A New Issue For Bitcoin: Crypto Key Disclosure

from the not-so-secret dept

The debate is still raging whether Bitcoin is a brilliant idea that will revolutionize business and society, a high-tech money laundering scheme, or just a fad that will soon pass into history. But in a fascinating post, Jon Matonis points to a problem that doesn’t really seem to have been considered before:

Key disclosure laws may become the most important government tool in asset seizures and the war on money laundering. When charged with a criminal offense, that refers to the ability of the government to demand that you surrender your private encryption keys that decrypt your data. If your data is currency such as access control to various amounts of bitcoin on the block chain, then you have surrendered your financial transaction history and potentially the value itself.

That’s no mere theoretical issue in countries like Australia, South Africa and the UK that already have such key disclosure laws.

Matonis reviews the limited US case law here, and concludes:

To say the cryptocurrency bitcoin is disruptive would be an understatement. Bitcoin not only disrupts payments and monetary sovereignty, it also disrupts the legal enforcement of anti-money laundering laws, asset seizure, and capital controls. It is very likely that a key disclosure case will make it to the U.S. Supreme Court where it is far from certain that the Fifth Amendment privilege, as it relates to a refusal to decrypt bitcoin assets, will be universally upheld.

Perhaps that’s something to bear in mind if you’re currently using Bitcoin in the belief that they’ll never be able to force you to reveal your assets and transaction history.

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Comments on “A New Issue For Bitcoin: Crypto Key Disclosure”

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Anonymous Coward says:

The thing is the laws are already in place: If you fail to disclose income, you have broken the law and are liable. People may think that bitcoin is all safe, but any time in the next decade, the whole thing could be broken open and suddenly all these people who thought they were avoiding taxes will instead suffer huge penalties if the tax man decides to apply them.

Bitcoin will only really be disruptive in the manner that it will all blow up.

Anonymous Coward says:

Re: Re:

Somehow I don’t think Washington DC fat cats are laundering money through bitcoins… or old mafia families for that matter.

Which now that I think of it… is probably two reasons that this particular possible money laundering route will be busted open…

Personally it looks like it’s just for kids to buy their pot.

btr1701 says:

Re: Re:

> The thing is the laws are already in place:
> If you fail to disclose income, you have
> broken the law and are liable.

However, if the government is accusing you of that, it has to prove you haven’t disclosed the income. With encryption, there’s no way for them to do that. They may suspect it, but they can’t actually prove anything.

Anonymous Coward says:

Just make them think you destroyed it unless you don’t have a family that does not care. If you do it would be very easy to make a media circus about such a case.

I mean really who in the fuck would hand over information that is going to help send them to prison? Why in the fuck would they even need a prosecutor if they’re gonna force you to pretty much prosecute yourself.

Depending on what they were hunting for I’d probably tell them to go suck a prick. Especially if I was laundering millions of dollars.

Just like our shitty USD Bitcoins are only worth something because we say it is.

Josh in CharlotteNC (profile) says:

Re: Re: Re: Re:

If you have two distinct wallets, each has its own set of distinct bitcoins.

Remember that the way Bitcoin works is that when you transfer a bitcoin, the person receiving it publishes that transaction to the public network, and it is verified by peers and recorded in the public transaction record. If it wasn’t for this feature, then the currency would be useless as anyone could double-spend the same bitcoin.

If you hand the FBI or IRS your clean wallet, they’ll say ‘thanks, but where’s the other wallet that we tracked this bitcoin to?’ It’s basically the same as when they’re asking about an off-shore account, you can’t point them to your domestic checking account and think that will satisfy them.

The only value in having two wallets is to avoid linking yourself to your illegal transactions by way of the legal ones. But if there’s enough evidence linking you to an illegal transaction, then every transaction, legal or not, is able to be linked to whatever wallet that bitcoin belongs to – it just requires sufficient data mining of the public transaction register.

This is why using Bitcoins to do something illegal is a pretty damned stupid thing to do. I think Bitcoin is truly disruptive in how it is a decentralized currency not controlled by a government or any other single point of failure. But Bitcoin is not the anonymous currency it is made out to be – it is much easier to trace transactions through the Bitcoin network than it is to trace cash.

Anonymous Coward says:

Maybe not applicable?

Bitcoin doesn’t necessarily use encryption or decryption, and the type of public/private keys used aren’t useful for encryption, so these key disclosure laws may not apply.

The only cryptographic tools used as part of the Bitcoin protocol are private key signing, public key verification, and hashing. None of those constitute a key-reversible obfuscation of information, so presumably one’s Bitcoin keys would not be subject to disclosure.

Now, it is possible (and common) to use encryption to hide one’s Bitcoin private keys, and that key would probably be fair game.

So if you hide your private keys without using encryption, even if law enforcement is aware that you possess ECDSA private keys, they shouldn’t be able to arrest you for not providing them.

btr1701 says:

> Perhaps that’s something to bear in mind
> if you’re currently using Bitcoin in the
> belief that they’ll never be able to force
> you to reveal your assets and transaction
> history.

They still can’t really force you to disclose it. There are any number of ways you could structure it so that you don’t actually *know* the encryption key. You can’t be forced to reveal something you don’t know. Or that changes every X number of days, so that by the time you’re in lockup, the key you know is no longer valid. Or the key is kept in some foreign jurisdiction by a foreign national not subject to US law.

btr1701 says:

Re: Re: Re:

> Is the defendant ready to surrender the
> encryption codes? No?

> Once again the court finds you in Contempt.
> 2 weeks detention in the violent&sexually
> aggressive wing of the county jail. We will
> pick this up in two weeks.

Don’t be so simplistic. In order for a contempt order to be upheld, there has to be reasonable evidence that the defendant “has the keys to his own cell”– in other words, there has to be evidence that the defendant actually *can* produce what the court wants.

If the encryption keys are in a foreign jurisdiction under the control of someone else, the defendant can’t produce them. If the encryption was set up in such a way that defendant never knew what the key was, the defendant can’t produce it. If the defendant can’t produce what the court wants, then a contempt order won’t be sustained on appeal, no matter how frustrating it is to the government.

Josh in CharlotteNC (profile) says:

Re: Last I checked

What if they need it to take the bitcoins away from you?

I rob a bank. I take the money and convert it to bitcoins. Only I know the key to the wallet. As far as the bitcoin network is concerned, whoever has the wallet owns the bitcoins – there is nothing the government can do about that.

They convict me of bank robbery, which they don’t need me to reveal the key for, and send me to jail. But in order to recover the bitcoins, they still need the key. What if I don’t give it to them?

Can I serve out my term, move to some non-extradition country, then decrypt my wallet and redeem my bitcoins for cash and live like a prince?

This is what the government is afraid of – or at least the people that actually understand how bitcoins work. Loss of control – they can’t force the bitcoin network to reverse a transaction or freeze an account.

Rekrul says:

Re: Re: Last I checked

This is what the government is afraid of – or at least the people that actually understand how bitcoins work. Loss of control – they can’t force the bitcoin network to reverse a transaction or freeze an account.

More like they’re afraid that they will no longer be able to seize and confiscate money with no proof of wrong-doing, like they did to Megaupload.

Dez (user link) says:

bitcoin enthusiasts know

Even the bitcoin enthusiasts know that these long strings of numbers aren?t worth anything. But I suspect that they are hyping it up so that the price of a bitcoin will rise and then they sell out before the coin crashes.

And the idea that this is the currency of choice for underground drug trafficking on the internet is laughable. Was that is a Cracked article or something?

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