Federal investigators eventually found keys for that wallet in one of Lichtenstein's cloud storage accounts, along with logins for numerous cryptocurrency exchanges he had used. But to get to the point of identifying Lichstenstein—along with his wife, Morgan—and locating that cloud account, IRS-CI followed two branching paths taken by 25, bitcoins that moved from the 1CGa4s wallet across Bitcoin's blockchain.
One of those branches went into a collection of wallets hosted on AlphaBay's dark web market, designed to be impenetrable to law enforcement investigators. The other appears to have been converted into monero, a cryptocurrency designed to obfuscate the trails of funds within its blockchain by mixing up the payments of multiple monero users —both real transactions and artificially generated ones—and concealing their value.
Yet somehow, the IRS says it identified Lichtenstein and Morgan by tracing both those branches of funds to a collection of cryptocurrency exchange accounts in their names, as well as in the names of three companies they owned, known as Demandpath, Endpass, and Salesfolk. The IRS hasn't entirely spelled out how its investigators defeated those two distinct obfuscation techniques.
But clues in the court document—and analysis of the case by other blockchain analysis experts—suggest some likely theories. Lichtenstein and Morgan appear to have intended to use Alphabay as a "mixer" or "tumbler," a cryptocurrency service that takes in a user's coins and returns different ones to prevent blockchain tracing. AlphaBay advertised in April that it offered that feature to its users by default.
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But, if the analysis relied on the seizure of AlphaBay's servers, then it's more of a lucky break than a breakthrough in the ability to trace 'tumbled' I'd never heard that term - the nod to laundering is pretty brazen or privatised transactions, right? Is it the lone arrow the brown-ish one? Eraserhead wrote:. Hopefully that diminishes crypto value to criminals and thus its value overall. The fact that it requires exchanges means it isn't really decentralized and therefore there will always be ways to track it.
What happens to the seized coins and wallets? Do they get returned to the original owners or were the original assets insured? So it's a Ponzi scheme, terrible for the environment, just as if not less anonymous and more traceable than cash, and is slow and expensive to use for transactions. What're people going to try to use to try to show that I'm missing out now? Revbob wrote:. I think we may be approaching that point. I look forward to the time when the GOP starts promising to unregulate crypto as a sop to idiots who have pissed their money away on it.
Actually, I think that might already be happening too. Rick Rumble wrote:. So it's a Ponzi scheme, terrible for the environment, just as if not less anonymous and traceable than cash, and is slow and expensive to use for transactions. I wonder how much tax payer money and investigation resources was spent tracing unregulated crypto tokens that could have been spent to follow up on some actual crimes.
Any actual lawyer here or can we get an article on ars , if exploiting blockchain weaknesses is actually theft and how is the actual damage in dollars computed? SixDegrees wrote:. Anyone who has the public key can verify the proof without knowing the private key. People soon realized that these digital signatures could make cryptographically secure digital cash possible. Using the classic example scenario, let's suppose Alice owns a coin and wants to transfer it to Bob.
She'll write a message that says, "I, Alice, transfer my coin to Bob," and then sign the message by encrypting it with her private key. Now Bob—or anyone else—can decrypt the signature using Alice's public key. Since only Alice could have created the encrypted message, Bob can use it to demonstrate that he's now the rightful owner of the coin.
If Bob wants to transfer the coin to Carol, he follows the same procedure, declaring that he's transferring the coin to Carol and encrypting the message with his private key. Carol can then use this chain of signatures—Alice's signature transferring the coin to Bob, and Bob's signature transferring the coin to Carol—as proof that she now owns the coin.
Notice that none of this requires an official third party to authorize or authenticate the transactions. Alice, Bob, and Carol can generate their own public-private key pairs without help from third parties. Anyone who knows Alice's and Bob's public keys can independently verify that the chain of signatures is cryptographically valid.
Digital signatures—combined with a few innovations we'll discuss later—let people engage in banking without needing a bank. The generic digital cash scheme I described in the previous section is very close to how real bitcoin payments work. Here's a simplified diagram of what real bitcoin transactions look like:. A bitcoin transaction contains a list of inputs and outputs. Each output has a public key associated with it. For a later transaction to spend those coins, it needs an input with a matching digital signature.
Bitcoin uses elliptic curve cryptography for digital signatures. For example, suppose you own the private key corresponding to Public Key D in the diagram above. Someone wants to send you 2. The person will create a transaction like Transaction 3, with 2. When you're ready to spend those bitcoins, you create a new transaction like Transaction 4.
You list Transaction 3, output 1 as a source of the funds outputs are zero-indexed, so output 1 is the second output. You use your private key to generate Signature D, a signature that can be verified with Public Key D. These 2. Now they can only be spent by the owners of the corresponding private keys. A transaction can have multiple inputs, and it must spend all of the bitcoins from the corresponding outputs of earlier transactions.
If a transaction outputs fewer bitcoins than it takes in, the difference is treated as a transaction fee collected by the bitcoin miner who processed the transaction more details on this later. On the bitcoin network, the addresses people use to send each other bitcoins are derived from public keys like Public Key D. The exact details of bitcoin's address format are complicated and have changed over time, but you can think of a bitcoin address as a hash a short, seemingly random string of bits that serves as a cryptographic fingerprint of a public key.
Bitcoin addresses are encoded in a custom format called Base58Check that minimizes the risk of mistyping. A real-world transaction looks like this:. This transaction took 6. One output address got a bit more than 5 bitcoins, while the other got slightly less than 1 bitcoin. Most likely, one of those output addresses belongs to the sender—sending "change" back to themselves—while the other belongs to a third-party recipient.
Of course, real bitcoin transactions can be more complex than the simple examples I've shown so far.
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The past year saw a breathtaking rise in the value of cryptocurrencies like Bitcoin and Ethereum, with Bitcoin gaining 60 percent in value in and Ethereum. Ether, the native currency of the Ethereum network and the second most valuable cryptocurrency, has soared above $1, for the first time since The rise. More than long-time Wikipedia editors have requested that the Wikimedia Foundation stop accepting cryptocurrency donations.