the hardware store owner deposits the money with that serial number in the bank, the hardware store owner has really nothing to do with the bank robbery, and isn't going to remember which of their thousand customers paid them with that specific bill.
And if you try to say the hardware store owner doesn't get to keep the money all you're doing is causing the money to be stolen twice.
The sender knows where the recipient is but not the other way round. The recipient can see where the package was posted from but that doesn't necessarily mean the seller lives there.
I can advise you to pay attention to the new stablecoin from the Utopia of p2p https://u.is/en/currencies.html. Paired with the Crypton coin, they are the most reliable and secure project in 2021.
Info only needs to be involved once. It's a big ask to obtain and dispose of the coins while maintaining anonymity at every step. Buy one item an online store to your IRL address and then it might propagate through all your wallets. It doesn't really need to be KYC, just your name or email or address etc... Even IP address
> They can't be easily traced to a particular person is what they mean
Exchanges typically ask for an ID in most countries these day before you can purchase any crypto. I'd be curious how you avoid detection unless you started very early in crypto by mining on your own. You'd still need an ID to exchange back to fiat anyway.
Monero blockchain lets you see nothing. The only way to track you is via centralized exchanges which are essentially banks anyway. If XMR is used as currency directly, the government is screwed.
Last time the US tried to sanction a Monero address, it ended up sanctioning a transaction.
You mean other than the decoy selection vulnerability that could be used to unmask transactions as recently as last month, right[1]? I would take most cryptocurrency outfits’ claims of anonymity with an appropriately sized hunk of salt.
That is not correct, the vulnerability you are talking about is barely a vulnerability. It did not unmask transactions in the sense that no sender, recipient or amount (which are the properties that are hidden in the monero blockchain) was revealed. The issue only arises in some very specific scenarios, and the only information leaked is that you are more likely to be the one making the transaction (as monero hides the sender by using "decoys") in the case were you receive and spend a transaction in a very short span of time.
While bold cryptographic claims should be taken with responsibility, monero is researched and implemented by well known criptographers and researchers in a very serious way. Almost all (if not all) aspects of the protocol come directly from proven and well understood theory and published research.
> While bold cryptographic claims should be taken with responsibility, monero is researched and implemented by well known criptographers and researchers in a very serious way. Almost all (if not all) aspects of the protocol come directly from proven and well understood theory and published research.
I have a lot of friends and acquaintances who (despite my nagging) work at cryptocurrency shops, and I personally do some entirely separate work on provable computation. To call cryptocurrencies' use of zero-knowledge proofs "proven and well understood" is a tremendous overstatement: they're a brand new area within cryptography. We don't really know what their properties are yet, and we haven't even begun to comprehensively document weakness in construction, implementation, &c. the way we do for actually established cryptosystems. The deluge of published research on ZK/OT/&c. is evidence for this: everybody is scrambling to explore and publish on a new, immature research domain.
You are just talking without any bases. It is true that ZK is a rather new concept in applied cryptography, but the theory has been around for a while now, without any relevant breakthrough in possible attacks. Monero cryptography comes from primitives that are not new to cryptocurrencies and have been in the cryptography scene for a couple of decades now. One could argue that theory and implementation are two very different problems, but even in the implementation side there haven't been any severe vulnerabilities (the only that comes to my mind now is the double spending attack that could be done because of a missing check in a signature). Again, the one you cited is far from a real attack on Monero.
Do you have any concrete examples of parts of the protocol that are so new and immature that we should distrust for this reason?
At the end of the day it is a matter of trust and risk. I trust the mathematics of it because I took the time to read about it and understand the claims of security being made. I also have some trust in the team writing the software because I have been following their development relatively close. You may have done the same and come to the conclusion that they are not that serious or competent, but claiming that Monero is not to be trusted because the cryptography is too new is just an exaggerated view. This things are not being claimed without a proper basis.
Now, I am only talking about Monero here, there are several other crypto-systems using more esoteric methods than Monero that I wouldn't have the same trust in them, like ZCash and its derivatives. They use far more novel cryptography (zk-SNARKs) and some debatable design decisions (trusted setup, optional privacy, developers taking a chunk of mined coins).
To me the most outstanding question is: are these bitcoin clean?
Does a random country’s random procedural gracing make the crypto magically clean again?
It was seized, and now its not! So the crypto is clean now! It doesn't matter if you respect that country! Or even that a municipalities civil asset forfeiture process!
To me this has been a big hole in Elliptic and Chainanalysis’ business, along with other merchants and exchanges that try to trace crypto origins to determine if the account should be frozen or not.
I’m open to opinions on this, but my current thought is that attempting any crypto AML/KYC is a joke, but its great snake oil to sell to exchanges and government agencies. I think crypto accelerates and illuminates the folly of transaction whitelisting/blacklisting.
Things have value because we say so. How else can you explain the worth of a $100 banknote being higher than the paper and the ink it's made of? Bitcoin is the same.
You are right, $100 have value because people have an agreement that it does. This is not the case for Bitcoin… there are folks who wish it were. It’s like saying “from today on, I can buy stuff with emojis”. Even Monopoly money go back in the box at the end of the day.
It's not quite so simple. Government backed money has some intrinsic value because if you don't have any the government will put you in jail for not paying taxes. The IRS does not accept crypto.
You can also get into "everything is make believe" easily enough, so this isn't very helpful either way.
The IRS does not accept cash either.
And the process of converting your cash into bits that the IRS accepts ends up being the same process as converting your crypto into bits that the IRS accepts.
I don't even think you actually believe this. It's conceivable that bitcoins value could someday be worthless. Dollars will never be worthless until the US government collapses because you will always nened them to stay out of jail.
If you think of Dollars as "get out of US jail" cards it's pretty easy to see how they have intrinsic value.
You also can't pay taxes with US$ in most countries outside the US. They only accept local currency.
The IRS not accepting cryptocurrencies is irrelevant; you can take a look at any trading platform and find that there are people, right now, willing to part with more than 49000 of their "government backed US dollars with their intrinsic value and ability to pay taxes" to acquire a single bitcoin.
It's an evolutionary argument. A society that produces the kind of people who value harmful or useless things is not tenable, so societies tend to produce the kinds of people who value helpful things. In the long run, this tendancy is absolute.
If someone sold drugs for rare artwork, would the government keep the artwork? Would they sell it? What if during trial a museum burns down and now this is the last painting buy the artist and the value skyrockets. Should the government let the person get a portion of that value?
If someone sold drugs for cash, and used the cash to buy a lottery ticket - should the government demand the cash or the ticket? What if the ticket ends up winning?
If someone sold drugs in addition to a legal business and invests all the profits into the SP500 should the government take the entire stock portfolio? A percentage equal to the amount of dirty money put in?
What if the person appeals and wins after the asset has been liquidated? How do you make that person whole again? Do you?
I can't believe this problem hasn't been figured out before crypto. Tbh it probably has, but because it's Bitcoin we will write an article about it.
> If someone sold drugs in addition to a legal business and invests all the profits into the SP500 should the government take the entire stock portfolio?
As far as I understand the article, thats should not matter in this case. They did not "touch" the coins to cause this problem. They just recorded their value in SEK instead the raw number of BTC so when the process was over, they had to pay back the difference between what they sized originally (36 BTC, 1.3mio SEK a few years/months ago) and what they wrote down in their records (1.3 mio SEK or ~3 BTC nowadays).
The same might happen for every other "foregin" currency, right?
I don't think this would be the case. The government seized "X SEK" of BTC. The government auctioned those BTC off at the end, like they would anything else, and there was BTC left over after that, I don't think there should be any reason why it shouldn't be returned to the proper owner after that.
This wasn't part of a fine, rather, they simply took the BTC as part of the drug money, so it's not like the government could argue that if it lost value they should be owed the remainder.
> Because crypto transactions, which are recorded on the blockchain, are untraceable by governments and other central authorities like banks, they’re often the preferred payment among ransomware hackers and other criminals.
And literally two paragraphs above that:
> The prosecutor added that the case was the first in the country’s legal history in which cryptocurrency was seized, so there was no legal precedent to look toward.
The preferred payment method of crime that has never been encountered by legal authorities in one of the most developed countries in the world. Very interesting.
169 comments
[ 4.9 ms ] story [ 248 ms ] threadOn the one hand it's all "blood money" / tainted, but the actual proceeds at the time of the crime have a specific value.
It sounds like the police tripped a loophole in law by liquidating some of the BTC. Sounds like if the police had HODL'd they'd have been fine defending it as just look, these were the assets he had, we seized them. But since they liquidated, the defense got to say, hey, you already got the full proceeds.
From the article - "The lesson to be learned from this is to keep the value in bitcoin, that the profit from the crime should be 36 bitcoin, regardless of what value the bitcoin has at the time".
> "It has led to consequences I was not able to foresee at the time."
> "I think we should probably invest in an internal education in the [prosecution] authority, as cryptocurrency will be a factor we'll be dealing with to a much greater extent than we are today. The more we increase the level of knowledge within the organization, the fewer mistakes we will make."
I'm not familiar with the swedish legal system (and not a lawyer), but often you can only be convicted for things the prosecution requests/accuses you of. Otherwise you can't defend yourself in court.
So the prosecution ordered the bitcoin to be seized as proceeds of the crime, but not in a correct way, so the court ruling contained the same wording that a specific value in swedish Kronen shall be seized. Had the prosecution demanded the seizure in terms of Bitcoin instead, the court would probably have approved it too. However, at this point it's too late to change the ruling. Courts exist to settle things, and one can't simply re-roll a prosecution case unless there were grave mistakes.
One interesting consequence is that the drug dealer would have had to pay the difference if bitcoin had dropped in value instead of rising.
In Florida (and many other states) it was/is common practice that any excuse police made could be used to seize almost any of a person's property, essentially on the spot. Generally without even needing to arrest the person or charge them with a crime or get a warrant. Just based on "suspicion" on the cops behalf.
Thank good Ole "rule of law" President Reagan and the war on drugs for that one. See:
- https://cplaw-miami.com/police-seize-your-property-without-a... - https://www.vox.com/policy-and-politics/2017/12/1/16686014/p... - https://en.m.wikipedia.org/wiki/Comprehensive_Crime_Control_...
It's fine, the dog jumped at the window of your stopped car.
https://en.wikipedia.org/wiki/Detection_dog#Civil_rights
Otherwise, you'd have to pay for the loss in value of a seized car if it's sold only years later or the loss in value of gold bars seized if the market on those crashed in the meantime.
Another possibility is that this really only arises as a result of the fact that the drug dealer received payment in bitcoin whereas it's less likely a drug dealer would be paid in gold or cars.
The state seized X $ of assets from you and notes as such. After 6 months, they finally get to auction it off, it is now worth X + Y $. Since the state seized X $ of assets, they ought to give back the Y $. They got what they wanted as they have seized X $ not X + Y $.
If the assets are now worth X - Y $ (Y <= X) then nothing happens, as the state has seized the amount X from you already. They got what they wanted back then and that it is worth less is not your fault.
The house is then auctioned off. It's not valued at the time of arrest and any additional value returned to the person arrested.
I don't understand why it could, or should, be any different for electronic stores of value (stock, options, crypto).
As I understand this article, the same would have happened if the legal paperwork listed the value of the house in crowns, and then the housing market rose and the house tripled in value.
The only unusual thing with Bitcoins, is that the value thereof has risen to quite extreme proportions.
> what proceeds should be stripped if you get cash in exchange for drugs and use that cash to buy GME calls which skyrocket?
> but the actual proceeds at the time of the crime have a specific value
The specific value at the time is, in nearly every other situation, irrelevant. The mistake was putting a claim to a monetary value of *asset* rather than the *asset* itself.
A guess at why it's like that would be - people flow value of drugs/illicit goods, rarely holding the value for long. This means the prosecutor wants to set an amount for "all drug deals they can convict for" and then try to seize that value.
Clearly before crypto the only thing that would wildly fluctuate vs the country's currency is stocks. No one's doing drug deals in stocks so the law was written in value. If they did seize things like stocks it's clear they had a process to sell the liquid asset (they tried to sell the BTC), but they couldn't get their ducks in order to sell it, haha.
I'm sure there's going to be a change to the law to seize the asset as a whole instead of pegging it to some particular value.
I assume under this approach the authorities would have claimed the full amount you started with and not what you were now left with. Crypto just happens to have been a casino where people have been winning.
People have been saying they have their own nexus currencies for the whole last decade, and others spent too much time ignoring that in. Now it bit Sweden in the ass, for now.
So unlike buying a house or buying stock options, the argument can be made that the crypto is itself the medium of exchange and therefore the value in fiat is irrelevant.
But this also means that if the crypto drops in price while the cops are HODLing it, they lose out.
my question is whether we should consider these crypto clean, or whether we should stop trying to determine if crypto provenance is clean or not as it doesn't seem possible to rely on the due process of every municipality worldwide, unless the state is deemed as the crypto washer - magically cleaning all crypto as it temporarily seizes and auctions them or returns them - in which case a state will take advantage of that
See, I can play cops and robbers too. However, growing up I thought it was two distinct groups. The cops on one side, and the robbers on the other. As an adult, I see it was just two descriptions of the same group.
Corruption is relatively low in Sweden and in this branch I consider it essentially non-existant.
That doesn’t mean that when you make a profit selling potatoes that you can pay your taxes in potatoes.
What I dont support is taxing when switching in between crytocurrencies. Which in the analogy would be me exchanging my potatoes for carrots. Imagine if I had to pay taxes on my exchanged potatoes while I didnt make a dime on that.
That said, I agree it's frustrating that you are liable for what are unrealised price changes (IMO it's not profit until it's in the bank).
In the United States and in many other jurisdictions, if you realize a profit through commodity exchange, you owe tax on the fair market value of the exchange.
If it was a car that they confiscated, would they still have the car or would they also need to buy the car today? I am honestly curious as to how this makes any legal sense.
That's the key indeed. I think I get it now! Anyway, the simple thing would be counting btc if btc is confiscated and counting cars if cars are confiscated. Then I don't see how it could blow up, but I guess it just can't be that simple.
"But by the time the Swedish Enforcement Authority began auctioning off the crypto, bitcoin had skyrocketed in value — and only three had to be sold to amount to the value that was booked as the dealer’s profit at the time of his arrest."
If the police confiscated everything you owned to cover a fine for $100, isn't it reasonable to get the difference back?
I think it's more that they're mad because someone managed to make and keep 7 figures profit from a crime that they were caught doing purely because the justice system screwed up.
It's hard to keep the "crime doesn't pay" messaging when stuff like that happens.
Legally this is correct and exactly what happened.
The reason this is becoming an issue is that all the bitcoins that were seized were from selling drugs. The point of the fine is to match the profit of the crime so reasonably it should have taken all of the bitcoin regardless of the underlying value.
If he had sold drugs for a gold ring and then the price of gold went up, should he have gotten a bit of the ring back?
https://sverigesradio.se/artikel/domda-knarklangare-far-mang...
That seems to be an assertion the prosecutor made, but I see no facts to support that statement. Prosecutors say those sorts of things all the time in order to win cases.
Are you saying the prosecutor is correct or that the translation is false?
Then wonder what happened to law and order
As they say in the article, next time, if they seize 36 bitcoin, then you have to give up 36 bitcoin, not the dollar value they are worth at the time.
Erm, no, that's not how the blockchain transactions work. you can see everything. It's an open ledger.
Anything you tumble, you can (provably) de-tumble. It's just expensive and time-consuming (re-building the blockchain state, yadda yadda). Crypto banking is less anonymous than actual banking, especially if you actually want to pull your money into fiat and need to go through an exchange.
https://cashfusion.org/
One-sided JM for BTC include Wasabi and Samourai Whirlpool. Though Samourai are a bit sketch IMO.
not really? If you have a transaction that has five equally sized inputs A_{1...5} and five equally sized outputs B_{1...5}, then the max extent you can "provably" de-tumble B_1 is saying "there's a 20% chance that it came from A_1, 20% chance it came from A_2, ..."
You can't do this[1], as the blockchain does its best to be perfectly deterministic. Best you can do is get an oracle to get you a random seed (which you'll see publicly in the oracle token), so you'll know exactly "what went where."
[1] https://blog.chain.link/random-number-generation-solidity/
Doesn’t it just need to require that the sum of the inputs is equal to the sum of the outputs?
The transaction chains are generally constructed off-chain.
For Ethereum you can do fancier things with zk constructs, like Aztec and Tornado Cash.
Source? Enough CoinJoins (Wasabi+Joinmarket) and I don’t think so. Note CJ work a bit different than the oldschool custodial tumblers. Combining CJs with LN (reverse) submarine swap for another layer.
With large enough anyonymity sets you should have plausible deniability. This is also a bit time-consuming, more so the larger the amount; there’s no way to do a complete end-to-end transaction of billions of dollars untracably in mere hours without standing out I think. But if you have days/weeks to break the link I think it’s def doable and done.
Obviously make one single mistake and you’re out, but that’s in the nature of these things.
If I’m wrong I’d very much appreciate something substantial.
I don't really know, but putting myself in a criminal's shoes, I don't like the idea that my transactions stay in plain view forever. It makes statistical attacks very, very easy. It also makes me vulnerable as-of-yet-undiscovered statistical attacks.
BitCoin is arguably the worst thing for organized crime.
We will soon be living in a world where crime is the norm.
Why do you believe tornado to be secure? The project is self described as experimental software.
“ Tornado.cash was audited. However, it is still an experimental software. Please use at your own risk.”
Some people will say they aren’t doing anything big enough to warrant attention but that’s forgetting that everyone using a tumbler is paying extra to help anonymous strangers launder money. If anyone involved attracts attention it’ll bring scrutiny to everyone else, and potentially the need to prove that you were “just” committing a small-scale crime and didn’t know that most of the other coins being tumbled belonged to a cartel.
Once KYC gets involved.
If I receive coins in my desktop wallet for the cookies I'm selling, how will anyone know who I am? Of course they're not much use until I cash out and then it's a different story.
Or you could use the currency as a currency. Sure, there are a lot more flour suppliers who exclusively accept USD vs ones that take BTC - but compared to the way things were 10 years ago...
Try to buy a Tesla or a house anonymously. All large transactions are subject to KYC.
You usually need some form of distributor's license to not have to pay sales tax on the transaction. That license requires identification.
Of course you could refuse that and just pay the sales tax, but who does that? I would be a little surprised if they even had the means to do it. Warehouses normally sell to distributors, who have distributor's licenses so they don't pay sales tax. Why would they have a system to collect sales tax and send it to the government? That transaction is going to stand out, a lot. Trying to pay for it in Bitcoin is only going to make it worse.
Unless, of course, you're trying to pay the warehouse manager to help you steal the dishwashing detergent. There's no papertrail, but remarkably high counterparty risk. Plus at the end you're stuck with a bunch of hot dishwashing detergent that you're going to have to offload.
Way back in the day I took some profit by purchasing something like $50k in server hardware that needed to be bought one way or the other. Nothing but a "ship to" address and a BTC private key. Was I trying to secretly launder money? Nope, just a boring business transaction that didn't involve VISA. Was it to cheat the tax man? Nope, the IRS had very pointed refused to issue tax guidance up to that point (and continued to do so for years) - so I just paid the long term capital gains when doing the other paperwork one does in a self funded a business venture.
I always wonder about the people who assume cryptocurrency is something that needs a level of law enforcement scrutiny beyond any other method of payment, how much misinformation was required to yield that result, and if they'll be able to adapt to the inevitable.
It sounds to me like you tried to purchase from a seller who expected to be paid in USD, not BTC (which doesn't need a "processor"). Do you really not know why this is a silly complaint - especially given the context?
You're not just dependent on your own opsec, you also have to worry about anyone you receive from or send to.
It's definitely a lot more difficult nowadays, though.
It's because KYC requirements and money changing regulation were applied to people selling btc in any real quantity. Someone I knew caught a case a few years ago for doing essentially the localbitcoin (and not telling the undercover to leave when the cop implied he got the money from selling drugs... allegedly).
If I bought cookies from you and paid with crypto you have to know the address I want you to send the cookies to. Or I have to pick them up in person and you'll see me. Either case greatly reduces anonymity.
This vulnerability doesn't exactly exist for all crypto. Privacy coins aren't necessarily unique (or at least for practical purposes). The uniqueness of the coin is what allows it to be tracked. That's why we know where the GOX coins are and this is why that hacker can't use those coins. As soon as they try to turn that into real money we got 'em.
What stops them from converting the coins into something else (e.g. some other cryptocurrency or commodity) in a jurisdiction that doesn't do KYC, and then converting that into dollars? Or just dumping it into a cryptocurrency tumbler?
The whole concept of tracing the source of money is kind of ridiculous. If somebody robs a bank and the bank robber buys a shoe and the shoemaker buys a cake and the baker buys a portrait and the artist buys a screw driver and the hardware store owner deposits the money with that serial number in the bank, the hardware store owner has really nothing to do with the bank robbery, and isn't going to remember which of their thousand customers paid them with that specific bill.
And if you try to say the hardware store owner doesn't get to keep the money all you're doing is causing the money to be stolen twice.
Exchanges typically ask for an ID in most countries these day before you can purchase any crypto. I'd be curious how you avoid detection unless you started very early in crypto by mining on your own. You'd still need an ID to exchange back to fiat anyway.
Last time the US tried to sanction a Monero address, it ended up sanctioning a transaction.
[1]: https://github.com/monero-project/monero/issues/7807
While bold cryptographic claims should be taken with responsibility, monero is researched and implemented by well known criptographers and researchers in a very serious way. Almost all (if not all) aspects of the protocol come directly from proven and well understood theory and published research.
EP dropping Dec 2021.
I have a lot of friends and acquaintances who (despite my nagging) work at cryptocurrency shops, and I personally do some entirely separate work on provable computation. To call cryptocurrencies' use of zero-knowledge proofs "proven and well understood" is a tremendous overstatement: they're a brand new area within cryptography. We don't really know what their properties are yet, and we haven't even begun to comprehensively document weakness in construction, implementation, &c. the way we do for actually established cryptosystems. The deluge of published research on ZK/OT/&c. is evidence for this: everybody is scrambling to explore and publish on a new, immature research domain.
At the end of the day it is a matter of trust and risk. I trust the mathematics of it because I took the time to read about it and understand the claims of security being made. I also have some trust in the team writing the software because I have been following their development relatively close. You may have done the same and come to the conclusion that they are not that serious or competent, but claiming that Monero is not to be trusted because the cryptography is too new is just an exaggerated view. This things are not being claimed without a proper basis.
Now, I am only talking about Monero here, there are several other crypto-systems using more esoteric methods than Monero that I wouldn't have the same trust in them, like ZCash and its derivatives. They use far more novel cryptography (zk-SNARKs) and some debatable design decisions (trusted setup, optional privacy, developers taking a chunk of mined coins).
Does a random country’s random procedural gracing make the crypto magically clean again?
It was seized, and now its not! So the crypto is clean now! It doesn't matter if you respect that country! Or even that a municipalities civil asset forfeiture process!
To me this has been a big hole in Elliptic and Chainanalysis’ business, along with other merchants and exchanges that try to trace crypto origins to determine if the account should be frozen or not.
I’m open to opinions on this, but my current thought is that attempting any crypto AML/KYC is a joke, but its great snake oil to sell to exchanges and government agencies. I think crypto accelerates and illuminates the folly of transaction whitelisting/blacklisting.
https://www.theverge.com/tldr/2021/2/5/22268646/german-polic...
Edit: it says the govt gets to "keep it", not him. If he has the seed to his wallet, is there anything stopping him getting at his coins?
All money is make-believe.
You can also get into "everything is make believe" easily enough, so this isn't very helpful either way.
If you think of Dollars as "get out of US jail" cards it's pretty easy to see how they have intrinsic value.
The IRS not accepting cryptocurrencies is irrelevant; you can take a look at any trading platform and find that there are people, right now, willing to part with more than 49000 of their "government backed US dollars with their intrinsic value and ability to pay taxes" to acquire a single bitcoin.
If someone sold drugs for cash, and used the cash to buy a lottery ticket - should the government demand the cash or the ticket? What if the ticket ends up winning?
If someone sold drugs in addition to a legal business and invests all the profits into the SP500 should the government take the entire stock portfolio? A percentage equal to the amount of dirty money put in?
What if the person appeals and wins after the asset has been liquidated? How do you make that person whole again? Do you?
I can't believe this problem hasn't been figured out before crypto. Tbh it probably has, but because it's Bitcoin we will write an article about it.
https://www.justice.gov/criminal-afmls/file/839521/download?...
It covers crypto, real estate, stocks, and a bunch of other things explicitly.
Why would the seize the entire portfolio?
This is especially easy to do with digital coins (vs. say a room full of furniture which could incur not-so-insignificant storage costs.)
The same might happen for every other "foregin" currency, right?
This wasn't part of a fine, rather, they simply took the BTC as part of the drug money, so it's not like the government could argue that if it lost value they should be owed the remainder.
I lost trust in the Swedish justice system when they reopened Assange's rape trial.
https://www.bbc.com/news/world-europe-48253343
And literally two paragraphs above that:
> The prosecutor added that the case was the first in the country’s legal history in which cryptocurrency was seized, so there was no legal precedent to look toward.
The preferred payment method of crime that has never been encountered by legal authorities in one of the most developed countries in the world. Very interesting.