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Loosely Managed Digital Currency Could Be Avenue for Crime That's Hard to Block

By Colby Adams
MoneyLaundering.com
Friday, April 15, 2011

http://www.bitcoin.org/smf/index.php?topic=5907.0

An emerging virtual currency intended to be used in lieu of cash could also be a vehicle for criminals seeking to make international transactions anonymously, according to investigators.

Bitcoin, a loosely organized electronic payment system created in January 2009 by an otherwise anonymous computer programmer known by the possible pseudonym of Satoshi Nakamoto, allows users and merchants to make transactions through digital coins, with or without the aid of payment processors or other financial institutions.

While the project remains relatively small, it has already drawn enthusiastic users, including international vendors and nonprofit organizations like the Electronic Frontier Foundation, which accept charitable donations of the currency. Google developers have received the green light to research the coins, which are valued at a total of $5 million, according to estimates by www.mtgox.com.

The currency was “no doubt developed for altruistic purposes by conscientious people, and there are perfectly legitimate, legal and philosophical reasons for wanting the financial anonymity that [Bitcoin] gives, but the other reality is, if this type of currency takes off, it will be a dream for the bad guys,” said Steve Santorelli, director of global outreach at Team Cymru, a Burr Ridge, IL-based Internet security firm.

By using multiple e-mail addresses and anonymous proxies to disguise their locations, criminals can open a new Bitcoin account for each transaction and ensure that their money movements are “virtually bombproof and untraceable to an investigator,” said Santorelli, a former Scotland Yard cybercrime detective and a former senior manager of investigations with Microsoft’s Internet Crimes Investigation Team.

Because Bitcoin users can disguise their locations while potentially transacting large sums of currency with the aid of offshore merchants and payment processors, “domestic court orders and subpoenas to pierce the transactions [are rendered] obsolete,” he said.

“The decentralized, international system means that, unlike a financial institution, there is no one to serve a court order on,” said Santorelli. “If this system takes off it will be virtually impossible to police it, requiring a fundamental rethink in the investigative approach.”

Money from nothing

At first blush, the origin and value behind bitcoins will likely seem strange to some. Few, if anyone, has met Nakamoto, organization principal Gavin Andresen said, during a March 15 interview with EconTalk. Control of the organization is decentralized and based on the premise that all users can have a say in monetary decisions.

“The root problem with conventional currency is all the trust that’s required to make it work,” Nakamoto wrote in a February 2009 blog on P2P Foundation. “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”

How bitcoins work is a “step beyond any payment system I have ever seen,” said Santorelli.

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