Bitcoin

An open-source pseudoanonymous peer-2-peer crypto-currency

The use of virtual payment systems in cybercrime
Dominic Hobson djh2g11@soton.ac.uk
Dr Craig Webber (Criminology), Professor Vladimiro Sassone (Computing Science)

How it works

Implications of such a system

No central point
In other payment methods, e.g. PayPal, there is a central company responsible and able to control, reverse transactions, withhold funds, close accounts and appear in court. When dealing with illicit payments online, the governing authority of the payment system or currency would be the first people to contact, in the context of the companies local jurisdiction. There is no central company responsible for Bitcoin or able to exert any control over transactions or Bitcoin users. There is no central point of technical failure, leading to extremely high reliability and scalability. In cases where the company is registered in a non-cooperative jurisdiction, action can be taken against other things such as confiscation of servers, or blacklisting/removal of DNS records to effectively take websites or services offline. Bitcoin is a distributed service with approximately 100,000 users across the world, all of which would need to be taken down to totally stop Bitcoin This creates an extremely cheap, reliable, location independent payment system, useful for any kind of online payment. In the case of Megavideo, some servers were based in the US and despite Megavideo company not being based in the US, legal action could still be pursued against the creator of a service. Bitcoin was created under a pseudonym of Satoshi Nakamoto who soon disappeared.

High degree of anonymity

No personally identifiable information is included within the Bitcoin protocol, or within the blockchain. From the protocol itself, it is impossible to identify owners of origin or destination accounts. Users can generate an unlimited amount of addresses to protect their own privacy, making it near impossible for anyone to relate transactions.

Ideologies and Crime

Opensource,decentralized,authority free and novel nature of Bitcoin attracts a mix of ideals ranging from libertarian anarchist to Wall Street investors

Bitcoin Genesis Block: The Times 03/Jan/2009 Chancellor on brink of second bailout for banks Perceived anonymity and low chance of being identified lead to higher chances of Bitcoin being used for crimes and in illicit transactions. No central point responsible makes it challenging for victims of crime to recoup losses without community help

Mathematically predetermined production rate

Bitcoins are mined as part of processing and validating of Bitcoin transactions. When a block of transactions is added to the blockchain, the miner that did it is given a number of Bitcoins as a reward. The difficulty of mining is adjusted based on how many people are mining, so that a block is added on average of every 10 minutes. The number of coins awarded (currently 25) halves every 210,000 blocks (approximately every 4 years) so coin production follows a reverse exponential curve. This makes printing of money (or quantitative easing) impossible. <TallTim> dom_: I've traded futures and options on indexes and currencies. <TallTim> dom_: I don't trust the major markets anymore, not since Benny-and-the-inkjets went into permanent Quantitative Easing mode. <TallTim> dom_:BTC is better for me.

IEEE Spectrum: Bitcoin: The Cryptoanarchists Answer to Cash. Peck, M. E. (2012)

Bitcoin in the real world

Bitcoin QR Codes
Its possible to send and receive Bitcoins using the QR code standard. Software to allow computers to act as POS systems where the customer is presented with a QR code at checkout and scans it with their phone to automatically pay for goods has been developed.

Cost of a Bitcoin in USD over time

Bitcoin Prepaid Debit Card

Bitinstant announced they would be releasing a prepaid debit card. Bitcurex already have a similar card. It is a debit card where users can transfer Bitcoins to an address and they will be automatically converted to the requested currency and loaded onto the card which can be used like any other debit card.

Casascius Coins
These are physical minted coins that have a peelable hologram. Underneath the hologram is the private key for an account containing the amount of Bitcoins shown on the coin. People can exchange these coins in the real world, or redeem them for electronic bitcoins by importing the private key into their own wallet.

Criminological considerations
Use in sales of illicit goods/services on TOR
A total of 1985 posts were scraped from 8 different forums. The largest forum scraped was a hacking themed forum, with over 7000 registered members and many boards. Of the 1985 scraped threads, only 209 (10.5%) contained the required information to be analysed. The earliest post was 27/06/2011 and the latest was 2012/08/02.

Labelling Theory
Sociologist Edwin Lemert (1951) coined the term secondary deviance. Secondary deviance is a role created to deal with condemnation by society of a particular behaviour. Howard Becker (1963) went on to publish Outsiders, describing how marijuana smokers form their identity based on the labels assigned to them by society Jock Young (1971) produced Drugtakers which observed how labelling someone as a drug taker was likely to, among other possibilities, lead to the person taking more drugs. This is an example of deviancy amplification.

Number of adverts (of 209) for illicit goods/services on TOR accepting different payment methods

Labelling theory and Bitcoin

Media coverage initially focused largely on illicit use of Bitcoin, particularly SilkRoad, described as the Amazon marketplace of drugs which allowed users to buy and sell a range of items such as guns, drugs, hacking services, bulletproof hosting, anonymous credit cards but also musical instruments, sporting goods, gardening equipment, jewellery and art paid for with Bitcoins on the anonymizing network, TOR

By labelling Bitcoin as a criminal network, or a tool used by criminals, according to labelling theory, there is an increased chance that those using Bitcoin are more likely to engage in criminal activities.
It is important to accept Bitcoin as more than just a criminal payment system. As a payment system, it is reliable, faster and cheaper than nearly all alternatives. Labelling Bitcoin as criminal risks making the issue of criminal transactions with Bitcoin even more prevalent.

Self Policing Community

High perceived anonymity leads to high scams using the Bitcoin currency Lack of regulation leaves victims of crime with Bitcoin helpless Technical nature of Bitcoin means community are commonly better armed than the police to deal with wrongdoers

Reduce criminal transactions made with Bitcoin?

A survey was placed on the Bitcointalk forums. The survey was accessible for 6 days and over that period, the thread received 1246 views, and 39 responses in the forum, 11 of which were from the researcher responding to questions. Of the 1246 thread views, 159 people went on to attempt the survey. Of the 159 attempts, there were 71 completions. There were at least 3 notable questions in the survey:

Doxing
Posting personal information about people on the Internet, often including real name, known aliases, address, phone number, SSN, credit card number, etc. Urban Dictionary

Question 6: Do you think more should be done to reduce criminal transactions with Bitcoin? Question 7: Would you support measures to reduce criminal transactions with Bitcoin?
75% of people do not believe more should be done to reduce criminal transactions; however, only 65% will not support measures to reduce criminal transactions. This could because participants believe that for wider adoption of Bitcoin, it must be at least perceived that the community supports reducing criminal measures.
Question 6: Crime Reduction? Response Count Response % Grouped Response % Definitely Probably I don't know Probably Not Definitely not Total Responses
1 7 10 24 29 71 1.41% 9.86% 14.08% 33.80% 40.85%

Pros
+ Described as the only way of getting action without 3rd party authorities + Removes the anonymity that scammers try to exploit or hide behind

Question 7: Support Crime Reduction? Response Count Response % Grouped Response %

2 7 2.82% 9.86% 22.54% 22.54% 42.25%

Cons
- Ignores the right to a fair trial - Encourages vigilantism - Unknown potential physical harm for victim, bounty hunter and/or perpetrator

11.27% 14.08% 74.65%

12.68% 22.54% 64.79%

16 16 30 71

References
Becker, H. (1963). Outsiders: Studies in the sociology of deviance. New York: The Free Press. Christin, N. (2012). Travelling the Silk Road: A measurement analysis of a large anonymous online marketplace. Lemert, E. (1951). Social pathology: Systematic approaches to the study of sociopathic behaviour. New York: McGraw-Hill. Peck, M. E. (2012). The Cryptoanarchists Answer to Cash. IEEE Spectrum, 49(6), 49 54. Retrieved from http://spectrum.ieee.org/computing/software/bitcoin-the-cryptoanarchists-answer-to-cash/0 Young, J. (1971). The drugtakers: The social meaning of drug use. London: Paladin

Strong Ideologies Despite Bitcoin being identified as being used for the generation of $1.9million of revenue for illicit goods and services for 1 site over 1 month (Christin, 2012) 75% of respondents did not believe anything needed to be done about the issue of criminal transactions with Bitcoin.