The Bitcoin Network has 4 key points of weakness. Namely:
- The Wallet Software.
- The Trail.
- The Public Data set.
- The Exchange.
What follows is a quick discussion of how each of these components may be compromised individually and thus possibly result in the collapse of the Bitcoin currency system as a whole as a viable alternative currency.
Currently, most Bitcoin owners use software created and compiled by Bitcoin.org. The Bitcoin wallet software, once compromised with backdoor functionality, would give authorities access to an individuals computer and wallet details, including the valuable Bitcoin key file. Adding a backdoor to the Bitcoin software provides a transparent sure-link between user and originating wallet(s). A well maintained backdoor would remove the key benefit of anonymity Bitcoin users are seeking in the alternative currency and leave them open to enhanced enforcement controls.
The Bitcoin software is the highest reward/lowest risk point of failure to control within the entire Bitcoin ecosystem and may already be in place following recent discussions. It should be noted that although the underlying code IS open source, few users roll their own, and from those that do, few if any will ever read the complete code base. Methods to obfuscate and spread malicious backdoor code throughout open-source code are already well developed and research is progressing rapidly.
This is the Bitcoin Network trail when transferring Bitcoins between two wallets. For Bitcoins to be transferred successfully, the sending computer MUST be connected to the Bitcoin Network at some point in order to complete the transfer. Therefore , for almost every user, the data sent will eventually pass through an external server unconnected to their bitcoin activity. For example a telco ISP node. As it passes, deep packet analysis can be used to identify the recipient wallet. Since other nodes in the Bitcoin network must , by the very nature of the Bitcoin system, be capable of understanding the message sent out, deep packet analysis will always be viable to identify the trail connecting two Bitcoin wallets.
Bitcoin Public Data
Through deep searching transaction details in the public Bitcoin blocks (which are public as a result of the way the Bitcoin network operates) enforcement can very easily identify key wallets to probe further. Through this, they may then better allocate resources towards high value targets within the network based on traffic to particular wallets. Creating a network graph to aid in this analysis is elementary.
Using Bitcoins to buy real world goods requires a method of exchanging Bitcoins for cash. Preferably USD, Euros or Pounds Sterling as these are most common for money laundering purposes. In actuality, most Bitcoin users currently use purpose built online exchanges to transfer money between real money bank accounts and bitcoin wallets. This leaves a very clear paper trail between real user identities and Bitcoin wallet ID, thus allowing identification of network nodes and adding additional value to those interested in penetrating the veil of anonymity.
EDIT: – An interesting comment was posted to this article from an alleged Bitcoin Exchange Owner. Full write-up here: Bitcoin Exchange Scam.
The current Bitcoin network has significant weaknesses and is not the white knight of anonymous value exchange many would make it out to be. From the methods discussed above, authorities have access to real user data together with potentially real-time transaction data.
Combining Bitcoin user data with transaction data is trivial given a basic understanding of computer science. Following which, one could conceivably begin a stage 2 targeted network shutdown.
Every modern currency is a distributed system and hence relies heavily upon end user trust. Without that, the network loses traction, eventually shrinking to accommodate only the most committed of users, ie. those who have most to gain from a distributed, allegedly anonymous currency network. In Bitcoins case, this set of committed users would be those with almost exclusively nefarious purposes, where the reward is worth the risk involved over alternative means of achieving similar aims.
Through stage 2 takedowns the trust in the Bitcoin network can be eroded, thereby opening up the possibility of Bitcoins collapse as a viable anonymous currency and destroying it’s value proposition. Effectively shutting it down from mass popularity.
If there’s sufficient interest, I’ll continue with a counter post to all the above (listing appropriate solutions to each point covered) or alternatively a post on how to use this information to shutdown the Bitcoin network in actuality (recommended methods of a stage 2 takedown).
What do you think?
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