
US Law Enforcement Traces Bitcoin Transfers to Nab ‘Largest’ Child Porn Site - srameshc
https://www.coindesk.com/us-law-enforcement-traces-bitcoin-transactions-to-nab-largest-child-porn-site
======
kgwgk
Matt Levine, today:

‘One of the weirdest things in recent financial/criminal history is that for a
while people really believed that Bitcoin, an electronic payments method that
creates a permanent, traceable, public record of all transactions and links
them to identifiable accounts, was somehow a good way to pay for crime. “It’s
completely anonymous,” people thought, “like digital cash, but you can send it
anywhere and no one will be able to trace you.” Not really! I suppose it was
even true for a little while, but eventually law enforcement agencies figured
out how to trace Bitcoin transactions, and then the fact that years’ worth of
criminal financial transactions were just forever openly available to them on
the Bitcoin blockchain was … bad for criminals.‘

~~~
onion2k
I wonder if the media around BTC being anonymous and untraceable was actually
encouraged by the intelligence community and law enforcement. It's certainly
been a boon for tracking down a lot of criminals.

~~~
magduf
I seriously doubt it. Remember, "never ascribe to malice that which can be
adequately explained by incompetence or stupidity." Our law enforcement
community isn't that bright or long-term thinking. Plus, once criminals get it
through their thick skulls that BTC really is traceable after all, they won't
use it any more.

~~~
clamprecht
But if the opponent knows you subscribe to this rule (assume ignorance over
malice), couldn't they take advantage of this?

~~~
thaumasiotes
Yes, there is no stable state of the system in which ignorance and malice are
assessed accurately. If you don't want the rate of malicious action to
increase, you need to overdiagnose it.

------
catalogia
> _" Law enforcement was able to trace payments of bitcoin to the Darknet site
> by following the flow of funds on the blockchain. Separately, Chainalysis
> said it was their Chainalysis Reactor software used to analyze the
> blockchain transactions."_

By design, bitcoin uses a public ledger. This sort of investigation being
possible shouldn't catch anybody by surprise.

~~~
sixstringtheory
Wouldn't it be amazing if years from now, we found out that Satoshi Nakamoto
was an intelligence agent, and that there was a massive state-backed social
media campaign to convince the dark web to use Bitcoin, for this very reason?

~~~
mdni007
It's an already known fact that Satoshi Nakamoto's real name is Steven
Nathaniel and is my uncle who works for Nintendo.

~~~
sixstringtheory
If that's true, you could consider updating the Wikipedia page [0] for him! In
any case, that's what I get for only checking Wikipedia, but I didn't follow
that particular drama closely in the first place.

[0]:
[https://en.wikipedia.org/wiki/Satoshi_Nakamoto](https://en.wikipedia.org/wiki/Satoshi_Nakamoto)

------
fencepost
The two things that really jumped out at me was that they were able to rescue
a bunch of children being abused (probably at least one in the US since one of
the LE officers was charged with producing) and that a huge percentage of the
content they found was previously unknown. The impression I've gotten from
stories in the past is that there's a lot of child abuse material that has
been circulating for years, so taking down producers is a big deal.

~~~
jammygit
I feel for the agents who have to spend time on those sites to investigate
them. I’d be traumatized having to watch things like that for work

------
dmos62
The thing that gets you when you realise it is that most of the criminals that
get discovered/prosecuted are discovered because they were doing something
stupid, like using the equivalent of a public ledger to make transactions. You
don't hear a lot of stories about smart criminals getting caught.

~~~
ashleyn
Conventionally, I always figured if one were that smart they would realise
crime wasn't a good cost-benefit balance in the first place.

~~~
hangonhn
Except for white collar crimes. Someone actually did the math on this and it's
actually positive for white collar crimes and often those people can have good
lawyers and punishment for white collar crimes don't often carry huge
sentences. The combination of a high payout plus good lawyers and light
punishment makes white collar crimes net positive in terms of risk vs. reward.

~~~
joncrane
I hate to say this but I found the same when I studied this issue in my
business ethics class in grad school (MBA). I wrote my end of term paper on
this exact issue.

What it boils down to is that, on average, white collar criminals can expect
to go home to $1 million per year of time actually served behind bars.

It made me wonder what the expected outcome of the class was.

~~~
dkarras
How does it generally work? Surely the money you steal / embezzle will be
taken from you when you get caught no?

~~~
CydeWeys
Many people don't get caught.

~~~
dkarras
But the post specifically compares the payout with number of years served.

~~~
Zarel
Another poster mentions that you can transfer/spend it in a way that's
difficult to recover:

[https://news.ycombinator.com/item?id=21275859](https://news.ycombinator.com/item?id=21275859)

But even if that wasn't true, you could still compare expected value. For
instance, if you had an 80% chance of successfully embezzling $8 million
without getting caught, and a 20% chance of serving 2 years of jail, this
would translate to an expected value of $1 million per year served.

------
cheez
There is a dead comment on this thread which is suggesting that Bitcoin is
more useful than any other form of money for law enforcement because it is
only pseudo-anonymous. I'm not sure why it is dead (perhaps the reference to
Stasi/etc) but I think this is a valid point and is why I didn't buy more than
a few hundred in Bitcoin many years ago to get a feel for the currency. I gave
it all away because I did not believe it is a valid form of money.

~~~
codezero
The poster has negative karma over-all so I think that might have affected it.
I vouched for the comment and it looks un-dead now :)

~~~
cheez
You are a saint

------
johnzim
I have never understood the appeal of BitCoin as a means of purchasing or
selling illegal materials. The entire transaction history is literally encoded
in a public ledger!

All Law Enforcement has ever needed to do is trace back the transactions -
something that's almost impossible with conventional currencies. Heck the
equitable principle of 'Tracing' exists in Law because it's normally
impossible to do that once monies have intermingled.

The sheer practicality of it is demonstrated in the fact that it's only
worthwhile or practicable for Law Enforcement to investigate _large-scale_
money-laundering operations. Yet with Bitcoin you can essentially read back
the exact history of every single satoshi.

~~~
alasdair_
>I have never understood the appeal of BitCoin as a means of purchasing or
selling illegal materials. The entire transaction history is literally encoded
in a public ledger!

Don't most illegal users use tumblers that commingle money from many addresses
and then send back (in different quantities and at random times and sometimes
from unrelated addresses) bitcoin of roughly the same value? Or is that no
longer the case now that transaction costs are higher?

~~~
hinkley
It seems like a huge part of criminal investigation is tracing opportunity and
motive, and only then proving that the suspect was involved. We conflate
filtering with proving all the time. Filtering strategies don't have to hold
up in court. They don't have to prove anything, except whether I'm definitely
looking at the wrong guy(s). The evidence gathered after I've filtered down to
5 supects is the stuff I'd be using in court. I (proverbial "I", as I'm not in
law enforcement) need Due Process for every step after that.

If you can narrow a suspect pool from millions down to hundreds by showing
they were at the same 'location' as the perpetrator, that's not great but it's
surely a start.

What percentage of people using tumblers aren't up to something sketchy? Even
if that's 95% that's still greatly amplifying the signal when you're talking
about looking for one individual among a hundred thousand.

~~~
quickthrower2
That's the scary thing. Today, it's using a tumbler that filter you in.
Tomorrow it's not having a 24/7 camera/mic in your house connected to the
internet with weakened or no encryption.

------
ddtaylor
> Among the 36 Americans named in the indictment, at least three were federal
> law enforcement employees who had been arrested earlier in this long-term
> investigation.

~~~
acollins1331
Seems like an abnormally high proportion. Hopefully it's just because of a
small sample size and not indicative of a Catholic church level cover-up in
our law enforcement circles.

~~~
trhway
You probably missed all those East Bay cops across several cities serving and
protecting in a very specific way that underage prostitute. Statistic wise
they seem to have beaten the Church, and the most of those cops are still cops
there, in particular because there were "insufficient evidence that they knew
that the girl was under 18" as were concluded by the judge in a dismissed case
against one of the officers.

~~~
vageli
Can you link to a source? As I understand it, lack of knowledge of age is not
a defense against statutory rape.

~~~
trhway
Except for cops as the other commenter noted.

[https://reason.com/2017/10/13/cases-dropped-oakland-cops-
dro...](https://reason.com/2017/10/13/cases-dropped-oakland-cops-dropped/)

"Judge Jon Rolefson dismissed charges against former Contra Costa County
Sheriff's Deputy Ricardo Perez [...]

Perez was charged with felony unlawful sex with a minor, felony oral
copulation with a minor, and two misdemeanor counts of engaging in lewd
conduct. But Rolefson decided there was insufficient evidence Perez knew that
Guap was under age 18. "

------
JoeSmithson
While the owner of the site was indicted in the US today, the taskforce that
ran this operation was international and not led by the US -
[https://pbs.twimg.com/media/EHAgtm_XUAALDz7?format=jpg&name=...](https://pbs.twimg.com/media/EHAgtm_XUAALDz7?format=jpg&name=medium)

------
ratsmack
I don't think Bitcoin can be anonymous if it goes through an exchange, because
you have to create an account with identifying information. I you host the
endpoint yourself, it may be possible to completely mask the source, but I'm
really not sure.

~~~
rtkwe
In theory a tumbler could disconnect the identify information even on coins
bought initially on an exchange with KYC compliance. Not sure if anyone's
figured out how to track transactions through those yet with just public info
from the blockchain. (I imagine they'd keep it pretty quiet if they had)

~~~
mmcwilliams
This assumes that the operators of the tumblers are to be trusted and aren’t
state actors themselves. It would be a pretty smart move for the Feds to run
one or more of those operations.

~~~
bredren
Coinjoin is an ongoing attempt to remove centralization from tumblers:
[https://en.bitcoin.it/wiki/CoinJoin](https://en.bitcoin.it/wiki/CoinJoin)

~~~
vkou
It will take a stroke of a pen for the US Government to require that exchanges
do not accept any coins that have gone through a known tumbler after <certain
date>

Imagine a money laundering operation, where every laundered physical dollar
gets a physical stamp of 'THIS CAME THROUGH A MONEY LAUNDERING OPERATION'.
That's the current state of BitCoin tumblers.

~~~
nybble41
> It will take a stroke of a pen for the US Government to require that
> exchanges do not accept any coins that have gone through a known tumbler
> after <certain date>

Assuming they can actually identify it as having gone through a tumbler, sure,
but it's not like tumblers advertise the addresses they use. Especially not
distributed systems like CoinJoin. These are just ordinary transactions that
happen to include inputs and outputs from multiple, unrelated sources.
Following long-established best practices, any given address will only be used
once.

They could ban exchanges from accepting coins that do not come directly from
another authorized, compliant exchange, but that would be tantamount to
banning cryptocurrencies altogether. It wouldn't _stop_ them of course, just
drive them underground.

------
TracePearson
I wonder if there will be increased interest in more privacy focused
cryptocurrencies like Monero? I don't follow this news closely so I am
genuinely curious if anyone has any insights.

~~~
woah
I’ve heard that some vendors on drug marketplaces take Monero

~~~
RandomBacon
I thought I saw a chart where it was the second-most-accepted coin, but I
couldn't find it, so I may be wrong.

I did find a chart where it is the 4th most accepted after BTC, LTC, and ETH.

I imagine those other coins are more accepted because they have larger network
effects. I also imagine that Monero's network will grow even more as it
becomes more developed.

------
AtlasBarfed
Holy crap, straight out of Law and Order plots, a former HSI agent was caught
in the investigation, if I read this correctly:

HSI computer forensic examiners found more than 1,000 images and 125 videos
depicting the sexual victimization of children on Pannell’s home-built tower
computer. The images and videos depicted pre-pubescent girls, including
toddlers, engaged in sexual acts with adults.

Pannell faces five to 20 years in prison, up to a life term of supervised
release, and a $250,000.00 fine, as well as registering as a sex offender.
U.S. District Judge Greg G. Guidry will sentence him on Dec. 17.

Former HSI agent Richard Nikolai Gratkowski, 40 at the time, was sentenced in
May to 70 months in federal prison on child pornography charges. The
investigation showed that Gratkowski, in San Antonio, received hundreds of
videos of pre-pubescent children engaged in a variety of sexual acts and had
also bought access with cryptocurrency.

------
jtbayly
> In cases where that was insufficient, account information combined with open
> source intelligence and standard investigative techniques were enough to
> identify users.

What is open source intelligence?

~~~
33degrees
Intelligence based on public sources as opposed to clandestine ones. Nothing
to do with open source software.

------
teh_infallible
The site says users spent millions of dollars, but they only arrested 337
people. Did they only arrest a small percentage, or were these some really
rich scumbags?

~~~
codezero
Seems unlikely they'd get everyone, but keep in mind, millions divided by
several hundreds is only thousands per person over some months/years.

Edit: and given that they have rescued dozens of abused children, I assume
they optimized for active abusers, but were happy to scoop up anyone else who
surfaced in their investigation.

------
werber
I’ve never used bitcoin, but everyone I know closely that does uses it for
drugs, and when someone who doesn’t do drugs is about it I always have this
nagging feeling their investment is just to cover up a child porn thing. It’s
for sure a prejudice, but i can’t shake it

~~~
nyolfen
this is much more likely the reason:
[https://cointelegraph.com/storage/uploads/view/4c43c9a089d2e...](https://cointelegraph.com/storage/uploads/view/4c43c9a089d2e69773a2d208c6e0a647.png)

------
nullbyte
This is why you should exchange your Bitcoin to Monero.

Transfer the value to another anonymized blockchain and make future
transactions nearly impossible to track.

~~~
moocowtruck
we actually track a large list of digital currency, more and more each week
and there is a ton of funding more than we'd ever expect being given for
getting anything we need done, i dont see it really as an issue.. digital
currency has been great for us

~~~
tmoravec
I'm very skeptical that you're tracing Monero. Unless you've broken ed25519,
that is. In which case, you have better things to do than crack minor
cryptocurrency transactions...

~~~
hackinthebochs
There are a lot of weak links in Monero that have nothing to do with breaking
ed25519.

~~~
Forbo
Namely?

~~~
hackinthebochs
Ring signature size is still a problem. Yes, it masks the originating address
of a transaction. But you know its 1 of N (currently 11 I think?). We know
that most people buy coins from exchanges and then send them to their
destination. An authority can simply subpoena every top exchange for users for
whom any one of the addresses in the ring signature belong to. That's 11
addresses. If we assume the user may have made an intermediate transaction, we
can go up two levels. That's 11^2 addresses. Three levels, 11^3. Given normal
people's typical usage, monero's anonymity falls to broad subpoena power.

~~~
nullbyte
Once you tumble your coins in the Monero blockchain, it's practically
untraceable. Every transaction makes it harder and harder for authorities to
track.

At this point in time, consensus is that Monero is safe.

~~~
hackinthebochs
You should try to address my points rather than just repeat the party line.

------
xenospn
It honestly breaks my heart to know that there is such massive demand for
these videos, where thousands of people will pay millions. It means children
will always be exploited since there’s tons of money to be made.

~~~
pmarreck
I have struggled to understand how this proclivity can be evolutionarily
possible and the only thing I can come up with is this unfortunate combination
of elements:

1) the necessary sexual dimorphism that makes sexual reproduction possible,
actually took an unfortunate shortcut: childlike features are retained in
females
([https://en.wikipedia.org/wiki/Neoteny](https://en.wikipedia.org/wiki/Neoteny)),
which ostensibly requires "less" DNA encoding, while males actually "develop"
into more "adult" forms (body hair, musculature, height, deeper voice, etc.)

2) the reproductive window of women is far smaller than men, causing men of
all ages to be drawn mainly to this small subselection of all women

3) consequently, men who were more likely to choose women in this younger
reproductive window might have been selected for;

4) some portion of these men (due to natural variation), in being drawn to the
paedomorphic features of women, actually are "steered too low" in preferential
age genetically and are thus born having to deal with this unfortunate
proclivity.

Ethical question: If no children were harmed and 100% of the videos and images
produced were synthetic, would simply consumption of the media still be a
problem?

~~~
minton
> 4) some portion of these men (due to natural variation), in being drawn to
> the paedomorphic features of women, actually are "steered too low" in
> preferential age genetically and are thus born having to deal with this
> unfortunate proclivity.

You’re suggesting someone is born a pedophile?

~~~
Karunamon
In the same way someone is "born" any other orientation in that you can't
choose what you're attracted to.

~~~
COGlory
Yes but no one is attracted to anyone when they're born. That happens later,
and how and why exactly some people are attracted to some sexes, or traits, or
fetishes is still up in the air. It's likely some combination of genetic and
developmental, and what the exact contributions are to pedophilia are unknown.

~~~
pmarreck
Identical twins raised separately have a >75% concordance in orientation, as
opposed to no concordance as would be expected if there was no genetic input.

So there is definitely a genetic input, and it is definitely large, although
it's not the whole story.

------
badloginagain
Does lack of anonymity affect BitCoin fungibility? If you are using coin known
to be used for illegal means, does it taint the coin?

~~~
lacker
It has some effect. If you deposit bitcoin into an exchange and it's coming
from an address that's associated with a hack or other criminal activity, it's
more likely to get flagged. It's hard to say for sure, though. Different
exchanges probably use different mechanisms.

------
billf1953
I must be missing something, I buy Bitcoin with a USD bank account, I send to
another address and then this address sends to a known drug dealer. How do
they establish the second address's identity?

~~~
kristianp
I guess the investigators found out somehow, for example by looking at
transactions on a computer already seized for realayed investigations. Also by
sending bitcoin to the service themselves, the investigators could trace the
flow of coins into addresses used by the dealers to spend their bitcoins. Then
backwards from there to other users payments.

------
nnain
This is so disheartening. 6-20 yrs is not enough prison time. This isn't
acceptable. Law makers around the globe need to rewrite the punishments for
these crimes. Child abuse seems to be much higher than older days.

As much as I love tech community, it's sad to see how most comments here are
discussing the technical details of the case and not enough outraged by it?

> I have never understood the appeal of BitCoin as a means of purchasing or
> selling illegal materials.

> I don't think Bitcoin can be anonymous if it goes through an exchange.

> This is why you should exchange your Bitcoin to Monero.

> How do they establish the second address's identity?

> good, they could never trace dollars

~~~
hackinthebochs
>6-20 yrs is not enough prison time.

It's plenty of time. This idea that just increasing sentences indefinitely
will improve things is wrong. The endless ratcheting of sentencing is wrong.
20 years seems low only because we've become so desensitized to absurdly long
sentences that _comparatively_ this seems low. Americans need to change their
relationship with justice and punishment.

~~~
nnain
Don't know if you're talking only in terms of US prison system; US has a whole
different problem there.

Leaving such corrupted/psychopathic people out in public is hopelessly
dangerous. ANYONE who has violated a child's life in this way doesn't deserve
a second chance. They have spoilt several lives already till now.

------
mindfulplay
And we have VCs chiming Bitcoin as the hero coin and create new crap coins.

Unregulated markets and freeflowing VC money: what could go wrong?

------
samstave
Why do constantly hear things like this and see so few actual people come
down, and when they do they are immediately epsteined.

------
biolurker1
good, they could never trace dollars

------
5822130027
Doesn't it mean bitcoin HELPs to catch criminals instead of helping them ?

If bitcoin was more widely used - wouldn't it be a dream come true for every
wannabe Stasi/Gestapo organization ?

~~~
KingMachiavelli
Perhaps on a technical level it's easier to access the Bitcoin ledger than
bank records but LE has far more experience with the later.

Also, if you solely receive and send bitcoin outside of an exchange, you can
easily remain pseudo-anonymous in that anyone can see that wallet X has
received Y bitcoins and send W bitcoins but without a person attached to the
wallet, it's useless information.

This is way crypto currencies are regulated at the edges, if fiet to crypto is
watched just like any other bank/exchange, then criminal activity has a hard
time getting money out. At the end of the day, it's difficult to buy 'real'
things; food, clothing, housing with bitcoin.

~~~
vkou
> Also, if you solely receive and send bitcoin outside of an exchange, you can
> easily remain pseudo-anonymous in that anyone can see that wallet X has
> received Y bitcoins and send W bitcoins but without a person attached to the
> wallet, it's useless information.

If this thing were a big enough problem, the government could easily require
you to provide a ledger of all the parties you've transacted with (Your wallet
is doing book-keeping, how hard would it be for a legitimate user to enter a
small memo for every transaction, anyways?)

Failure to provide a ledger, or for your ledger to fail to cross-correlate
with that of your counterparty would, of course, imply that you're a criminal.

Unlike cash, bitcoin leaves a very obvious breadcrumb trail, that can, with a
bit of legislature, be turned into an incredibly useful tool for LE.

------
SI_Rob
so the anonymity is pseudo, whereas the pedophilia is real?

~~~
fooker
Nobody has seriously claimed that Bitcoin is anonymous.

~~~
simias
I'm pretty sure by now somebody has seriously claimed that Bitcoin cures
cancer, speaks Romanian and cure male pattern baldness.

Anonymity and protection from the Big Bad Government were definitely talking
points used by many cryptocurrency enthusiasts. "It can't be banned and can't
be seized", rings a bell? Except of course if the Big Bad Government comes
knocking at your door and tells you to hand your wallet over "or else".

~~~
fooker
> Can't be banned

This part is sort of true. A government can ban fiat <-> BTC conversion but
there isn't really a way to stop people from providing services in exchange
for BTC.

------
quux
Seems like a good way to frame someone?

------
ikeboy
It's somewhat surprising this hasn't happened earlier. They've been tracking
these things for years, surely not everyone has been careful enough to keep it
hidden.

~~~
dbancajas
Maybe they needed to delay it to keep the show going and take down the whale
doing this aka "playing the long game."

~~~
ikeboy
Nah, they've taken down many others using different methods. Besides there's
several competing organizations trying to take stuff down from different
countries.

