considerable BTC concentration in a single account

Mon Jul 23 07:32:34 PDT 2012

On Mon, Jul 23, 2012 at 9:38 AM, ZeroState.net <info at zerostate.net> wrote:

> Sounds interesting to me.

I was hanging out in the liminal space between jellyfish and
cypherpunks, and we were talking about Bitcoins and how traceable they
were given how complete the public transaction ledger has to be.  We
also discussed the research that's already been done on it
(http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-not-anonymous.html).

Bitcoins can be divided up down to eight decimal places.  Bitcoin
addresses can be programmatically generated and used.  Bitcoin clients
can interact over IRC (though this is deprecated) and over the Tor
network more or less automagically.  Bitcoin clients can be interacted
with by other programs to accept arbitrary commands (including sending
fractions of Bitcoins elsewhere).  There are also several Bitcoin
tumblers out there already.

My scenario was this: I want to launder a single Bitcoin so as to make
it as difficult to trace back through the public ledger as possible.
I am willing to sacrifice up to one quarter of its value (b 0.25) for
this purpose but would prefer to not do so if I could get away with
it.  I have access to sufficient machines (virtual and otherwise) to
run multiple Bitcoin clients and multiple custom-written agents that
interact with them to carry out various tasks.  I'm willing to accept
up to a week of latency for each sub-bitcoin bundle.  I am the C&C for
this operation, though I use software I wrote myself to make it easier
to manage everything.

Now going into list mode to make it easier to lay out and comment on:

I generate a new Bitcoin address for my b 1.0.

I pseudo-randomly split my Bitcoin into thousands of sub-bitcoins
valued between 0.00000001 and 0.0000001 but which total back up to b
1.0.  I do this with some software I wrote that automates the process.
 I could probably do this with Python.

On each of my servers I programmatically generate a pseudo-random
number of single-use Bitcoin addresses.  Let's say several hundred
each though I might only use a small fraction of them.  Afterward, all
of them will be discarded.

The temporary laundering wallet begins to distribute those thousands
of sub-bitcoins between all of my confederate single-use Bitcoin
addresses.  The latency between each transaction is variable; to be
practial, not more than a day, though it would be possible to take
even longer.

Some of those confederate addresses transfer sub-bitcoins to other
single-use confederate addresses.  Some accumulate a few sub-bitcoins
(let's say b 0.00000006).

Some of those confederate addresses transfer their aggregate
sub-bitcoins to other confederate addresses (b 0.00000006).  Some
split those sub-bitcoins up into other denominations (b 0.00000001) (b
0.00000002) (b 0.00000002) (b 0.00000001) and transfer them to other
confederate addresses.

Some of those confederate addresses send their sub-bitcoins to some of
the public tumblers, which eventually send them on to other
confederate addresses.  Here, value can be sacrificed to make it more
difficult to trace where they go.

Possibly, some of those confederate addresses accumulate sub-bitcoin
bundles and purchase digital goods rather than re-sending them (like
VM time, MP3s, or porn).  Possibly, some of the addresses that digital
goods are purchased from are mine anyway, which gives a convenient
excuse for their dropping out of circulation for a while.

This goes on for days.

Eventually, as many sub-bitcoin bundles as possible (which themselves
have been split and recombined and traded over and over) trickle back
into a set of single-use Bitcoin addresses which I set up that
collectively hold much of the value of my original b 1.0.

The first thing that comes to mind is that this stunt would bloat the
public ledger to an amazing size due to all of the addresses and
transactions.  That would honk a lot of people straight off.  It could
also potentially DoS the Bitcoin network by running up all of the disk
space their public ledgers and debug.log files are kept on.

The second thing that comes to mind is that the blockchain watchers
(and there are apparently a lot of them - case in point, the discovery
not too long ago of the address that controlled over a half-million
bitcoins) will no doubtedly notice these shenagains and make a big
deal of it.  That would draw attention to my operation and would no
doubt cause crowdsourced investigation, intelligence gathering, and
analysis.

Third, because all of these transactions would be in the public ledger
they could eventually be mapped and traced back.  I don't know if
there would be any way of tracing all of these thousands of Bitcoin
addresses back to a single individual or group; if at the end all of
the fractional Bitcoins would back up in the same address they
certainly would be.  I'd be trying to mitigate that by using separate
machines that interact with one another through a variety of
communications channels.  I'd also be trying to avoid that by
maximizing rather than minimizing network latency ala anonymous e-mail
remailers.  This might wind up requiring prohibitive amounts of time.

The downside to payment would be driving the seller the Bitcoins are
being transferred to nuts.  "I need you to be patient because I'm
going to send you several thousand sub-bitcoin bundles between
0.0000001 and 0.0000010 in value each from several thousand burner
addresses..." That would be like paying for dinner with buckets full
of pennies, and at a minimum would be grounds for receiving an atomic
wedgie.

-- 
The Doctor [412/724/301/703] [ZS]
https://drwho.virtadpt.net/
"I am everywhere."

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