The Feds Are About To Learn How Awesome Bitcoin Is

In the wake of the Silk Road bust this week, I think we’ll see some new thinking around Bitcoin. Contrary to popular belief, Bitcoin is not anonymous at all. It never was, and it never will be. It is probably the most public trading system ever created. This sounds scary, but unless you’re a criminal it’s not really.

For Dread Pirate Roberts, aka Ross Ulbright, it seemed anonymous. Until someone tied his zeroes and ones back to him. Now we know who he is, and the FBI busted him. Further, with the details of DPR’s bitcoin accounts in their possession, the FBI now knows everyone that he has ever transacted with. Ever. You can’t do that with cash! Every person that used silk road is a leaf in a tree called the bitcoin Blockchain.

The FBI will, if they have not already, trace these so-called anonymous Bitcoin accounts back to transactions at popular trading exchanges like Mt Gox, Coinbase, and Bitstamp. These exchanges, because they trade real money for bitcoin, know their user’s true identities. This will enable the government to get warrants for those exchanges to turn over those identities. I guarantee that the vast majority of Silk Road users did not have the technical savvy required to stay anonymous. They bought coins at these exchanges, then headed over to Silk Road. They shouldn’t have believed the anonymous hype – it’s just not true.

In other words, digital drug busts are a FBI agent’s wet dream. Every transaction ever done is public, and its just a matter of a half-dozen small search warrants to get to every user that ever used the Silk Road. Even if it takes them 10 years to bring down the kingpin drug dealer, they will be able to retroactively identify all of this customers.

So unless the operators of the exchanges have the bravery that Lavar Levinson of Lavabit has, these records will go to the FBI within a matter of days.

On one hand, this is terrible! It’s such an invasion of privacy. But on the other hand, is it? The law enforcement agents are doing exactly the same work they’ve always done, but this time its digital. We created these laws and we created these agencies. With digital currencies, they can do their job with incredible efficiency. The law-abiding citizen should be ecstatic – we could literally haul a million druggies to jail as soon as the paperwork is done.

I for one am glad that Silk Road is gone. It gave Bitcoin a bad name. I hope this bust goes far and wide and helps the government recognize that Bitcoin is an opportunity rather than an obstacle.

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