Software developers have a surprising way with words. As people in other trades form chambers or associations, they join “communities” — the name given to loosely organized groups that collaborate on the open-source software that keeps our tech society buzzing.
In terms of marketing, it is difficult to do better; there are few warmer, fuzzier appellations in English. Think of communities and good things come to mind: families picnicking in a park, kids at the local school raising money for charity, friends helping each other out after a storm.
But some developers are less neighborly than others, and we could use new words for them. A typical example comes from the world of blockchain, where communities today are working to thwart the enforcement of anti-money laundering laws through the creation of so-called privacy coins – cryptocurrencies designed to be tough to follow or trace.
The threat posed by privacy coins can be gleaned from the fine print of a federal criminal complaint filed this month, which accuses a New York couple of laundering proceeds from the August 2016 hack of the Bitfinex exchange that netted $4.5 billion in bitcoins by the time the government acted. Among the techniques they allegedly used was converting some 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 called the evidence against them weak. But the case has been hailed as a triumph for law enforcement and it is, up to a point. Their arrests and the seizure of $3.6 billion worth of bitcoins allegedly under their control demonstrated the authorities’ ability to respond to blockchain thefts and recoup profits. Just as the FBI protected the nation’s banks from the John Dillingers of the last century, high-tech crime fighters are now making progress in protecting cryptocurrency platforms from hackers.
Authorities have taken advantage of the fact that blockchains are public. They could find the stolen bitcoin because they never lost sight of it; the proceeds of the hack were transferred to the “1CGA4s wallet” and most of it remained there. The hardest part was linking the loot to the alleged perpetrators. Through his reading of the complaint, Tom Robinson, Chief Scientist at Elliptical, a blockchain intelligence firm, said it believed the case arose in 2017 when US officials shut down a “dark net” site called AlphaBay. “It was necessary to trace the bitcoins stolen through AlphaBay in order to link these funds to the two suspected launderers,” he said.
Stopping hackers, however, is not the same as stopping traditional criminals from using crypto to move their money across national borders or to swirl it around to disguise its origins. The significance of the Bitfinex affair in this battle is less certain due to what appears to have happened to the alleged money launderers monero, which obfuscates the identity of its owners using “ring signatures”, which means that multiple parties are involved in signing a transaction, so it’s hard to tell which one initiated it.
Based on government documentation, Robinson suspects that authorities have not located the confidentiality piece. Whether they were unable to crack the Monero community’s crypto or didn’t need to, Robinson believes the outcome could increase crypto’s appeal to bad actors.
“It could push money launderers and criminals to use Monero more – they will see how traceable bitcoin was in this case and it will push them to use Monero instead,” he said. “We have to accept that untraceable digital money exists. The question is how do we get there. »
I would suggest that before more taxpayer funds are spent on another money laundering investigation involving private coins – and I’d bet the Bitfinex bust didn’t come cheap – one of our congressional committees or someone from the executive branch of government should call in representatives of the Monero Community to discuss.
A little dialogue could go a long way.
There are reasons to be concerned about privacy on the public blockchain, and based on their writings, Monero community members mean well. “Monero’s state-of-the-art 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 manipulation of price, supply chain exploitation, economic discrimination, or the like”.
At the same time, elected government officials should make it clear that even software developers have responsibilities to the wider community. Money laundering is how serious criminals get away with their ill-gotten gains. Giving up the fight against it would give victory to kleptocrats, terrorists, racketeers, drug traffickers and pimps.
gary.silverman@ft.com
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