Categories: Bitcoin Entertainment

How Prosecutors Might Nail Ross Ulbricht Using The Supposedly Anonymous Bitcoin

Click here to view original web page at www.forbes.com

Post written by Nicholas Weaver

Nicholas Weaver is computer security researcher at the International Computer Science Institute in Berkeley

Many have quipped that the cryptocurrency known as bitcoin are really “prosecution futures,” because rather than being anonymous, bitcoins can be remarkably easy to trace since every transaction between pseudonymous addresses is publicly recorded. With the ongoing trial of Ross Ulbricht over allegations that he was the kingpin known as the Dread Pirate Roberts behind the Silk Road online drug marketplace, this may be put to the test.

When the FBI arrested Ulbricht, they also captured his bitcoin stash. For the moment, let us assume that Ulbricht is (or at least a significant version of) the Dread Pirate Roberts. How can the prosecution seek to use these bitcoin to prove that Ulbricht was the brains behind the Silk Road?

When the FBI seized the Silk Road server and the associated bitcoin wallets, they didn’t just gain the ability to move the bitcoins, they also gained an index into history. The private keys contained in this file can generate a near infinite universe of distinct public addresses, but capturing the private key enables computing all these addresses. This acts as an index into the blockchain, the public ledger which records every bitcoin transaction. By seizing the wallet, the FBI now knows every bitcoin transaction involving the Silk Road wallets: payments sent, payments received, and even internal transactions designed to confuse outside analysis.

The same applies to Ross Ulbricht’s bitcoins. The wallets seized from Ulbricht’s laptop not only allowed the FBI to capture 144,000 bitcoins from Mr. Ulbricht, but also provides an index to every bitcoin transaction he made, both legitimate and potentially illegal. The final piece of the puzzle is “redandwhite”, the alleged hitman/scammer who was supposedly hired by the Dread Pirate for a considerable sum.

The first step in tying Ulbricht to either Silk Road or redandwhite is to search for any direct transactions. Having identified every address belonging to either Ulbricht or Silk Road with the seized
wallets, the FBI simply has to look for all direct payments in the blockchain. If so, the prosecution torpedoes the Good Ship Revenge then and there: Ulbricht has already claimed the bitcoins are his.

Yet for the moment assume that Ulbricht was also careful, and used a ”bitcoin tumbler”, also known as a bitcoin money laundering service. Tumblers promise some anonymity: a user deposits a given amount into one address and a few hours later a supposedly unrelated address then creates a final payment, deducting the tumbler’s fee.

Such tumblers do a very poor job of hiding transactions, especially when dealing with a thousand or a hundred thousand bitcoins. The simplest approach is to simply look for common flow patterns. If 1.2 bitcoin left Silk Road to an unknown address, and Ulbricht received 1.1752157 bitcoin five hours
later, this is suggestive. Add in thousands of such coincidental transactions and a pattern will emerge.

Even more sophisticated analyses are possible. These tumblers form clusters, a group of “independent” addresses that are identifiable with a single owner. Even if a tumbler uses multiple independent pools of bitcoin, each pool can be identified.


Post written by Nicholas Weaver

Nicholas Weaver is computer security researcher at the International Computer Science Institute in Berkeley

With the sheer volume involved in Silk Road, these tumblers cease to be anonymous: the prosecution’s expert shows “On this date, X bitcoin went from the Silk Road to a tumbler. This tumbler then paid Mr Ulbricht”, and continues onward: reading a litany of funds transferred from Silk Road to Mr Ulbricht, or perhaps any transaction from Mr Ulbricht to the mysterious redandwhite.

The defense has claimed that Ross Ulbricht is really a savant bitcoin trader, who accumulated some 144,000 Bitcoins as the fruit of (near miraculous) legitimate trading activity. The defense better hope
this is the case. Otherwise, those prosecution futures can pay out in a very long prison sentence.

Nicholas Weaver is computer security researcher at the International Computer Science Institute in Berkeley

Many have quipped that the cryptocurrency known as bitcoin are really “prosecution futures,” because rather than being anonymous, bitcoins can be remarkably easy to trace since every transaction between pseudonymous addresses is publicly recorded. With the ongoing trial of Ross Ulbricht  over allegations that he was the kingpin known as the Dread Pirate Roberts behind the Silk Road online drug marketplace, this […]

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