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Bitcoin ATM is 'horrible for money laundering,' co-creator says

Colin Neagle | June 8, 2013
Why the Bitcoin ATM may not be the best option for illegal activity, and where it could start popping up soon.

On the surface, Bitcoin seems perfect for crime. The digital, peer-to-peer currency is largely known for its independence from governments or banking institutions, as well as its supposed anonymity.

Naturally, as a result, Bitcoin has been widely used on the black market website Silk Road, which has been called "the Amazon.com of illegal drugs." Silk Road is designed to keep its users entirely anonymous as they conduct business with the site's drug purveyors. Bitcoin has fit in nicely in this market, allowing distributors and customers to make their purchases without exchanging cash, and thus arousing suspicion from law enforcement. As of September 2012, Bitcoin transactions on Silk Road amounted to $1.9 million per month, Carnegie Mellon researcher Nicolas Christin told The Economist.

By this logic, the only advancement that could make Bitcoin a better fit for illegal online transactions is a simple, two-step method to turn physical cash into Bitcoins. Although Bitcoin can be mined, that process requires a computer to solve complex math problems, and is designed to become increasingly difficult and time-consuming. The alternative is to purchase Bitcoins, which can be done fairly easily online, but involves a cash transaction from a traditional online payment service. Theoretically, that's where Lamassu's Bitcoin ATM could come in handy.

The Bitcoin ATM is exactly what it sounds like. A user enters a dollar bill, scans a QR code, and receives Bitcoins in their online wallet. The obvious market for the device is any individual or business who deals in cash and would rather save it in Bitcoin than in a less anonymous bank account.

However, Lamassu co-founder Zach Harvey says Bitcoin is "horrible for money laundering." That's because Bitcoin is not nearly as anonymous as it's been made out to be.

"People criticize anonymity, and, well, Bitcoin isn't supposed to be 100% anonymous, and I think expecting it to be is focusing on something that isn't one of its main advantages," Harvey says. "In fact, it's probably the most transparent currency."

Some simple research on Bitcoin shows that although transactions are conducted anonymously, they can be traced. The Block Chain logs and displays all Bitcoin transactions. Starting there, anyone interested enough to see where the Bitcoins used to make one transaction could follow its trajectory from its origins.

Some researchers have used these resources to try to track down Satoshi Nakamoto, the mysterious person (or persons) behind Bitcoin. In 2012, security experts Dorit Ron and Adi Shamir downloaded the entire graph for all Bitcoin transactions and followed them back to their origins, concluding that they all descend from one large transaction made in November 2010, which was covered up in an attempt at maintaining anonymity.

 

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