by any person for the purpose of influencing any election for Federal office. House and Senate committees report receiving bitcoin contributions on Form 3.
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As recently as 3 years ago, it seemed that anyone could buy or sell anything with Bitcoin and never be tracked, let alone busted if they broke the law. The majority of Bitcoin users are law-abiding people motivated by privacy concerns or just curiosity. The paradox of cryptocurrency is that its associated data create a forensic trail that can suddenly make your entire financial history public information.
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Read more of our special package that examines the hurdles and advances in the field of forensics. Academic researchers helped create the encryption and software systems that make Bitcoin possible; many are now helping law enforcement nab criminals. These experts operate in a new field at the crossroads of computer science, economics, and forensics, says Sarah Meiklejohn, a computer scientist at University College London who co-chaired an annual workshop on financial cryptography in Barbados last month.
Unlike money issued by governments, Bitcoin has no Federal Reserve, no gold backing, no banks, no physical notes. Strictly speaking, Bitcoins are nothing more than amounts associated with addresses, unique strings of letters and numbers. Those Bitcoins have been split up and changed hands numerous times since then, and all of these transactions are public knowledge.
What remains hidden are the true identities of the Bitcoin owners: Instead of submitting their names, users create a code that serves as their digital signature in the blockchain. The job of keeping the system running and preventing cheating is left to a volunteer workforce known as Bitcoin miners.
They crunch the numbers needed to verify every transaction. The calculations are so intense that miners use specialized computers that run hot enough to keep homes or even office buildings warm through the winter. The incentive for all this effort is built into Bitcoin itself. The act of verifying a minute block of transactions generates 25 new Bitcoins for the miner. This is how Bitcoins are minted. Companies have sprung up that sell Bitcoins—at a profitable rate—and provide ATM machines where you can convert them into cash.
And of course, you can sell something in return for Bitcoins. As soon as both parties have digitally signed the transaction and it is recorded in the blockchain, the Bitcoins are yours. That money is very safe from theft, as long as users never reveal their private keys, the long—and ideally, randomly generated—numbers used to generate a digital signature. But as soon as a Bitcoin is spent, the forensic trail begins.
Like a black market version of Amazon, it provided a sophisticated platform for buyers and sellers, including Bitcoin escrow accounts, a buyer feedback forum, and even a vendor reputation system. The merchandise was sent mostly through the normal postal system—the buyer sent the seller the mailing address as an encrypted message—and the site even provided helpful tips, such as how to vacuum-pack drugs.
Investigators quietly collected every shred of data from Silk Road—from the images and text describing drug products to the Bitcoin transactions that appear in the blockchain when the deals close. Ultimately, investigators needed to tie this string of evidence to one crucial, missing piece of data: the Internet Protocol IP addresses of the computers used by buyers or sellers.
The challenge is that the Bitcoin network is designed to blur the correspondence between transactions and IP addresses. EBA Working Groups Working Groups will work towards the goal of establishing frameworks and guidelines for best practices for each industry. EBAx Empower the local blockchain competences and communities in your region as a local hub of the European Blockchain Association.
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