There is this misconception that one of the key features of Bitcoin as a currency is that it is anonymous, nothing could be further from the truth. In fact, it is even less anonymous than using your credit card as the transaction is posted publicly on the Bitcoin blockchain. Last Wednesday, October 16th, 338 people across 38 countries worldwide learned this first hand. That day the US Department of Justice unsealed indictments against “Welcome to Video” (WTV) and its partners, distributors, and customers. With over one million users WTV was the largest child pornography site ever shut down by law enforcement. Think “Plato’s Boys” and Ron, of “Ron’s Coffee” in the June 2015 “Mr. Robot” pilot, only three times bigger! WTV was executing the complete dark web playbook for conducting illicit activity. They leveraged TOR, The Onion Router network, to distribute content, and Bitcoin to obfuscate funds distribution. What they didn’t know was that companies like Chainalysis exist which crawl through the Bitcoin blockchain and build transaction dependency graphs.
Bitcoin was the first and is the most popular digital currency, which makes it easier to use, but it was never designed for anonymity. Think about it, you share the same public wallet ID repeatedly in the clear to accept or send a payment, how can this be anonymous? While a wallet ID isn’t as cut and dry as a credit card number or bank account number and routing ID it is easily traceable through the blockchain. In real life the proceeds from illicit transactions need to eventually be spent on goods and services, otherwise, what’s the point. To do this involves an Exchange that turns Bitcoin into a fiat currency, like US Dollars or UK Pounds Sterling. These exchanges hold the key to translating a public wallet ID into a name and financial institution.
Law enforcement, working in concert with charities focused on eliminating human trafficking, obtained the public wallet ids used by WTV. Then through Chainalysis’s dependency graph, they could trace customer payments made to WTV as well as payments WTV made to their content suppliers and distributors. WVT suggested six different Bitcoin exchanges to its customers and partners. From the unsealed indictment, samples were provided of at least three of those exchanges where they translated public wallet IDs into the end user’s name and their banking details. Just another case of following the money. Now I’m not saying that ALL digital currencies are not anonymous. There are at least five newer privacy-based coins like Monero, Dash, ZCash, Verge and Bitcoin Private that exist to provide anonymity, but they’re a story for another day.