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Bitcoin Bust Signifies Transactions are Traceable! Are you Safe?

Bitcoin is not as anonymous as you thought it was! See how your transactions can be traced back to you

On Monday, the US Justice Department announced it had traced 63.7 of the 75 Bitcoins, some US$$2.3 million of the US$4.3 million that Colonial Pipeline had paid to the hackers as the ransomware attack shut down the company’s computer systems, prompting fuel shortages and a spike in gasoline prices. Officials have since declined to provide more details about how exactly they recouped the Bitcoin, which has fluctuated in value.

Yet for the growing community of cryptocurrency enthusiasts and investors, the fact that federal investigators had tracked the ransom as it moved through at least 23 different electronic accounts belonging to the DarkSide, the hacking collective, accessing this showed that law enforcement was growing along with the industry. That’s because the same properties that make cryptocurrencies attractive to cybercriminals, the ability to transfer the money instantaneously without a bank’s permission can be leveraged by law enforcement to track and seize criminals’ funds at the speed of the internet. Bitcoin is also traceable. While the digital currency can be created, moved, and stored outside the purview of any government or financial institution, each payment is recorded in a permanently fixed ledger, called the blockchain. That means all Bitcoin transactions are out in the open. The Bitcoin ledger can be viewed by anyone who is plugged into the blockchain.

Ms. Haun added that the speed with which the Justice Department seized most of the ransom was “groundbreaking” precisely because of the hackers’ use of cryptocurrency. In contrast, she said, getting records from banks often requires months or years of navigating paperwork and bureaucracy, especially when those banks are overseas. Given the public nature of the ledger, cryptocurrency experts said, all law enforcement needed to do was figure out how to connect the criminals to a digital wallet, which stores the Bitcoin. To do so, authorities are likely focused on what is known as a “public key” and a “private key.” A public key is the string of numbers and letters that Bitcoin holders have for transacting with others, while a “private key” is used to keep a wallet secure. Tracking down a user’s transaction history was a matter of figuring out which public key they controlled, authorities said. Seizing the assets then required obtaining the private key, which is more difficult. It’s unclear how federal agents were able to get DarkSide’s private key.

Justice Department spokesman Marc Raimondi declined to say more about how the F.B.I. seized DarkSide’s private key. According to court documents, investigators accessed the password for one of the hackers’ Bitcoin wallets, though they did not detail how. The F.B.I. did not appear to rely on any underlying vulnerability in blockchain technology, cryptocurrency experts said. The likelier culprit was found by good old-fashioned police work.

The majority of Bitcoin users are law-abiding people motivated by privacy concerns or just curiosity. But Bitcoin’s anonymity is also a powerful tool for financing crime: Virtual money can keep shady transactions secret. The paradox of cryptocurrency is that its associated data create a forensic trail that can suddenly make your entire financial history public information. 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 confirms cryptography experts. Unlike money issued by governments, Bitcoin has no Federal Reserve, no gold backing, no banks, and no physical notes. And that’s what makes it even more controversial.