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Liberty Reserve Founder Arrested, Site Shuttered (krebsonsecurity.com)
113 points by samweinberg 1697 days ago | hide | past | web | favorite | 99 comments

This is what I kept trying to say on here but always get downvotes.

Nation states will fight hard and dirty against digital currencies, as it completely undermines their fiat currency inflationary economies.

You keep getting downvotes because you are wrong. Alternative currencies -- digital or not -- in no way threaten fiat currencies. The reason is well-understood by economists: law-abiding citizens and businesses have frequent interactions with the government, which demands payment in a fiat currency. The vast majority of businesses that accept Bitcoin payments, even on the black market, do so only because they ultimately convert Bitcoin into fiat currency (hence the popularity of Bitcoin payment processors that do this automatically).

I'm not wrong because of the above example. Nation states have begun coming down on digital currency and this trend will only increase.

You are wrong about the reason. Nobody is worried that any digital currency is going to undermine fiat currencies. The concern is about enforcing the same regulations that apply to other financial services, which a lot of digital currencies have not bothered to abide by.

They will fight against e-currencies not because of protecting fiat currency but because of fighting anonymous payments.

Providing anonymous payments currently is illegal in pretty much all of the world; No matter how you design an e-currency, it has to be either (1) non-anonymous, (2) insignificantly small so that noone cares, or (3) temporary, since any payment service providing businesses will be closed down.

In essence, if you can send me money to be forwarded to person X; then that is heavily regulated, and unless I apply for special protection and licencing, I will (a) be completely liable for the transferred amount if the money "is criminal" - even if you/someone else stole it, and I "just" forwarded it; and (b) be fined for providing such services without the many mandatory consumer protections, such as having capital/bonds to guarantee full payment to everyone even if I go bankrupt.

> Nation states will fight hard and dirty against digital currencies, as it completely undermines their fiat currency inflationary economies.

Is that supposed to be a bad thing?

No, inflationary fiat policy steals from the frugal, savers and fixed income people and rewards the people at the top of the pyramid (financial institutions) who get cheap money from the central banks.

Having alternative currencies ensures accountability and honest money. Nation States don't want this, as it restricts their expansion.

I hope you are not implying that bitcoin is better. Bitcoin creates a super-elite of early adopters who control (in percentage terms) an amount of currency unheard of in history.

The curve of releasing bitcoins was done backwards - it should have released very few bitcoins at first (while there weren't a lot of people using it), and more (i.e. faster) later on as it got more popular. As is, fewer and fewer bitcoins are being released as time goes on (i.e as more people use it), and that's an utter disaster for a currency.

I hope bitcoin never becomes a real currency since it would create a monetary inequality such as the world has never seen.

So money created by the people for the people will create monetary inequality, where as Fiat currencies where the monopoly of money creation is given to handful of super-rich central bankers is not? Not to mention that US Dollars for example are created by a private institution called "The Federal Reserve" and lended out with interest. Or that HSBC has the blood of tens of thousands of drug war victims on their hands for enabling the business in the first place, and get's away with a <10% fine of the profits.

The curve is modeled to mimick that of Golds, because that's what Bitcoin in the end is: Virtual Gold, where tangibility is replaced with knowledgeability. And because all that Bitcoin "wallets" are in the end is information, it makes things possible that we could have never imagined before.

Just because you missed the first Bitcoin opportunity doesn't mean that Bitcoin would be inherently bad. Please educate yourself.

You created your account 1635 days ago, and your very first post is this piece of nonsense? And you tell me to educate myself?


There is little point in replying to your first paragraph since it's filled with so much misinformation I wouldn't even know where to start.

But re your second paragraph: What makes Gold so wonderful that you want to copy it?

As opposed to deflationary policy, which steals from the hard-working children of the future?

Please don't waste your time typing the usual nonsense about how bitcoin can be divided into infinitesimally-small parts. Nobody is (or has ever been) seriously worried about that. It would be as if saying the primary problem with hyperinflation is that you need to put too many zeros on your bank notes. Imagine if someone asked about the feasibility of fiat currencies and the response was "No, we've planned for that: There will be extra space on the end of the bank notes to print more zeros." Absurd! Yet, that's the standard argument from bitcoin proponents when it comes to deflation (only in reverse).

The problem with bitcoin is that its designers believed that hyperinflation=bad necessarily implies that hyperdeflation=good. If that were the case, then bitcoin would be the perfect currency. Actually, both are fatal to an economy. Economies basically shut down when currencies start to deflate. It turns into a giant game of chicken: Nobody wants to spend his currency first because he knows it will be worth more later. First people delay luxury purchases, but before long you end up with a vicious circle and people wait until the very last second to purchase essentials like life-saving medicine. There is a way to stop this, of course: Print more money (Hey, that's kinda like how the solution to hyperinflation is to stop printing more money! Who'da thunk it?).

>Nation States don't want this, as it restricts their expansion.

Or we can take off our tin-foil hats and admit that Bitcoin sucks and was designed by someone with little understanding of economics or the history of money. In order to be a useful currency, the total number of bitcoins needs to track the size of the portion of the economy that uses bitcoins. Bring me a cryptocurrency that was designed by someone who is more interested in making a solid, practical currency than rigidly following his ideology, then we can talk. Nobody in power is in any way threatened by bitcoin. It will implode by itself without any help from the outside (though I'm sure it will get some helpful nudges in that direction).

I'll close with this: Part of engineering a good system is making prototypes and seeing what doesn't work. Another part is looking at competing products and seeing where other engineers went wrong. Blind, religious adherence to the principle of deflation is only going to cripple the adoption of alternate currencies.

In a transaction where one asset is inflationary in relation to another, another one is deflationary, right? So if I apply your argument of deflationary spiral to currently deflationary assets (in relation to USD), we would have to withhold selling our services and goods for USD because tomorrow we would be able to get even more USD, right? So no trade should happen in a USD economy too? (Buyer of one asset is a seller of another and vice versa.)

Another argument: there are time preferences. Even though tomorrow I can buy 10% more beer for my money, I want some beer today. If my money gets expensive faster, I'd spend less of it, but not necessary zero.

Third argument: even if everyone is holding their money, what's the problem? The minute someone needs something, they'd have to pay for it. They would prefer to consume less if cash appreciates and consume more if cash depreciates. But there is no magical threshold after which money becomes so expensive that everyone stupidly dies of starvation. On contrary, price will stop growing as soon as everyone got what they wanted and trade stopped (no one wants to sell his bitcoin). Then, as people see more stable prices, they will resume trading cash for something to consume.

> In a transaction where one asset is inflationary in relation to another...

Yes, and this happens in the real world. You'll find that when an asset is deflationary (ie, its price in USD is increasing), buyers try to delay payment so they can hold onto their dollars for longer. The asset being deflationary is exactly the same thing as the currency being inflationary (in this simply two-component system): In the future the asset is worth more and dollars are worth less, so to get the best deal you want to pay with the least valuable dollars, which are future ones.

> Another argument...

Depends on the level of deflation and your expectations for the future. If Bitcoin replaced the world's currencies, it should be worth "a few" (handwavey order of magnitude) million USD per BTC[1]. Even if it just replaced the USD it would be worth hundreds of thousands of today's USD. And that assumes that all 21 million bitcoins are available for use in the economy. It is currently trading at about one hundred USD per BTC. Are you seriously telling me that you would trade a Bitcoin for a few cases of good beer right now and give up millions in future value? If Satoshi is holding on to orginal bitcoins right now he'd be stupid to spend them not because someone could blackmail him, but because he could be a multi-trillionare in a couple decades.

Let me put this another way: If bitcoin "only" deflated at 10% per year (the number you picked for beer), it would take around a century (100 years) to deflate enough to replace the world's currencies. You'd probably be dead before it's big enough to replace just the dollar. And 10% is huge. Imagine if we had 10%/yr inflation for a century. Would that be a good thing? Do you think 10% inflation could be maintained for that long without a vicious circle causing hyperinflation?

> Third argument: even if everyone is holding their money, what's the problem?

Because this amplifies the vicious cycle. Hoarding money pulls it out of the economy, which increases deflation. That makes people want to hoard their money. Which pulls it out of the economy, which...

> The minute someone needs something, they'd have to pay for it. They would prefer to consume less if cash appreciates and consume more if cash depreciates. But there is no magical threshold after which money becomes so expensive that everyone stupidly dies of starvation.

So this is interesting: It works fine if we pretend that our amplifier is relatively linear and has a healthy amount of negative feedback and plenty of phase margin. Unfortunately, things in the real world aren't quite so simple. What happens when all the farmers decide not to plant crops (or not beyond a sustenance level) one year because each one knows that he will be better off saving his money to buy seeds next year? Futures markets can help with this a little, but those are prone to bubbles, too. By the time the price signal trickles back through the feedback loop you already have people starving. Google for the MIT beer game. Oscillations "shouldn't" happen in that system, yet they do. The cause of the oscillations in the MIT beer game is delay in the feedback network. It's directly analogous to an op-amp circuit.

So, bitcoin might work in a soviet-style, centrally planned economy, where someone with a bird's-eye view can dictate the output of various industries. Maybe bitcoiners want central planning. I don't know. But, know that I would prefer not to have that.

[1] It was a while ago, but I calculated the approximate world money supply using numbers I found on wikipedia. It's something like the equivalent value of tens of trillions of USD (trillion=1e12), and there are at most tens of millions of bitcoins (million=1e6). 1e13/1e7 ~= 1e6. This is a very very rough estimate, but it shows that the current value of bitcoin isn't even close to being in the same county as the ballpark compared to what it needs to be to reach its apparent goals (world domination). If you really think that bitcoin is going to replace USD, buy as many as you can get your hands on for whatever price anyone asks because you're buying them for fractions of a penny on the dollar. (note: this is not actual investment advice and I am not an investment adviser)

Does not surprise me at all. Almost every cyber crime forum (Damagelab, exploit.in, Darkode, carder.pro, opensc etc) used Liberty Reserve (LR) to receive payments for malware, credit cards, personal information and other illegal content. This used LR because the payments could not be reversed and because the company did not comply with law enforcement.

Not to worry though, Bitcoin seems to be getting more and more popular among these forums and will probably take over.

webmoney seems to be alot more popular among these types than bitcoin

The central hub of script kiddies, Hackforums, recently moved to bitcoins as soon as word of the feds getting hold of LR went out.

opensc is not a cyber crime forum. Greyhat at most.

E-Gold round 47, I guess?

It's unclear how predictive the raid on Mt Gox (which appears to be FinCEN MSB registration related, but possibly with more behind it) and LR (which appears to be due to the use of LR by child porn and other illegal activities, ultimately) are for future USG vs. Bitcoin exchangers and other market participants.

(also, sigh, he's getting DoSed; using Prolexic, who are usually pretty decent at mitigating these attacks, but it takes a long time to load.)

Most popular currency for money laundering, terrorism supporting, child pornography and drugs selling is ... USD DOLLAR!

I'm surprised they managed to skirt the law for so long when they actively promoted very shady HYIP programs.

Costa Rica has some wacky banking laws which allowed this to go on for as long as it did

My opinion on e-currency is evolving the more I see how it's actually working in the real world.

Ignoring the fact that bad people many times use e-currency for repulsive things like child slavery, the lesson over the past month or two seems very clear: any form of e-currency is a huge tool for governments to monitor and control economic activity.

We think of e-currency as being much easier to move around than printed currency, but it's actually much easier to track and control than printed currency. Yes, it begins as an anonymous and cryptographically-secure form of value representation, but once government adds just a little enforcement tweaking (many times without even having to pass a law) it becomes a big lead weight around the owner's neck. Best-case, it's all tracked down to the penny. Worst-case, you lose all your value.

I remain a skeptical fan, though. Here's hoping the community works through these issues.

The ultimate lulz issue for fully anonymous and resilient payments is probably the Jim Bell/Tim May "Assassination Politics" model:

http://en.wikipedia.org/wiki/Assassination_market http://www.outpost-of-freedom.com/jimbellap.htm http://www.cypherpunks.to/faq/cyphernomicron/cyphernomicon.t...

Essentially I could say "I bet $100k that Marcus Badperson will die on the morning of 15 June 2013"; best way to collect is to do the deed yourself (or subcontract.)

The terrifying thing is not so much that someone might be willing to pay $100k to kill someone, but that 1mm people might each be willing to pay $0.10. Not so much kickstarter as kickender.

(this whole thing was my first contact with the federal court system, since I hosted a mailing list archive for the cypherpunks list on which a lot of this was discussed, when Jim Bell got prosecuted back in 1997 for attacking an IRS office. I was so glad I was running a really mediocre mailing list archive where anyone who sent mail directly to the list address on the machine could inject messages, and by picking the right message id, overwrite...and for getting the world's most awesome attorney on retainer...)

A child could have hacked my system, your honor, a child!

I bet $100k that Marcus Badperson will die on the morning of 15 June 2013"; best way to collect is to do the deed yourself (or subcontract.)

But don't you need someone else to take the other side of the bet?

You can't just bet X and get more. You can only get what Y bets in opposition. Assuming no one else agrees with you and makes the same bet, because then you'd have to share what Y put down.

And who's going to be the opposing side in these bets?

I happen to know Marcus Badperson is a janitor for the federal serve and will spend all day on June 15th cleaning the gold bars inside the safest safe in the world. So I bet a billion dollars he does NOT die between the hours of 9am and 5pm on June 15th. Unless someone else bets more than a billion, the best I can do is simply collect the same billion I put down.

I was hoping to find an elaboration of who could be the counter party in the Wikipedia page, but nope nothing there.

I think the assassination market is very probable if you completely skip the question of who's the counter party. Or if you have no idea how betting and payouts work in the first place. Otherwise this "assassination market" is total bullshit.

The idea is that by taking the other side of the bet, you are incenting your counterparty to do the crime. The bet is essentially an offer to do murder.

If you bet me you'll kill Mullah Omar for $10k tomorrow morning, I'll max out a credit card to be your counterparty.

By being specific about the time/place/manner of death, you can avoid the free riders to some degree. At least, all the ones who weren't betting on you specifically. If I find a killer credible, I'd

The whole point of structuring it as bets vs bounties is plausible deniability. A person contracting for an assassination is looking to lose money and gain dead Mullahs, whereas a killer is trying to trade Mullah killing for money. Uninvolved speculators are just betting based on the credibity of specific proposed-killers, I think. It would be easy for killers or contractors to manipulate the market to throw them, I think.

I'm increasingly worried that the features of crypto-currencies sought by cypherpunks (like me) are basically identical to the features ideal for money laundering.

Maybe we need to ask something fundamental (which might sound absurd): "Should money laundering be considered illegal, or a natural human right?"

As loaded as that sounds, I don't think it's that easy. There's a pretty clear prima facie case to be made on each side.

An avid fan of Satoshi could reasonably abandon unregulated currencies in fear of the social ills they enable (a la the argument from the author of "The End of Money" that we stop printing 50s and 100s, since they are disproportionately used in support of crime, while the rest of us use plastic for large transactions [1]).

On the other hand, I could see someone concluding that the world would be better off on net if we don't worry as much about crime, but simply ensure there's a simple way to quickly and anonymously transfer value across long distances.

It would be a serious blow to police (and the Woodward/Bernstein's out there) to lose the ability to "follow the money." But there are also compelling economic arguments that lubricating capital flows makes everything better [2, 3].

I remain a skeptical fan too, but the mounting cognitive dissonance is not for the faint of heart.

1. http://www.slate.com/articles/business/cashless_society/2012...

2. Ferguson's Ascent of Money, http://en.wikipedia.org/wiki/The_Ascent_of_Money

3. Maybe various stock European Community arguments pro-liberalization of capital flows, though some of them look weak right now, and it's odd to use these to argue for a new currency...

I'm increasingly worried that the features of crypto-currencies sought by cypherpunks (like me) are basically identical to the features ideal for money laundering.

I don't see the problem. Living in a free world is dangerous, and undesirable things (might) happen. But how is it justified to restrict the freedom of one individual, because of something somebody else did (or worse, might do)?

Money laundering is just a sequence of voluntary transactions between consenting individuals. No reason that should be illegal and there's no reason the government needs to be able to trace every financial transaction back to its source.

Organized crime? Feh... government (or what passes for government these days) is organized crime.

"Money laundering" is a very recent crime. Didn't have it 40 years ago. Back then people just moved money around as they wanted.

I don't know about others, but I find it very difficult to get upset about a crime that's new, that doesn't impact me, and that the world got along just fine with for centuries.

(Of course that doesn't mean that I support crime in general. I'm just taking a side: the social benefit to money-laundering laws is not as much as the social downside, at least in 2013. In 1995 I might have easily weighed it the other way)

You have to ask yourself a serious question: are these laws being used to protect us from crime? Or are they being used to protect the financial system itself from us?

Have you ever given someone a gift of food or beverage as a way of saying thank you for a financially meaningful favor? Have you ever given a gift card or stored value card produced by a non-bank institution? Been on the receiving end of a transaction of that nature? Congratulations, you may (at the discretion of the prosecutor) have already committed the crime of money laundering.

Money laundering is an interesting crime in that a series of otherwise legal transactions may be considered laundering if the source of the funds was tainted in the eyes of prosecutor in any of several ways. Most usually by being the result of an enterprise that is criminal in nature; such as attempting to avoid taxes...

So as with many financial crimes these days; the criminality is entirely dependent on the political power of the accused. An Apple or Google is not committing money laundering by structuring their transactions to avoid having their revenue streams being tainted with taxability. But if you or I were to try such a thing...

For what it's worth, money laundering is not harmless. Two ways:

1. It permits crime to pay. Yes, drugs ought to be legal, but "crime" also includes other stuff that has a victim, such as theft, extortion, fraud, fake products, misappropriation of funds, forced prostitution, etc.

2. It behaves like economic globalization, to the n'th degree. Don't like your local tax regime? Pick one, with the click of a mouse. Right now big business gets expensive tax lawyers to set them up schemes where they are nominally doing business somewhere else, but you can bet their expensive tax lawyers are eyeing bitcoin with interest. So what if the roads locally have potholes and the school got sold off?

As to why it's a new issue, that's just down to technology. It didn't used to be feasible, except by gold-smuggling or the suchlike. That has changed.

So instead of taking down human traffickers pimping people who are essentially slaves, we should be going after the ones who aren't smart enough to hire a great accountant?

It's be real here. Smugglers and criminals have been around for eons, and motivated police forces have been able to control them.

I can't help but feel that you didn't fully understand what the grandparent post said, so let me take a whack at it:

First, human trafficking is illegal, but (apparently) very profitable. It was an unstated assumption that those people who engage in these sorts of activities do so primarily out of a motive for profit. In other words, that human trafficking could be largely eliminated by making it unprofitable.

In order for traffickers to enjoy the considerable fruits of their (slaves') labors, they need to invent a plausible-seeming and, more importantly, legal source for their wealth. This is called money-laundering. To do otherwise would invite the attention of the local constabulary.

What the GP is suggesting is that a viable means to curtailing human trafficking is to make money laundering difficult. This makes it difficult to use the profits of the crime, which reduces the incentive to commit the crime in the first place.

I do understand that nation.

Money laundering laws have been around for quite some time now. Last time I checked, there are plenty of drug dealers and pimps operating.

I'd argue that the supply-side is probably a more productive place to attack these problems. Make it unprofitable to enslave someone vs. hire someone.

That's why we should be able to support roads locally (via service, toll) without having to hope government takes care of it via extortion (erm. I mean tax). Same with parks, education etc.

I used to think that way. But I updated my ideas once and for all when I improved my understanding of consent.

Libertarian anarchist theory is based on non-aggression, that is, the idea that capitalism can be a system where people deal only by consent. But the kind of consent it uses is "affirmative consent" - you said "yes", or you signed a contract agreeing ahead of time.

Feminism introduced me to the stricter idea of "enthusiastic consent" - you ongoingly and genuinely want to. From this improved perspective, contract is unacceptable (it's there to allow you to be forced despite no longer wanting to), and putting someone in an arm twisted position of "say yes or starve" is clearly not consensual. But this is precisely what capitalism does.

Honestly as things are now, I don't agree with the existence of money systems at all. I am not pro-tax, I'm against the whole of the money/paying/salary/finance system in its entirety. But tax is a weak hack to at least claw back a little economic equality. And breaking it without replacing it is harmful.

As to "we should be able to support roads" (or whatever), basically this has the same power and limitation as crowdfunding. A million ordinary people can scrape up a million dollars between them. But most of the economic power has already been sucked out of their reach - any individual in the 1% could pay that $1m out of their personal fortune and not even feel it. Spreading effort over the many when the few hold all the resources is a strategy doomed to fail.

And I used to think the way you do. But I did some simple, back-of-the-envelope calculations and basic research, I came to the conclusion that our government is primarily paid for by the middle and upper-middle classes. The top 1% pay virtually no taxes on their vast wealth. Remember Mitt Romney's returns? Well, that's entirely typical. And how is this so? It's because the top 1% -- really the top 0.1% -- own the government. It does whatever they want. And they don't want to pay taxes, so they put that responsibility on the shoulders on the already-struggling middle class. So in case it's not obvious, anything we do now to increase the federal government's powers increases the power at the hands of the 0.1% wealthiest. This country is being distracted by this silly liberal/libertarian and left/right debate when in truth the problem is both big government and big business. So the question becomes, how do we fix the problem? There are no easy answers, but the idea that allowing the federal government to increase its every-expanding powers will lead to increased equality is a dangerous siren call.

There is a strain of libertarian contract theory that (while perhaps still problematic on feminist grounds in its likely implications) is more compatible with the idea of enthusiastic consent.

Rothbard's position was that the only proper subject of an enforceable contract was the transfer of title to alienable property. Therefore, the only permissible use of force to compel specific performance would be to compel title transfer. A slavery contract, under this theory, is unenforceable because one's self and one's labor are not alienable.

This breaks down around edge cases relating to alienable property strictly necessary for life, though there's a case to be made that any property strictly necessary for life isn't alienable. That's a hole big enough to drive a system of socialized medicine through.

> [...] "enthusiastic consent" - you ongoingly and genuinely want to. From this improved perspective, contract is unacceptable (it's there to allow you to be forced despite no longer wanting to), [...]

It is a very important right to be able to bind yourself via contract. In exactly the same way as is the _right_ of getting sued. Tom Schelling wrote about these issues in e.g. The Strategy of Conflict.

The right to commit yourself is important, because it will make other people more likely to commit themselves to you.

So get rid of all the rural areas and let's all move to the city? That's the only way your plan is feasible.

I can't even imagine how school would have worked for me that year I lived on my grandparent's farm without the whole school district having to pitch in.

Is that the wiki page that computer language designers link to when compiler developers complain that they have no clue how a pet feature would actually be implemented?

As it stands what you've done is attacked the logic of the argument, as opposed to giving so much as a weak suggestion of how the problem would actually be solved.

There are a great many people who benefit from roads indirectly via the services and commerce they provide.

Not all market transaction systems are effective at capturing sufficient amounts of consumer surplus to make provision of services possible.

As another example: many private (and public) transit systems were funded and financed by retail and real estate interests. By covering the fixed capital and much of the operating expenses of bus, trolley, and rail lines, they increased demand for their products and services. You see this today, but it comes in the form of providing "free parking" for retail establishments (you think those acres of parking outside your local mall or WalMart don't cost anything?).

Markets have failures too, my friend.

"I don't know about others, but I find it very difficult to get upset about a crime that's new, that doesn't impact me, and that the world got along just fine with for centuries."

I agree that we should do away with all new laws that don't directly affect DanielBMarkham.

Well, they're not really doing a good job protecting us from crime. As you know, Bob, I'm pretty liberal - but not when it comes to state surveillance. I'd like to see some empirical evidence that state surveillance has ever been used predominantly for anything but control of the little guy.

Many of these financial crimes are meta crimes that exist because we've enacted this tangled web of law that cannot be enforced. There are many other examples.

A great example is the State Senator Joe Bruno case in NY. The Senator was the majority leader of the Senste for many years, an institution that is synonymous with corruption. (At least a dozen members are currently either under indictment or named as the subject of an investigation by the US Attorney.)

The Federal case was essentially that Bruno took bribes, except they couldn't prove it. So they prosecuted him for violation of what i call a meta-law... the so-called "honest services" laws, key parts of which were deemed unconstitutional by the Supreme Court. So now they are going after him again for bribery -- a case that is probably double jeopardy and is subject to all sorts of appeals, essentially for the purpose of bankrupting the guy.

Acts that potentially support a crime should not be criminal acts. Go convict the money launderer of tax evasion, racketeering or drug sales. Go convict a criminal without the resources for an attorney for whatever they did, not for lying to an agent of the US.

society (generally) demands that criminals be held responsible for their actions, especially when those actions result in tens of thousands of violent deaths.

society (seems to) believe that the presence of organized criminal organizations is negative and leads to violence. so how do we fight them? do we lock people up when they pull a trigger? but there are so many people who would pull a trigger and none of them are the people near the top of the food chain. how do you arrest those responsible for and profiting from violent criminal syndicates?

if you follow this train of reasoning long enough you get to criminalizing some financial behavior.

An interesting way to phrase it.

Money laundering has been illegal since basically Roman times, however until it was called out explicitly as a crime it was generally charged and prosecuted as abetting after the fact.

There are lots of ways you could be charged with abetting criminals, from providing shelter and new clothes when they were on the run (harboring a fugitive) to providing false information or failing to cooperate (obstruction of justice) and it has always been a challenge to decide just how far outside the influence ring of a particular crime you can prosecute.

It is an interesting look at market dynamics. And while the 'outer layers' of the criminal enterprise were not being prosecuted it created a weird sort of bubble market where crooks living on the margin could promote suckers to be the 'kingpin' and enrich themselves on things like supplying guns, or laundering profits, or providing transportation, and the kingpin gets caught and sent to jail, these folks need a new kingpin to keep the engine going.

In prosecuting so called 'organized crime' in the late 60's and 70's law enforcement realized that they couldn't just put away the boss. The theory that crime was lead by a small number of people who tricked a much larger number of people into facilitating that crime, turned out to be quite wrong. There were large numbers of people who knew what they were doing to support the criminal enterprise was wrong, they just didn't care because they were earning a living and were unlikely to be prosecuted. So we saw a shift to more systemic prosecution of the entire food chain, and the specific actions which supported criminal activity were called out. The RICO Act is probably the key bit of legislation which reflected that shift. I was living in Las Vegas in the early 70's and that was on the tail end of the authorities trying to 'clean up' that town. Their effort focused on cleaning up the infrastructure (like the mob controlled unions) in addition to the crooks themselves.

But this is something you really need to think hard about:

"I don't know about others, but I find it very difficult to get upset about a crime that's new, that doesn't impact me, and that the world got along just fine with for centuries."

It does effect you, that viagra spam you get? Those Oxycodone and Adderal pills you kids are being offered at school, the insurance rates on your car, the price you pay for things at the store, Etc. We live in a world where some folks take millions of dollars from a wide variety of people. That activity causes your fees to go up which is how the money is transferred from your pocket into the criminals pockets. The carders steal a million dollars from Amazon by using fake credit cards, and Amazon increases their transaction fee for everyone using credit cards to offset that loss, your money goes to the criminals. Sometimes they kill the store/restaurant/company but if the customer base is large enough they just leech off the customers. It is much closer to being a zero sum game than you realize. And when they defraud the federal government they recover that money by getting more tax money.

The key here is that it isn't a "new" crime, its the support of criminal activity which has gone on forever. Making it difficult to profit from crime has been a very potent force in reducing crime in general.

Money laundering, though, is a very small subset of the crimes you're talking about. And something like stolen credit card numbers or reselling drugs may have a side effect of laundering money but as far as I know the main motivation is simple profit. They are illegal for much stronger reasons than simple 'abetting', and provide no support toward outlawing 'pure' money laundering.

One nit pick: "failure to cooperate" is very different than "obstruction of justice".

> It is much closer to being a zero sum game than you realize.

It's even worse than zero-sum. Those actions effectively act as a tax that prevents even more business than they leech off.

Interesting. The Google Ngram Viewer largely bears this out. The term seems to have come into use in the mid 1970s:


A brief modern history: http://www.fincen.gov/news_room/aml_history.html

> Or are they being used to protect the financial system itself from us?

Posing this question suggests you've already arrived at the answer ("yes").

>>>>>>"Money laundering" is a very recent crime. Didn't have it 40 years ago. Back then people just moved money around as they wanted.

You seriously think there was no money laundering going on in the 1970's??

The Bank Secrecy Act of 1970 actually sought to combat money laundering by the Mafia and the early cocaine cartels (didn't you ever see Scarface?). Although many banks didn't abide by these laws, there were subsequent laws to combat money laundering such as:

Money Laundering Control Act (1986) Anti-Drug Abuse Act (1988) Annunzio-Wylie Anti-Money Laundering Act (1992)

The Money Secrecy Act has actually been amended several times and is now part of the patriot act:


Money laundering is almost as old as prostitution.

You, sir, fail at reading comprehension. You even quote the relevant phrase:

>"Money laundering" is a very recent crime

Sure, it's been around for a long time, but only in the last 40 years has it been illegal in the US. I'd like to see how many of these criminal organizations have been taken down by money laundering laws as opposed to tax fraud or something else. You can be sure that, even though it's illegal, most criminals are still able to launder their money.

One thing for everyone to keep in mind is that money laundering is a big part of the economy and brings a lot of business to conventional banks. As the recent HSBC scandal shows, banks make a lot of money by looking the other way.

Here is an easy answer: sum up the value of all the money laundering crime that (say) the Cyprus government protected its people from. Now sum up the value of how much the government stole from citizen bank accounts.

We've outsourced our personal and financial security to large and unresponsive governments; on net we are more rather than less victimized by criminals. The only difference is that these criminals wear suits and have names like Draghi and Bernanke.

> bad people many times use e-currency for repulsive things like child slavery

Do people not use fiat currency, as well, for repulsive things like child slavery?

Physical cash is decentralized and used for a lot of bad stuff. However, it's not digital/online, so there are a lot of ways it's not useful, and it's also easier to investigate in some ways (bulk currency smuggled out of the country can be tracked the same way drugs coming in are tracked.)

Bank/etc. operated payment systems, at least the above-board ones, at least pay some level of attention to AML, anti other criminal activity, etc. It's not uniformly effective, sure, but it's hard to operate a large child-porn-for-Visa merchant, and visa/card issuers/gateways tend to cooperate fully with various government agencies in both stopping the activity and in catching/prosecuting the offenders.

Hehe, I came here to point this out as well. People are all too quick to jump on the "e-currency is for bad things!" band wagon thinking their precious pounds and dollars are squeaky clean.

>> bad people many times use e-currency for repulsive things like child slavery

>Do people not use fiat currency, as well, for repulsive things like child slavery?

Or do they use computers, and weapons, and, and, and...?

Just add internet and everything's different!

When discussing e-currencies, I find myself asking what the incentives are in using them. What I find is that the biggest reason to use e-currencies is not any intrinsic benefit of the e-currencies itself.

Rather, it's the current banking system that has drawbacks which pushes myself and, I assume, others, to look for alternatives. For example, thanks to the move of digital cash over physical, banks has gone from being a care taker to a service provider. That might not sound as a big change, but it has a huge impact on the power balance of the bank vs the consumer. I personally am no longer in control my own money. If I wanted today to take out my own money from the bank here in Sweden, I would have to go down there and ask for permission. If I then give them a reasonable argument why I should be allowed to take out my cash from the bank, then they might allow me to come back in a few weeks and take out the cash. If they do not like my argument for taking out the cash, then they are perfectly legally allowed to deny me access to my money.

And that's only about access to my own money. We also have the personal information derived from transactions I make. That data is not even remotely under my control, as it is given out to be data mined by anyone within EU or who has a EU treaty for data sharing (like US). It can also be sold, or data mined by the bank itself, and the bank could claim copyright ownership on it.

Therefore, a major benefit of e-currency is that it removes the negative aspects of the current system. It doesn't really need to be anonymous or a cryptographically-secure form of value representation. It just need to be digital and in control of the individual who "owns" the cash. Those priorities might not sound as attractive for criminals, but for me it sound as the way e-currency will grow.

Unless there's some esoteric Swedish law that gives banks special privileges that I'm missing, the bank doesn't have any right to refuse you your money except according to published limits on the timing of withdrawals (and its obligation to freeze accounts under criminal investigation). These limits always can and have existed, and in fact were much worse when the bank genuinely was worried about having to redeem everyone's assets in physically limited gold or currency, instead of being able to pay your money into another account electronically and balance their reserve shortfall with electronic interbank lending and automatically approved loans from the central bank. They've got a lot less motivation to deny access to your funds and little chance of getting away with it, unlike an anonymous overseas intermediary in the trade of some digital asset which is intangible unregulated and not legally recognised as having any monetary value.

It is a relative new law (5-10ish years) called something like "anti-terrorism funding and money laundering law". It require the bank teller to inquire the nature of any withdraw or transaction, and the power/requirement to stop any money withdraw or transaction in case the teller aren't satisfied with the answers the customer gave.

All to the discretion of the bank. No criminal investigation is needed to stop transactions/withdraws. They might not be able to close the account, but they can prevent any money from being removed from it as long they like.

It's also the same law that are currently is preventing unregistered phones from using sms-purchase for tickets to buses and trains. The law directly forbids any kind of money transfers if one of the participants are not directly identified.

That's surprisingly draconian. That sort of thing would probably be met with some sort of popular backlash in the US, though I've little doubt it would pass.

AML legislation is already in place across the OECD; the US was a major sponsor for the multinational agreement that most OECD nations signed up for.

You know better than this, right?

This is why I think something blinded is essential; your unlinkability (and thus anonymity) are essentially as strong as cryptography, vs. policy.

I'm still trying to figure out if Zerocoin or another decentralized system can work, or if it will require just having a large number of redundant small-but-individually-centralized blinded currencies. You can make each pretty resilient (hidden behind tor or message pools/offline, k of n threshold cryptography, etc.), but if there are 1000 USD currencies, you can hedge and accept the loss of a few and lose only a small percentage of assets.

I think it's clear that anything that can "work" will be deemed illegal. Because "terrorists" and "money laundering".

Yeah, whatever the solution is, I think it has to be something massively decentralized and blinded.

I've been speculating that a distributed double-blind commodities ownership system might fit the bill. Some people buy commodities and hold them, then distribute ownership cryptographically. Owners never know holders, only the definition of what they own. Ownership is transferred cryptographically.

Still needs a lot of work, though, even as a blue-sky idea.

Well, that's just "anyone can run a currency"; they don't have to be commodities necessarily; they could be any kind of financial asset. Commodities are maybe easier to trust (I trust you if you say and can easily document possession of 100kg of gold, vs. "promise to repay a loan"), but are neither necessary nor sufficient.

Ripple (non-anonymous) and OpenTransactions (potentially anonymous using blinded tokens issued by each participant) kind of take that model.

What I'm unclear on is if Zerocoin can be efficient enough, maybe given an optimized, scrypt-based blockchain underlying, to work with either of those as a base, globally decentralized currency.

I might like Ripple a lot more if XRP got replaced with Zerocoin. Once Ripple's software is open sourced, it wouldn't be too hard to rip XRP out and replace it with Bitcoin or Zerocoin or anything else.

I think you have to go with the early bank model: keep something of value, then issue paper (in our case proof of ownership) against it. The trick here is that both the bank and the owner can be hidden. And there can be a million of each. We live in an information age where this can scale out wonderfully.

The thing about commodities is that they "plug into" a pre-existing worldwide commodity market. There are futures markets, places to store them, third-party methods to transport, insurance, and so forth. You can have a standard underlying type of thing to value. Things like promissory notes become much more difficult to value. Not impossible, though. The problem is that in order to understand and predict attacks on the currency, you don't want lots of things with different underlying physical realities.

There are two questions here. The first one, as you point out, is risk. The second one is the applicability of international ownership laws. If government X shuts down E-currency #48, everybody gets nothing. But in a decentralized system, if everybody can prove ownership of some tangible item, it might be possible to not lose your shirt. I'd much rather be making a case that these anonymous eight people owe me 10kg of gold -- and demand the government allow me to access it -- than asking for, say, something completely virtual and esoteric like Bitcoin. Asking for my physical property is well-covered by international law. Asking for some cryptographic stuff? You're back into uncharted waters.

I think the point with using something like Bitcoin to back a blinded currency is that the physical identities of the people could be secret, so no particular government would be in a position to compel them to do or not do anything. Normal market forces, reputation, etc. would be enough to assess performance risk.

> Ignoring the fact that bad people many times use e-currency for repulsive things like child slavery

[citation needed]

The ZeroCoin extension to bitcoin addresses this, perhaps it should be taken up


As it stands now, zerocoin is infeasible for practical use. A single proof averages 40kb, and takes about to two seconds to verify. Still, it was the first attempt at such a ptotocal, so hopefully we will see improvement.

The bitcoin network does less than one transaction a second total, and that size isn't terribly large compared to normal transactions. It's at least viable to implement in its current form.

Online transaction providers, like Liberty Reserve, Paypal, credit card processors, your bank's website, and so on, are really not digital currencies at all... they are transaction processors.

Bitcoin, and things resembling it are actual cryptocurrencies and something we could truly call an e-currency. It's about as trackable as cash (in that it can be tracked but it takes very significant effort, and it can be traded like cash.. it's much more than a number in some database.)

Cash doesn't have a public record of (nearly) all transaction

> Yes, it begins as an anonymous

That's the thing though right, it's actually never anonymous?

There is a good chance I'm misunderstanding this, but Bitcoin at the very least is pseudononymous, and all that really means is that it's not tied to your legal name-- it's not anominity. What's worse is that (again, maybe I'm misunderstanding) every transaction you make is essentially public knowledge, by virtue of this knowledge having to exist somewhere, and Bitcoin being intentionally designed without a central secret holder.

That makes Bitcoin to me a secondary currency: a tool to make once-off transactions that are obscured e.g, you want to support Wikileaks but all the banks aren't letting you, use some tool to NZD->BitC (presumably into a new wallet so as to be untrackable) and then give those BitC to Wikileaks.

Which is why I'm confused when people ask regular services whether or not they'll support Bitcoin. Why would anyone buy the Humble Bundle using Bitcoins? What possible advantage does that give them?

Like parent I'm a skeptical fan, mostly because I think it's technically cool, and almost certainly useful in less stable regions of the world (in the same way Twitter was arguably very helpful), but I still can't see why I would ever want to use it (except in the once-off style example above).

> Ignoring the fact that bad people many times use e-currency for repulsive things like child slavery


E-Gold got used for carders (a lot), HYIPs/moneygames, and, most regrettably, child pornography (this is all in court documents; I consulted for E-Gold and worked on an affiliated project back in 1998-1999, about a decade before the prosecution). It was funny running into Carol Van Cleef, a lawyer from Patton Boggs, who defended E-Gold after they were convicted (in implementing the agreement), at the Bitcoin 2013 conference (she knew my name from docs, but we'd never met).

E-Gold actually was helping prosecutors vs. the carders/cp people, and maintaining files on them/actively working with law enforcement, but when it became a criminal case about E-Gold, that information was used as evidence the system itself supported these activities.

LR is probably in the same position; I know they have essentially the same market positioning.

You don't even need a source for this, it should be obvious that it's used for that.

I know it's used for child pornography, carding and malware related incomes but not for child slavery.

From the little I saw on underground forums LR is used for mid to low criminal incomes, by the like of botnet herding profits and carding infos trade. For things bigger and riskier like cashing out massive amounts of stolen cards and bank drops it's my understanding that cybercrooks are using money mule schemes and networks of off shore companies, not LR or similar... I'd flag child slavery as an high risk activity which can't be done just trough LR-like currencies, that's why I was asking for some sources.

You mean exactly the same way that pound sterling and dollar are used for illegal things too?

I understood that large criminal transactions were generally done in CHF - larger-denomination notes available, and it avoids currency conversion costs when you're withdrawing from one Swiss account and depositing into another.

The thing with every unit of a currency being trackable is it attacks the root of modern banking. There is no excuse for fractional reserve banking if the fungibility excuse is nullified by the ability to track every unit.

To transfer bitcoin anonymously and without adding to the immutable & public blockchain history, couldn't one just exchange the wallet for an account containing exact amount of BTC, "out of bounds" (via email, pgp, whatever), instead of performing a BTC transaction on the network?

You have to then fully trust your counterparty to not have retained a copy of the key to do his own BTC transaction on the network, later, forever.

You could probably use trusted computing/smartcards with a wallet inside them to do some kind of awesome self-attesting "no one has seen my key yet" physical payment token. Sort of like those Casascius coins, but without the need to trust the maker so much.

Define "anonymously".

Hypothetically someone steals a lot of money from somebody else, if the amount is large enough the victim may be willing to do a lot of detective work in order to trace the funds.

This detective work might include...

* Blockchain analysis

* Offering money to bitcoin mixers in return for information

* Traditional private investigation

Cash has the same problem, bills can be tracked if the parties involved are motivated enough. Cash does go a long way to providing privacy though, for example in days gone by a husband might have bought a pornographic magazine with cash and the wife would be unaware.

This will annoy the libertarian crowd, but a truly anonymous and untraceable medium of exchange is not only most likely impossible, but also undesirable. The failed war on drugs aside, a lot of the things people want to do completely anonymously are illegal for good reasons (CP, human trafficking, etc).

It remains to be seen if bitcoin can offer the same kind of privacy that cash does, if bitcoin adoption continues I expect blockchain analysis to become very sophisticated.

This will annoy the libertarian crowd, but a truly anonymous and untraceable medium of exchange is not only most likely impossible, but also undesirable. The failed war on drugs aside, a lot of the things people want to do completely anonymously are illegal for good reasons (CP, human trafficking, etc).

Does child pornography make cameras "undesirable"? How about USB external hard drives? Or the Internet?

Does human trafficking make chains and locks "undesirable"? White cargo vans with blacked-out windows? Freeways?

Seriously, let's focus on attacking the unjust behavior itself, not blaming tools and implements that have no inherent intent or character, for good or for evil.

Cameras, USB HDDs and the internet -- the non undesirable uses far outweigh the criminal ones. I'm not an ideologue, I'm a pragmatist.

Freeways is an interesting one, most places license people to drive, for very good reasons (just one of them being a help to law enforcement).

It seems like a bit of silly argument considering I don't believe a truly anonymous untraceable currency is possible but let's suppose it is. My pessimistic nature makes me think that the top 3 things it would be used for would be tax evasion, bribery and extortion.

It's, "New Forms of Cybercrime Fun-Time!" where we think of new ways to structure criminal enterprises to break existing laws and prosecutorial organizations.

I call this one, "The Virtual Un-syndicate."

You take a small, cohesive group of criminal hackers working out of the same room, and have them simulate the operation of a virtual criminal syndicate staffed by freelancers around the globe. However, instead of using entirely fictional pseudonyms for these freelancers, real identities are hired to be used as pseudonyms. Likewise, a real person's identity is used as a "mastermind" figurehead. The purpose is to hack the standard behavior of prosecuting government organizations. If played correctly, the "mastermind" figurehead and the "freelancers" will take the fall and the prosecutors will be satisfied that they have done their jobs. In the meantime, the criminal hackers have already moved on to establishing their next "Virtual Un-syndicate."

Wow, that is awful timing... Anyone know if they'll be doing any refunds for legitimate transactions?

Just got a bit over 2k LR a few weeks back, who'd have guessed I'd lose more money keeping it in LR instead of immediately buying bitcoin.

edit: looks like if e-gold is anything to go by it'll be several years at best. sigh.

Probably a good time to invest in bitcoin, although my poor and quick analysis of bitcoin charts doesn't seem to indicate much activity in reaction to this that couldn't be attributed to bitcoin's usual volatility. Webmoney, another shady online payment processer will probably be the greatest beneficiary of this. It's funny that bitcoin isn't used more by botnet owners and their ilk. They seem to be slow adopters of new technologies (notice how they dont use tor either).

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