“Bitcoin fundamentally changes the nature of what’s legally and financially possible.”
Not really, no. (Ethereum? Maybe—but even that’s unclear, and it certainly doesn’t change what’s legal on it’s own.)
”...cryptocurrencies makes stopping the funding of terrorists basically impossible.”
No. Really, really, no. I could talk a lot more about this, but if you think terrorist groups can manage infosec well enough to overcome concerted attacks by the NSA, or Mossad, or FSB, etc., you’re fooling yourself.
“There is no organization or person to arrest; the code is out there and the Bitcoin network’s very nature means every node is equal on the network and consensus can’t be changed by force.”
Other than the misunderstanding and conflating nodes for hash power, this is also not true. Hash power is concentrated, so you’d need to somehow convince the biggest mining groups that they don’t care about countries keeping their operations legal, and as we’ve seen, they do. That means they (ETA: And other key cryptocurrency players, such as exchanges,) will continue to run to embrace KYC/AMF regulation, and will do whatever else makes their investments go well—including cooperating with nation-states in almost any way you can imagine.
″...cryptocurrencies makes stopping the funding of terrorists basically impossible.”
No. Really, really, no. I could talk a lot more about this, but if you think terrorist groups can manage infosec well enough to overcome concerted attacks by the NSA, or Mossad, or FSB, etc., you’re fooling yourself.
“Impossible” might be an exaggeration, but it does seem to make it much easier. That’s also what the article you link to suggests. Edit: Are you skeptical because of the on/off ramps, the security of terrorist’s computer infrastructure or something else?
Other than the misunderstanding and conflating nodes for hash power, this is also not true. Has power is concentrated, so you’d need to somehow convince the biggest mining groups that they don’t care about countries keeping their operations legal, and as we’ve seen, they do. That means they will continue to run to embrace KYC/AMF regulation, and will do whatever else makes their investments go well—including cooperating with nation-states in almost any way you can imagine.
So far, the only serious KYC/AMF happens at the level of centralized exchanges. Nation-states cannot enforce KYC/AMF at the level of decentralized exchanges. They can also use chain-analysis and put pressure on mining groups within their countries to do KYC/AMF or to create address “black lists” but so far there hasn’t been much political will for this, and probably would lead to a big backlash from the crypto community. And this becomes impossible for privacy coins such as Zcash and Monero.
“Impossible” might be an exaggeration, but it does seem to make it much easier.
It’s not harder to stop, it’s easier—blockchain is far easier to trace than cash, which is what is used now. And I’m skeptical for both of those reasons.
They can also use chain-analysis and put pressure on mining groups within their countries to do KYC/AMF or to create address “black lists” but so far there hasn’t been much political will for this
NatSec people already have large groups working on this, and my understanding is that even the best BTC wallets and mixers aren’t actually much help. And despite limited political will, OFAC has added people and addresses, and as far as I’m aware, no one has successfully moved money out of any of the (very few) OFAC-blocked addresses. Maybe that’s not pools enforcing the rules, and obviously blocking individual addresses is incredibly naïve as a strategy, but I will note that pools and other key players have every reason not to want to piss off the US Government.
I don’t follow your point about infosec. The RAND link summary seems to argue that the case against crypto is that it may not be widespread enough to be a good money laundering source, not that laundering won’t work. Or maybe that’s what you’re saying? So sure, I agree the NSA will continue to target terrorist groups...but they can’t do it through monero or zcash! There just isn’t enough information leakage. But maybe your point is just that there are enough other attack surfaces that intelligence services will continue to target them?
(edit: just saw you are the author, ha! So I took a few more minutes to read, and tbh I’m not sure we disagree. I understand Bitcoin can be somewhat deanonymized, but there are lots of easy ways to make that harder, and monero and zcash seem very private. My point is more that this contributes additional risk overall and we even see examples of this already even w/o e.g. monero being widely accepted.)
I suppose that is somewhat of a rebuff to my thesis as written, perhaps too provocatively. I guess what I mean to say is that *some funding will leak through* and stopping all illegal funding through cryptocurrencies is an impossible task (but perhaps a silly point as maybe you could say similar things about cash). And by proof, I’d present that Hamas already uses cryptocurrencies to route around sanctions and regulations, as does North Korea. My concern is that you only need one crazy terrorist group to make a superflu, and I think cryptocurrencies could make that more likely.
That means they will continue to run to embrace KYC/AMF regulation
Hmm, this doesn’t make sense to me. Bitcoin miners don’t have any KYC requirements, and don’t track that information. That’s why people were annoyed with the Biden Infrastructure Bill, as it appeared to change the rules, effectively making mining illegal in the US (obviously lots of regulatory guidance still to be issued, etc.). Coin Center covered a lot of that, here and here probably good places to start. But yeah I’ve done a quick 5 minute check and I’ve found many Bitcoin mining pools, none of which have KYC. Maybe you could elaborate what you mean here?
Also, this isn’t particularly relevant but I find it interesting (and controversial!) so I’ll dive in a bit: I maintain that nodes (that is, users) determine consensus in Bitcoin, not hashpower. If you take 90% of Bitcoin’s hashpower and start breaking consensus rules, you can mine blocks, but no one will accept them. It would be chaotic and crazy for sure, and of course would result in a hard fork. But the mainchain would continue at 10% of mining hashpower, all the exchanges and users would just ignore the other chain because those blocks break consensus rules. It’d be slow for a bit, but it wouldn’t be a huge problem. The 90% hashpower would lose all the resources they sunk into their forked chain that no one uses. We even saw this play out in 2017 when Bitcoin Cash hard forked with a bunch of hashpower. The main Bitcoin chain kept going, because most nodes stayed with the main chain regardless of where hashpower went.
I guess what I mean to say is that *some funding will leak through* and stopping all illegal funding through cryptocurrencies is an impossible task (but perhaps a silly point as maybe you could say similar things about cash).
Right. So terrorism will likely neither be materially helped nor significantly harmed.
I’ve found many Bitcoin mining pools, none of which have KYC. Maybe you could elaborate what you mean here?
Yeah, I didn’t mean that miners themselves would be subject to KYC, I meant that the key stakeholders in Bitcoin will want to ensure that the government won’t ban it, which would hurt its value. That means that the vast majority will support things that require AML/KYC for most bitcoin usage—and if miners were faced with a choice between regulation and rules which hurt prices or KYC, they would pick KYC in a heartbeat. And we see that it’s happened everwhere else—all the exchanges, all the consumer front ends, and a vast majority of transaction go through places which have KYC requirements—meaning that not only is most of it tracked, but the remaining fraction of the blockchain is far easier to deanonymize.
“Bitcoin fundamentally changes the nature of what’s legally and financially possible.”
Not really, no. (Ethereum? Maybe—but even that’s unclear, and it certainly doesn’t change what’s legal on it’s own.)
”...cryptocurrencies makes stopping the funding of terrorists basically impossible.”
No. Really, really, no. I could talk a lot more about this, but if you think terrorist groups can manage infosec well enough to overcome concerted attacks by the NSA, or Mossad, or FSB, etc., you’re fooling yourself.
Other than the misunderstanding and conflating nodes for hash power, this is also not true. Hash power is concentrated, so you’d need to somehow convince the biggest mining groups that they don’t care about countries keeping their operations legal, and as we’ve seen, they do. That means they (ETA: And other key cryptocurrency players, such as exchanges,) will continue to run to embrace KYC/AMF regulation, and will do whatever else makes their investments go well—including cooperating with nation-states in almost any way you can imagine.
“Impossible” might be an exaggeration, but it does seem to make it much easier. That’s also what the article you link to suggests. Edit: Are you skeptical because of the on/off ramps, the security of terrorist’s computer infrastructure or something else?
So far, the only serious KYC/AMF happens at the level of centralized exchanges. Nation-states cannot enforce KYC/AMF at the level of decentralized exchanges. They can also use chain-analysis and put pressure on mining groups within their countries to do KYC/AMF or to create address “black lists” but so far there hasn’t been much political will for this, and probably would lead to a big backlash from the crypto community. And this becomes impossible for privacy coins such as Zcash and Monero.
It’s not harder to stop, it’s easier—blockchain is far easier to trace than cash, which is what is used now. And I’m skeptical for both of those reasons.
NatSec people already have large groups working on this, and my understanding is that even the best BTC wallets and mixers aren’t actually much help. And despite limited political will, OFAC has added people and addresses, and as far as I’m aware, no one has successfully moved money out of any of the (very few) OFAC-blocked addresses. Maybe that’s not pools enforcing the rules, and obviously blocking individual addresses is incredibly naïve as a strategy, but I will note that pools and other key players have every reason not to want to piss off the US Government.
I don’t follow your point about infosec. The RAND link summary seems to argue that the case against crypto is that it may not be widespread enough to be a good money laundering source, not that laundering won’t work. Or maybe that’s what you’re saying? So sure, I agree the NSA will continue to target terrorist groups...but they can’t do it through monero or zcash! There just isn’t enough information leakage. But maybe your point is just that there are enough other attack surfaces that intelligence services will continue to target them?
(edit: just saw you are the author, ha! So I took a few more minutes to read, and tbh I’m not sure we disagree. I understand Bitcoin can be somewhat deanonymized, but there are lots of easy ways to make that harder, and monero and zcash seem very private. My point is more that this contributes additional risk overall and we even see examples of this already even w/o e.g. monero being widely accepted.)
I suppose that is somewhat of a rebuff to my thesis as written, perhaps too provocatively. I guess what I mean to say is that *some funding will leak through* and stopping all illegal funding through cryptocurrencies is an impossible task (but perhaps a silly point as maybe you could say similar things about cash). And by proof, I’d present that Hamas already uses cryptocurrencies to route around sanctions and regulations, as does North Korea. My concern is that you only need one crazy terrorist group to make a superflu, and I think cryptocurrencies could make that more likely.
Hmm, this doesn’t make sense to me. Bitcoin miners don’t have any KYC requirements, and don’t track that information. That’s why people were annoyed with the Biden Infrastructure Bill, as it appeared to change the rules, effectively making mining illegal in the US (obviously lots of regulatory guidance still to be issued, etc.). Coin Center covered a lot of that, here and here probably good places to start. But yeah I’ve done a quick 5 minute check and I’ve found many Bitcoin mining pools, none of which have KYC. Maybe you could elaborate what you mean here?
Also, this isn’t particularly relevant but I find it interesting (and controversial!) so I’ll dive in a bit: I maintain that nodes (that is, users) determine consensus in Bitcoin, not hashpower. If you take 90% of Bitcoin’s hashpower and start breaking consensus rules, you can mine blocks, but no one will accept them. It would be chaotic and crazy for sure, and of course would result in a hard fork. But the mainchain would continue at 10% of mining hashpower, all the exchanges and users would just ignore the other chain because those blocks break consensus rules. It’d be slow for a bit, but it wouldn’t be a huge problem. The 90% hashpower would lose all the resources they sunk into their forked chain that no one uses. We even saw this play out in 2017 when Bitcoin Cash hard forked with a bunch of hashpower. The main Bitcoin chain kept going, because most nodes stayed with the main chain regardless of where hashpower went.
Right. So terrorism will likely neither be materially helped nor significantly harmed.
Yeah, I didn’t mean that miners themselves would be subject to KYC, I meant that the key stakeholders in Bitcoin will want to ensure that the government won’t ban it, which would hurt its value. That means that the vast majority will support things that require AML/KYC for most bitcoin usage—and if miners were faced with a choice between regulation and rules which hurt prices or KYC, they would pick KYC in a heartbeat. And we see that it’s happened everwhere else—all the exchanges, all the consumer front ends, and a vast majority of transaction go through places which have KYC requirements—meaning that not only is most of it tracked, but the remaining fraction of the blockchain is far easier to deanonymize.