Bitcoin and The Criminal Element

Buy Bitcoin With Paypal
Bitcoin and The Criminal Element - Everyone knows that the Internet is changing our lives, mostly because someone in the media has uttered that exact phrase every single day since 1993. However, it certainly appears that the main thing the Internet has accomplished is the normalization of amateur pornography.


There is no justification for the amount of naked people on the World Wide Web, many of whom are clearly (clearly!) doing so for non-monetary reasons. Where were these people fifteen years ago? Were there really millions of women in 1986 turning to their husbands and saying, “You know, I would love to have total strangers masturbate to images of me deep-throating a titanium dildo, but there’s simply no medium for that kind of entertainment. I guess we’ll just have to sit here and watch Falcon Crest again.”
—Chuck Klosterman, Sex, Drugs, and Cocoa Puffs: A Low Culture Manifesto

You can’t talk honestly about Bitcoin without talking about the criminal element. Although other advocates might downplay the connection—and they have legitimate arguments for doing so—the importance of the criminal world’s relation to Bitcoin can’t be discounted.

Bitcoin will help facilitate criminal transactions. There is no point in denying this, as it only takes a few minutes on a Deep Web marketplace offering drugs and other illegal goods and services to get a sense of Bitcoin’s role in such things. (The Deep Web is the portion of the Internet that can’t be indexed by traditional search engines.) It would be equally accurate, however, to say that cash facilitates criminal transactions. One would only have to spend some time on a certain street in the downtown district of any metropolitan area to understand that cash is still the primary method criminals use to buy and sell illegal goods and services.

I debated with myself endlessly on how to approach this chapter. The criminal element of the Internet was undoubtedly essential to Bitcoin’s early price-setting and adoption, but I in no way want to imply that the crimes it helped facilitate wouldn’t have happened without Bitcoin either online or on the street. Nor do I want to imply that all—or even a large portion of—Bitcoin users are involved in criminal activity on the Deep Web or elsewhere. Because of Bitcoin’s relative anonymity, shady transactions on the Deep Web were one of its earliest uses, but the currency has since evolved into a legitimate payment method used by legitimate customers, freelancers, and employees.

Still, crime was instrumental in Bitcoin’s early life and it will continue to be a factor in its future.

The Silk Road


What is called the “open web” makes up only a small part of the Internet. There is a sea of data underneath the open web that few will ever see. It is made up of banking transactions, corporate transactions, emails, IRC chatrooms, Usenet communities, academic and corporate intranets, and a variety of other things not indexed by Google and the other major search engines; it is called the Deep Web.

One of Bitcoin’s earliest claims to fame was as the digital currency that allowed a bunch of criminals on an intentionally hidden sector of the Internet known as the Dark Web—a small part of the Deep Web—to sell drugs to America’s youth. With the exception of a few publications, much early coverage focused on the panic-inducing claims that “drugs were being sold on the Internet” and “some strange Internet money was making that happen.”

Well, the latter idea is false. The Internet has always been used to sell drugs and illegal items. Drugs were being sold via Internet even back in the Usenet days before web browsers existed. No matter how hard the feds worked at trying to prevent drug transactions in various systems, some drugs always made it through. Even today, drug sales are hardly limited to the Deep Web. It is impossible to get accurate numbers but an argument could be made that the open Internet—i.e., what most think of when they hear the word “Internet”—is just as significant, if not more so, to the drug game. 

Although billions are (or were) being spent on online marketplaces such as the Silk Road, most drug dealers aren’t tech-savvy enough to take advantage of them. They are, however, tech-savvy enough to use Facebook, Instagram, Craigslist, and a myriad other sites. In September 2014, Venture Beat’s Fletcher Babb began an article with the simple statement, “Instagram has ushered in a golden age for the drug trade.”

The same was said about the Silk Road and Bitcoin when those services first entered mainstream culture and awareness. It was hyperbole when Babb said it about Instagram and although it might be less hyperbolic to say the same about the Silk Road, it is also an exaggeration to blame these services for the rise of the Internet drug trade.

Instagram is used to sell drugs. It is used for a lot of other things: for humblebragging about a recently cooked meal or for offering legions of out-of-shape viewers the chance to ogle attractive workout gurus. It is also used to sell drugs, but hardly anyone calls for it to be shut down or banned, the way West Virginia Senator Joe Manchin called for a ban on Bitcoin in February 2014.

Bitcoin and the Deep Web are also used for completely legitimate purposes. There are no concrete estimates on the size of the Deep Web, but everyone agrees it is orders of magnitude larger than the Internet we browse daily. Most of the data is useless to outside parties, but within this vast sea of information, people have started building networks and services hidden from the mainstream users of the Internet and law enforcement agencies. Many of these sites use the .onion domain extension and have a long string of seemingly random letters and numbers as their URL.

Although the number of those who are using the Deep Web for illegal activity undoubtedly increases as you move deeper into it, the Deep Web still serves legitimate purposes. WikiLeaks started out as a Deep Web service, and the ability of journalists to communicate with sources and of whistle-blowers to release information anonymously is an important tool for freedom that should be protected at all costs.

Of course, privacy is an important concern for others besides cypherpunks, Bitcoin enthusiasts, and criminals. The largest institutions in the world remind us that encryption is essential not only for specific groups but also for freedom itself. In May 2015, the United Nations released a special report on encryption that in no uncertain terms laid out the justification for privacy as a human right:

Encryption and anonymity, and the security concepts behind them, provide the privacy and security necessary for the exercise of the right to freedom of opinion and expression in the digital age. Such security may be essential for the exercise of other rights, including economic rights, privacy, due process, freedom of peaceful assembly and association, and the right to life and bodily integrity. Because of their importance to the rights to freedom of opinion and expression, restrictions on encryption and anonymity must be strictly limited according to principles of legality, necessity, proportionality and legitimacy in objective.

UN Special Rapporteur David Kayne has recently taken a thinly veiled shot at the policies promoted by the so-called “Five Eyes” (the US, the UK, Australia, New Zealand, and Canada, who are all part of an agreement to share surveillance) and its attacks on encryption. Kayne argues:

States should promote strong encryption and anonymity. National laws should recognize that individuals are free to protect the privacy of their digital communications by using encryption technology and tools that allow anonymity online. […] States should avoid all measures that weaken the security that individuals may enjoy online, such as backdoors, weak encryption standards and key escrows.

We might expect to hear Internet advocates and computer geeks talk about how important encryption is to privacy and freedom, but the point is really driven home when it is echoed by such a conservative, mainstream, and international entity as the UN.

What does this have to do with the topic of Bitcoin and the criminal element?


As it turns out, a lot, because the encryption techniques that are essential to Bitcoin have been the focus of a public debate since at least the early 1990s, and that debate ended up placing everything related to the topic of encryption under the umbrella of criminal activity. The association between Bitcoin and criminal elements was born directly from that.

Back in 1995, author Steven Levy visited the offices of the now-defunct Cygnus Solutions, an early Internet cryptography company, and spoke about what the early Cypherpunks of the day were trying to accomplish:

The people in this room hope for a world where an individual’s informational footprints—everything from an opinion on abortion to the medical record of an actual abortion—can be traced only if the individual involved chooses to reveal them; a world where coherent messages shoot around the globe by network and microwave, but intruders and feds trying to pluck them out of the vapor find only gibberish; a world where the tools of prying are transformed into the instruments of privacy.

There is only one way this vision will materialize, and that is by widespread use of cryptography. Is this technologically possible? Definitely. The obstacles are political—some of the most powerful forces in government are devoted to the control of these tools. In short, there is a war going on between those who would liberate crypto and those who would suppress it. The seemingly innocuous bunch strewn around this conference room represents the vanguard of the pro-crypto forces. Though the battleground seems remote, the stakes are not: the outcome of this struggle may determine the amount of freedom our society will grant us in the 21st century. To the Cypherpunks, freedom is an issue worth some risk.

“Arise,” urges one of their number, “You have nothing to lose but your barbed-wire fences.”

Before the advent of the Internet, an average person didn’t have much use for cryptography. Sure, phone calls could be intercepted and a cryptographically secure phone would have been nice, but few worried that targeted government surveillance would be turned on them.

For years, the National Security Agency had a monopoly on cryptography. It was primarily used by government agents who had a real reason to worry that their communications were being watched by other governments. Then, in 1975, with electronic communication on the rise, Whitfield Diffie invented the first “public key” system, potentially allowing anyone in the world to communicate securely with anyone else in the world, assuming they had access to a computer that could do the cryptography work.

This system eventually led to the emergence of companies and services such as Phil Zimmerman’s PGP encryption program. It went head-to-head against the NSA’s Clipper Chip, a hardware-based cryptography solution designed to give the government its own backdoors into every phone and computer sold by US companies.

PGP and the cypherpunks won the battle, as the Clipper Chip was shown to be insecure. The concept of government-endorsed backdoors faded from the cryptography community—although that didn’t stop the NSA from covertly adding its own backdoors, as when it paid security firm RSA to preserve security flaws for its snooping operations. Yet it could be argued they eventually lost the larger battle for the mind—if not the heart—of the general public. Even though the public had gained the ability to keep its communications private, the vast majority didn’t feel like they needed to.

From the mid-1990s and until Edward Snowden’s revelations of widespread and illegal government spying, the general public overwhelmingly used the Internet, email, and other forms of electronic communication completely unencrypted, mostly oblivious to the inherent risk. Meanwhile, the government designed surveillance programs and built backdoors into our technology.

Even today, after Snowden’s revelations, the vast majority of users still send their emails unencrypted and browse the web using Firefox, Chrome, or Internet Explorer—rarely do they add extra security features. Browsers built with security in mind make up less than one percent of total Internet use.

The cypherpunks and cryptographers of the early ’90s fought for our right to use privacy tools; the hackers and tinkers of today have extended this. To them, the fight has become not only about the right to use privacy tools but also the right to use any tool they can create with mathematics.

It should be pointed out that within the Bitcoin community itself there isn’t anything approaching a unified vision. Despite the media’s portrayal of the community as radical libertarians, there are plenty of users with other belief systems and affiliations. Likewise, the vast majority of libertarians aren’t as radical as some in the cryptocurrency community. But there is also a sect of cryptolibertarian believers who do have a set of consistent and clear principles that generally pushes their software in a certain direction.

This group is often called libertarian but that title isn’t quite accurate. Given recent developments, it might be meaningless to use such labels. In an October 2014 op-ed piece for CoinTelegraph, I explained why I thought the old arguments about capitalism versus communism were about to die out:

As we move into the blockchain future, new governmental systems will arise that are far superior to both [capitalism and communism].

[We could see a blockchain government] that provides both the individual freedom of the most laissez-faire economy while creating such an excess of wealth that basic needs are taken care of for every citizen.

And so I would call this particular group not libertarian but cryptotarian, more concerned with what math limits them to than what the government limits them to. Open-source software is proving to be a powerful tool in their quest.

The documentary Deep Web, directed by Alex Winter, opens with a quote from OpenBazaar developer Amir Taaki: “The fascists, they have resources, but we have imagination. We are making the tools to take back our sovereignty.”

The same sort of philosophy was behind the Silk Road. It also continues to motivate Brian Hoffman’s OpenBazaar, Cody Wilson’s 3D-printed gun, Darkwallet, and a dozen other tools that scare the shit out of people who have devoted their whole lives to upholding the status quo.

The Silk Road was an unregulated marketplace and a gathering place for like-minded individuals, many of whom were true believers in the philosophy described by Amir Taaki in the Deep Web documentary.

On October 2, 2013, FBI agents arrested Ross William Ulbricht and accused him of being the infamous Dread Pirate Roberts, the elusive administrator of the Internet’s largest underground marketplace, the Silk Road. On February 4, 2015, he was found guilty of all seven charges filed against him, including conspiracy to distribute narcotics, money laundering, hacking, and “continuing a criminal enterprise”—better known as the “kingpin” provision and normally reserved for the leaders of criminal organizations such as drug cartels and the Mafia. Then, on May 29, he was sentenced to life in prison without the possibility of parole. Judge Katherine B. Forrest implied that she was making an example of the young man:

There must be no doubt that lawlessness will not be tolerated. There must be no doubt that no one is above the law—no matter one’s education or privileges. All stand equal before the law. There must be no doubt that you can’t run a massive criminal enterprise and because it occurred over the Internet minimize the crime committed on that basis.

Some contend, however, that the case against Ulbricht was not so open-and-shut. Although it is hard to argue that Ulbricht wasn’t involved with the Silk Road at all, there are questions regarding how the evidence was collected, who collected it, and what, exactly, it proved.

Before discussing Ulbricht’s case, I’ll offer a quick recap of the Silk Road marketplace. As I’ve already mentioned, the Silk Road was a service hidden in the Deep Web. Like most Deep Web services, it could only be accessed by using the web browser Tor, which was originally developed by either the US Navy or the CIA, depending on which source you believe. It was developed to provide a reliable way to communicate without sending messages over the regular Internet, where they could be easily intercepted.

It has since become open source and taken on a life of its own, enabling secure anonymous communication. Tor is currently used by journalists, privacy advocates, stalking victims, and people who just generally wish to stay anonymous.

The problem this presents to the government is that services such as Tor are undermining their law enforcement activities. This effect, according to Deep Web director Alex Winter, has led to the kind of conflict of interest only possible in massive bureaucracies. During a directors’ chat on Epix after the movie’s premiere, Winter alleged that certain segments of the government work to undermine Tor’s encryption while other segments work to increase Tor’s privacy features.

Winter isn’t the only one to believe this. The Tor director, Roger Dingledine, has claimed that the Department of Homeland Security and the UK’s Government Communications Headquarters were spreading software meant to undermine Tor. Meanwhile, the US government increased its funding for the development of Tor to $1.8 million in 2013.

Let’s return to the Silk Road. It served as a marketplace hidden within the Deep Web and was only accessible by Tor. It allowed people to buy and sell virtually anything but was primarily used for the sale of illegal and gray-market drugs. Buyers and sellers communicated using PGP technology and completed transactions using Bitcoin. It was a bastion of Internet anonymity and initially the authorities were at a loss on what to do about it.

Action was spurred on by New York Senator Charles Schumer, who demanded that the federal government shut down the site and then went on to show every teenager watching just how easy it was to order drugs online.

Law enforcement first infiltrated the Silk Road the same way they infiltrate any other criminal organization: by posing as members of that organization. They managed to track down a seller with the username Chronicpain; they seized his and other sellers’ accounts but didn’t arrest the owners of those accounts. From there, they managed to communicate with Dread Pirate Roberts and implicate him in a large number of crimes.

The crime that got the most media attention and was used to deny Ross Ulbricht bail was the alleged ordering of three murders. According to the government’s accounts, Dread Pirate Roberts ordered three hits: one in retaliation for a theft, one on a former vendor turned witness, and one on a blackmailer.

The total murder-for-hire count was eventually raised to six, and Ulbricht was deemed a “threat to society” and denied bail. Soon after, the government dropped the murder-for-hire charges, but they still managed to keep Ulbricht from getting bail and publicly painted him as a heartless murderer.

Many suspect the reason the government dropped the charges is that they were unlikely to stick.

The actions of two government agents who were heavily involved in investigating the Silk Road case and had direct communications with Dread Pirate Roberts cast some doubt on the case. In March 2015, Secret Service Agent Shaun Bridges and DEA Agent Carl Mark Force IV were arrested and charged with money laundering and wire fraud. Force was additionally charged with theft of government property and conflict of interest.

Bridges had allegedly stolen $800,000 worth of Bitcoin and transferred it into his personal account. Force also allegedly stole bitcoins and allegedly did much more, including taking payments from Dread Pirate Roberts, stealing from the Silk Road and trying to sell Dread Pirate Roberts/Ulbricht information about the investigation. He also allegedly tried to blackmail Dread Pirate Roberts while posing under a different identity. Additionally, Force was the agent Dread Pirate Roberts allegedly attempted to hire to carry out or act as a liaison for the hit.

You might see the problem here. Bridges allegedly stole money from the Silk Road and then Force allegedly took money from Dread Pirate Roberts to kill the person Force said stole the money—a Silk Road employee. Force also allegedly took money for the killing of the vendor-turned-witness and helped stage that death. He then allegedly blackmailed Dread Pirate Roberts and allegedly took money from him to kill the fictional blackmailer. Rather than passing this money onto his superiors, Force allegedly kept most of it for himself.

As noted in the affidavit against Force, he actually encouraged Dread Pirate Roberts to use PGP and didn’t provide his superiors with the private key. It gets worse than that. Force was permitted to have one identity on the Silk Road: Nob. Investigators now believe he had multiple “sock puppet” accounts on the site and that he utilized them and his connections in law enforcement for personal gain.

From the Department of Justice’s press release:


Force allegedly sold information about the government’s investigation to the target of the investigation. The complaint also alleges that Force invested in and worked for a digital currency exchange company while still working for the DEA, and that he directed the company to freeze a customer’s account with no legal basis to do so, then transferred the customer’s funds to his personal account. Further, Force allegedly sent an unauthorized Justice Department subpoena to an online payment service directing that it unfreezes his personal account.

Essentially, Ross Ulbricht was denied bail and painted as a murderer in the media because the online persona Dread Pirate Roberts allegedly hired a fictional hitman to kill two people who didn’t exist in retaliation for acts that either never happened or were acts of government agents themselves. The two agents primarily responsible for his arrest were—by the government’s own admission—completely corrupt and actively working to hide evidence in the case. The murder-for-hire charges were never proven in court but nonetheless affected the opinion of both the supposedly impartial judge and the public.

On the day that he was apprehended in October 2013, Ross Ulbricht was sitting in the San Francisco library with his laptop open. Authorities had figured out that if he were allowed to close it, it would encrypt the data and they would be unable to access it. (As Jacob Müller-Maguhn pointed out, “One must acknowledge with cryptography no amount of violence will ever solve a math problem.”) After distracting him, agents say they were able to separate Ulbricht from his laptop before he could close it. It was allegedly logged into an admin account for the Silk Road; Ulbricht appeared to have been caught red-handed.

But in a 2013 Forbes interview with Dread Pirate Roberts, the admin explained that the moniker—an homage to a character in the movie The Princess Bride—had been passed down to him from a previous administrator and that he would later pass it onto someone else.

This is what Ulbricht’s defence attempted to claim—that Ulbricht was at one time the head of the Silk Road but that he left it after it grew in popularity. The defence claimed he was then lured back in, in order to be set up as the fall man. The explanation is not as implausible as it might seem. Force was (allegedly) providing the real Dread Pirate Roberts with inside information. He was accused of and eventually admitted to hiding the specific contents of his conversations with Dread Pirate Roberts and how much he was specifically paid.

Is it possible that the real Dread Pirate Roberts, perhaps working in conjunction with Force, set up Ross Ulbricht by luring him back to the Silk Road and planting information on his computer? A detailed log of Ulbricht’s alleged criminal activities was found on his computer, but how likely is it that someone of his education would leave such a log unencrypted? Ulbricht’s defence made the argument that it might have been planted on the computer.

A jury of his peers found Ulbricht guilty on all counts but his defence was prevented from informing the jury about the two agents’ alleged misconduct or the Forbes interview. The government’s claim was that it located the Silk Road servers—and thus all subsequent evidence—through a “leaky captcha” on the Silk Road. (A captcha is a set of letters or numbers you have to fill in at a website to prove you aren’t a bot; a leaky captcha is one that reveals identifying information about the site.) This claim has been soundly discredited by security experts around the web, but the defence’s witnesses who would have contradicted this explanation were not allowed to testify. Finally, the government’s own investigations show that many other people were suspected of being Dread Pirate Roberts at one time or another.

The Silk Road launched before Dread Pirate Roberts joined the site, and evidence from the trial suggests the “legend” of the pirate was hastily launched after a discussion among the site’s leadership. This is speculation, but creating an anonymous and revolving “leader” is the perfect way to set up a fall man when the dominoes begin to fall.

My aim is not to cast guilt on or proclaim the innocence of Ross William Ulbricht. As is the case with so many other scandals in the Bitcoin space, an entire book could, should, and almost certainly will be devoted to this topic. At the time of this writing, Ulbricht’s appeal process is underway. All I am saying is that it would be nice to see Ulbricht get to present a real defence.

In addition, Ulbricht was given the harshest penalty possible, harsher than what the prosecutors were seeking. Another Silk Road vendor who was charged with similar crimes was sentenced to a mere 17 months. That defendant pleaded guilty so it was reasonable to expect a shorter sentence; but the contrast is disproportionate. Ulbricht’s sentence was an expensive price for him to pay for his attempt to exercise his constitutional right to a trial. The sentence surpasses that of murderers and child molesters and as his defense site points out, is matched only by the likes of Charles Manson.

Ulbricht’s harsh sentence does not appear to be solely a result of his crimes. The Silk Road and the philosophy behind it use technology to usurp the government’s power. The government says you can’t have these kind of tools. The Silk Road was shut down but it was replaced with a dozen other sites, ranging from Silk Road 2, Sheep Marketplace, and Agora (all defunct) to Valhalla, Alpha Bay, and Dream Market (currently operating).

These are occasionally brought down as well but second-generation, open-source, and completely decentralized alternatives are right around the corner. Soon there won’t be anyone to arrest except the individual vendors—and then what will the government do? Arresting individual dealers has been a strategy for the drug war on the streets for decades and only the most devoted drug warriors would try to claim it has been a success. There is a direct correlation with online piracy that we can look at. When Napster was taken down, it was a setback for the pirating community. Centralized systems acted as a weak point. Since decentralized torrenting went mainstream, there hasn’t been much the government and other organizations have been able to do to prevent piracy. They have targeted individual uploaders, but that has done little to slow the growth of online piracy.

Other Tor Services and How to Use Them


The shutdown of the Silk Road and Ross Ulbricht’s life sentence didn’t deter people from using Tor and Bitcoin to continue criminal activity. Sites with similar layouts and the same rules still exist. At the time of this writing, Valhalla and AlphaBay are two of the most popular and reputable, but their status could change at any time. Deepdotweb.com and Reddit’s subforums r/Darkmarkets and r/DarkmarketNoobs are great resources for individuals looking to order something from the Deep Web.

Ordering from these sites requires PGP and Bitcoin. Guides on how to use Bitcoin can be found in this book and countless places online. GnuPG (or GPG for short, often still referred to as PGP) is the open-source version of PGP, which was the world’s most popular and arguably powerful personal encryption software until GPG was released. It was invented by Phil Zimmerman and owned by the PGP Corporation until 2010, when it was purchased by Symantec.

Since Windows is extremely unsecure and Tor has been shown to be compromised, it has been suggested that users with particularly strong concerns about privacy and anonymity should take the extra steps of using TailsOS, which I mentioned earlier.

Even with all possible precautions taken, law enforcement will be attempting to do everything they can to unmask buyers and sellers on these markets. Although a certain level of confidence is gained by following some best practices, what is secure today might not be in the future.

In addition, most coin mixing services take place on the Deep Web. Coin Laundry has been around for a while but as is true of any centralized Tor service run by an anonymous person, this could change at any time.

There are other illegal services on the Deep Web much darker than the drugs, fake passports, and Netflix accounts normally found on the Silk Road’s successors. Everything from child pornography to snuff films can be found there. These services have little to nothing to do with the Bitcoin community, and are near-universally condemned by its members. Their only connection to Bitcoin is that they sometimes use Bitcoin to perform transactions. In late 2014, the UK Internet Watch Foundation reported that it had found more than 200 sites promoting child porn that accept Bitcoin, 30 of which had Bitcoin as their only payment option.

There are many more such sites that accept credit cards or PayPal. The problem for law enforcement is that it is easy enough to get MasterCard or PayPal to freeze the offenders’ funds and halt payments. With Bitcoin, which lacks a central authority, that is impossible. Because of this feature of Bitcoin, despite the inherent potential problems in using the currency, you can expect more disreputable services to accept Bitcoin as payment in the future.

In the long run, the adoption of Bitcoin might end up working against the criminals. As blockchain analysis technology gets more advanced, there is no telling what could be gleaned from it in the future, and it only takes one mistake for a dedicated sleuth to build an entire tree of transactions. In other words, if you reveal your identity once with a single transaction—perhaps because you don’t mix up your coins or you reveal your IP address or admit to making a wallet—a detective could follow transactions to dozens of other wallets and start making connections to continually track your transactions.

There are also sites that exist in a gray area—such as the Bitcoin mixing services and forums I mentioned earlier that are legal but questionable either politically, morally, or culturally.

But we should also remember what good Tor and the Deep Web have done for society. For all the unseemly and outright disgusting elements of its darkest corners, the Deep Web has become a bastion of privacy in a digital world that is devoid of it. Deep Web communities include revolutionary book clubs, mild sexual fetish blogs, anonymous chatrooms that remind one of the early chatrooms of the early to mid-’90s, anonymous social networks, bulk coupon sellers, and anonymous confessions sites (tamer than you might imagine). There is even a blog about the victimless crime of exploring Virginia Tech’s steam tunnels.

These might seem like minor things but they are subsets of our culture that might otherwise not exist. Things can be legal and still be embarrassing—not everyone wants to go to Yahoo! Answers to ask about their hemorrhoids or express their deepest paranoia or unpopular political opinions.

The Deep Web has also helped oppressed people speak out against their government. When Turkey attempted to ban Twitter and YouTube, Tor was the best option for getting past the government’s firewalls. Multiple mainstream journalism publications have set up Tor hidden service sites, allowing whistleblowers to leak information without revealing their identity.

The experience of trawling the Deep Web is somewhat akin to traveling the Internet before Google made it easy. The freedom that comes with true anonymity is powerful and results in both good and bad, and that isn’t going away anytime soon.

Bitcoin’s ties to criminal activity aren’t limited to the Deep Web. Bitcoin is playing an increasingly large role in malware, ransomware, and gray-market services.

Online gambling was an early and obvious use for Bitcoin and that trend has continued unabated since the first dice sites hit the Internet. Today, nearly any event can be bet on using Bitcoin and nearly every casino game is available. There are even peer-to-peer betting sites that allow you to wager on the outcome of custom events—from the results of a presidential election to the next time a celebrity will be arrested to whether it is going to rain in Las Vegas tomorrow. As long as you can find someone to make that bet with you, it is possible to make a Bitcoin bet using a third-party escrow system.

Porn, of the legal variety, has much use for Bitcoin and this continues to be an area of growth. More porn sites are accepting Bitcoin, not because their contents are illegal, but because using Bitcoin will help customers avoid a potentially embarrassing credit card statement and eliminate the risk of being overcharged.

But the most common illegal Bitcoin activity on the Internet, by far, is simply scamming people out of their bitcoins. In many people’s opinion, it is the largest threat to the Bitcoin ecosystem. Bitcoin is attracting new people all the time and their first taste of the cryptocommunity is often a negative one.

Bitcoin-focused malware is growing in popularity. The most common tactics include installing hidden mining software, and encrypting important files and then holding them for ransom.

The last example is by far the most frightful. The malware—this particular form is known as “ransomware”—cryptographically encrypts a victim’s files, focusing on things it deems important, such as documents and photographs. It then demands payment in Bitcoin for the key to unlock the files. The software usually includes a timer counting down, with the threat that if it reaches zero, the price to unlock the files will increase.

According to security blogs, more often than not, victims who pay the ransom fail to get their files unlocked. There are some sites that use already-discovered passwords to attempt an unlock for free but the ransomware itself remains practically unbreakable.

Another scamming tactic is the distributed denial of service (DDOS) attack, where the attacker takes a site offline by sending too many requests for the site to handle. This is an old trick but we are seeing the attackers demand bitcoin payments more often. For instance, the infamous hacker/blackmail group DD4BC has attacked multiple sites, starting with gambling sites—including nitrogensports.eu, the first site to go public about its blackmailing—and has now moved on to Bitcoin media sites and other services.

Unsurprisingly, Bitcoin also has its fair share of Nigerian prince-like scams. These are usually easy to spot by their “too-good-to-be-true” offers. They will claim things like having found an exploit in the Bitcoin system that allows them to double the victim’s coins. Of course, once the victim sends coins in, they never get them back.

More intelligent scams are harder to spot. A new Bitcoin user might be hard-pressed to tell what is legitimate and what is designed to separate them from their coins so caution is always recommended.

The criminal element helped Bitcoin set its price and find its first use. Its irreversible transactions, relative anonymity and global reach make it uniquely useful for certain crimes. But it is important to stress, again, that Bitcoin has grown past that use. Nevertheless, I expect that although legal Bitcoin use might grow at a faster rate than its illegal alternatives, more criminals will use Bitcoin as well. Every currency attracts criminals and Bitcoin has proven to be no different.

What makes Bitcoin stand out is its ability to help criminals and to thwart them. In addition to the public blockchain and its record of every transaction—including criminal ones—there are other ways Bitcoin can make things more difficult for criminals.

Credit card fraud and schemes can’t take place in a Bitcoin ecosystem. One of its main advantages is that you don’t have to hand over personal information. If you buy a product online with bitcoins and it turns out the seller is a scammer who simply decides to keep your bitcoins, you can’t issue a recall on the order. At the same time, however, you don’t have to worry about that person taking anything else from you. You don’t have to cancel your credit card and you don’t have to worry about the seller charging more than they say they will. You can’t be double-charged. They get what you gave them and nothing more.

With proper escrow systems and wallet security, your online purchases can be completely secure. You don’t have to trust the merchant, a bank or a credit card company. If the merchant loses hundreds of millions of customer records as Target did in 2013, it won’t affect Bitcoin users, who wouldn’t have given Target information the hackers could use in the first place.

The downsides of Bitcoin security, like the cumbersome process of securing large amounts of Bitcoin, temper these advantages somewhat, but as more services are built, things will become easier.

In short, Bitcoin is exactly what it has been billed as: online cash. It can be a powerful tool for criminals as well as a powerful tool for those who don’t want to trust their financial privacy to companies such as Target and Apple.

You might also like

Previous
Next Post »