Bitcoin mining is a process that serves to both verify sets of transactions and slowly introduce new currency into the system. As a reward for performing this process, miners are paid in bitcoin for the blocks they mine. It was originally thought that there was no incentive in trying to subvert the mining protocol—in other words, there was no reason to believe that miners could be profitable by somehow cheating the system. As it turns out, a specific strategy called “selfish mining” was discovered to increase profitability for miners under certain conditions. This paper presents the selfish mining strategy, traverses a revenue model associated with the strategy, and then simulates the bitcoin network to see how this revenue model holds up under complicated network conditions. Specifically, the selfish mining revenue model typically assumes there is one selfish miner in the network—I simulate the more realistic case of there being many selfish miners in the network. We find that the revenue model can overestimate selfish miner revenues by up to 100% and underestimate them by up to 300% depending on network variables such as the number of selfish miners, the power of those miners, and network latency (the speed of block propagation from one miner to another).
Purpose The purpose of this paper is to highlight the intelligence and investigatory challenges experienced by law enforcement agencies in discovering the identity of illicit Bitcoin users and the transactions that they perform. This paper proposes solutions to assist law enforcement agencies in piecing together the disparate and complex technical, behavioural and criminological elements that make up cybercriminal offending. Design/methodology/approach A literature review was conducted to highlight the main law enforcement challenges and discussions and examine current discourse in the areas of anonymity and attribution. The paper also looked at other research and projects that aim to identify illicit transactions involving cryptocurrencies and the darknet. Findings An optimal solution would be one which has a predictive capability and a machine learning architecture which automatically collects and analyses data from the Bitcoin blockchain and other external data sources and applies search criteria matching, indexing and clustering to identify suspicious behaviours. The implementation of a machine learning architecture would help improve results over time and would be less manpower intensive. Cyber investigators would also receive intelligence in a format and language that they understand and it would allow for intelligence-led and predictive policing rather than reactive policing. The optimal solution would be one which allows for intelligence-led, predictive policing and enables and encourages information sharing between multiple stakeholders from the law enforcement, financial intelligence units, cyber security organisations and fintech industry. This would enable the creation of red flags and behaviour models and the provision of up-to-date intelligence on the threat landscape to form a viable intelligence product for law enforcement agencies so that they can more easily get to the who, what, when and where. Originality/value The development of a functional software architecture that, in theory, could be used to detected suspicious illicit transactions on the Bitcoin network.
Revisiting analytically the notion of embeddedness and its connections with the concept of trust, this paper shows that contrary to Bitcoin’s premises and promises to be a trust-low or even trust-less currency, trust enters the system at many various levels and with different nuances. Applying a conceptual framework that conceives embeddedness as both the possible source and outcome of trust, it is pointed out that Bitcoin should better be regarded as doubly embedded: in technology and in its peculiar social structure. Due to the existence of computational and cognitive asymmetries within the system, in fact, trust is necessary for the very functioning of this new form of money, as well as for its future prospects.
The recent explosive development of new forms of digital currency opens up unprecedented opportunities and poses significant regulatory challenges. This new form of digital currency lowers the costs and other barriers to the global movement of money, international trade, foreign investment and speculation, while simultaneously enhancing the anonymity on which tax evasion, money-laundering and other illegal activities thrive. It also liberates the creation of money and regulation of economic activities from the political control of national governments and central banks. Since the value of a currency is related to the size of the population, strength of the economy and value of transactions that utilize it, a basket of cryptocurrencies could emerge as the first prototype of a world currency whose value is backed by the total productive capacity of the entire human community. Moreover, the triad of Internet, distributed ledger technologies and cryptocurrencies could serve as the basis for the development of new global economic potentials in a manner similar and a degree far exceeding the economic impact of the World Wide Web over the past two decades. At the same time, the rapid deployment of cryptocurrencies could have profound impact on the capacity of governments to tax transactions, income and wealth, one of the main pillars of the modern nation state. The development of autonomous global cryptocurrencies could dramatically reduce the control and effectiveness of existing regulatory mechanisms at the national level and generate considerable pressure for the evolution of more effective institutions for global governance. They could provide compelling incentives for national governments to enhance international cooperation and strengthen the functioning of international institutions to fill the regulatory void. International organizations will play an important role in harnessing the potentials and minimizing the risks arising from the growing usage of cryptocurrencies. Most of the research conducted by central banks on cryptocurrencies over the past four years has focused on risks and benefits as viewed from the perspective of national economies and national monetary systems. This paper explores the global prospects and potential implications of the widespread adoption of cryptocurrencies for cross-border transactions and the role of international institutions in their regulation and global fiscal governance.
Christopher S. Henry, Huynh, Kim, Nicholls, Gradon
Bitcoin, digital currencies and FinTech have been the subject of vigorous discussion. There has, however, been limited empirical evidence of its adoption and usage. This paper proposes a methodology to collect a nationally representative sample via the Bitcoin Omnibus Survey (BTCOS) in order to track the ubiquity and usage of Bitcoin in Canada. The paper reveals that about 64 per cent of Canadians have heard of Bitcoin, but only 2.9 per cent own it. Awareness of Bitcoin is strongly associated with men, and those with college or university education; additionally, Bitcoin awareness is more concentrated among unemployed individuals. On the other hand, Bitcoin ownership is associated with younger age groups and a high school education. Furthermore, the current authors have constructed a test of Bitcoin characteristics to attempt to gauge the level of knowledge held by respondents who were aware of Bitcoin, including actual owners. Knowledge is positively correlated with Bitcoin adoption. This paper attempts to reconcile the difference in awareness and ownership by deconstructing the transaction and store-of-value motive for holding Bitcoin. The paper concludes with some suggestions to improve future digital currency surveys, in particular to achieve precise estimates from the hard-to-reach population of digital currency users.
Jakob Demant, Rasmus Munksgaard, David Décary-Hêtu, Judith Aldridge
Objective: There is broad agreement in the literature on the transformative potential of drug cryptomarkets that allow sourcing on a global market and consequently the circumvention of existing supply chains between producer and end user. We examine whether the transformative potential of drug cryptomarkets has been realized in two ways: Are cryptomarket drug sellers found in production and transit countries? and Do we see the increased use of shipping across international borders over time? Method: Using data collected by the DATACRYPTO software tool between 2013 and 2016, we characterize cryptomarket buyer behavior through the product reviews (i.e., sales transactions) posted on 15 cryptomarkets. Findings: Cryptomarket drug sellers are predominantly based in countries of Europe, North America, and Oceania. For both cannabis resin and cocaine sold on cryptomarkets, we find that known production and transit countries are not the primary sources of supplied drugs but rather key countries of consumption. In the case of 3,4-methylenedioxymethamphetamine, we observe that the Netherlands, a known production country, is the largest supplier. We further observe tendencies over time toward increased localization of cryptomarkets with regard to product destinations. Discussion: Though cryptomarkets offer a potentially global platform for drug distribution, they do not tend to be used as such. We explain our results with reference to buyers’ preferences regarding safety, risk, and convenience, alongside structural limitations for cryptomarket use such as bitcoin availability.
Achieving government’s goals for cannabis regulation requires legal cannabis to be a cheaper, more attractive consumer alternative compared to the illegal market. This goal may be undermined by the costs and disadvantages of traditional regulatory management. A Canada wide, real-time blockchain tracking system appears to be a viable technical solution architecture. A permissioned blockchain network could be tested alongside traditional tracking. This investment, if proven effective, could reduce regulatory costs for government and red tape for business, helping to achieve Governments’ objectives to:Enhance public safety by ensuring quality and monitoring product salesUndermine illegal markets to reduce crime and prevent product diversion
The emergence of block-chain technology in the form known as “cryptocurrency” is an evolution of the global monetary system that is here to stay. The rise of this new variant of distributed ledger technology has been dismissed by some who believe it offers no real value and denigrated by others who believe its prevalence raises national security concerns. Many of these concerns stem from the common misperception that all cryptocurrencies have cryptographic properties which render them anonymous and can be used by terrorists and other undesirables to fund their criminal enterprises. After discussing the basic technical components of blockchain technology, this article distinguishes that, contrary to popular belief, most cryptocurrencies are not what could be classified as “anonymous,” but are instead “pseudonymous.” These pseudonymous cryptocurrencies can actually enhance law enforcement’s ability to track criminal users’ financial activities. It further refines the notion that all cryptocurrencies are the same by noting that some are more anonymous than others, and some are in fact more identifiable than fiat currencies. Instead of resisting cryptocurrencies altogether, this article argues that the United States government should embrace those cryptocurrencies that are pseudonymous and should further study those which are considered anonymous.
Since the rise of the Islamic State of Iraq and Syria (ISIS, also known as Daesh and ISIL) in 2014, antiquities have been a widely publicized source of funding for what has become one of the most technologically savvy terrorist organizations of the modern era. The globalization of technology and rise of popularity in cryptocurrencies has changed the face of black-market trade and the actors that carry out these crimes. While art and antiquities have long served as a market with susceptibilities to laundering, the emergence of Dark Web markets, identification-masking software, and untraceable cryptocurrencies such as Bitcoin have opened new doors to potential vulnerabilities. The anonymity that is offered by these technologies acts as a roadblock for authorities, while attracting the likes of terrorists and transnational criminals. Investigative research using cyber security platforms to identify digital artifacts connected to potential traffickers provides the opportunity to unmask the seemingly untraceable actors behind these activities. The evidence of illicit antiquities trafficking on the Dark Web displayed in this article can generate a new discussion on how and where to study black-market antiquities to gain needed insight into combating the illicit trade online and the transnational criminal groups it may finance.
Rolf van Wegberg, J.J. Oerlemans, Oskar van Deventer
Purpose -This paper aims to shed light into money laundering using bitcoin. Digital payment methods are increasingly used by criminals to launder money obtained through cybercrime. As many forms of cybercrime are motivated by profit, a solid cash-out strategy is required to ensure that crime proceeds end up with the criminals themselves without an incriminating money trail. The authors examine how cybercrime proceeds can be laundered using services that are offered on the Dark Web.
Soon after its introduction in 2009, Bitcoin has been adopted by cyber-criminals, which rely on its pseudonymity to implement virtually untraceable scams. One of the typical scams that operate on Bitcoin are the so-called Ponzi schemes. These are fraudulent investments which repay users with the funds invested by new users that join the scheme, and implode when it is no longer possible to find new investments. Despite being illegal in many countries, Ponzi schemes are now proliferating on Bitcoin, and they keep alluring new victims, who are plundered of millions of dollars. We apply data mining techniques to detect Bitcoin addresses related to Ponzi schemes. Our starting point is a dataset of features of real-world Ponzi schemes, that we construct by analysing, on the Bitcoin blockchain, the transactions used to perform the scams. We use this dataset to experiment with various machine learning algorithms, and we assess their effectiveness through standard validation protocols and performance metrics. The best of the classifiers we have experimented can identify most of the Ponzi schemes in the dataset, with a low number of false positives.
In this work, we propose a novel approach, called Conflicts Check Protocol (CCP), which enables preventing potential attacks on bitcoin system. Based on the observation and discovery of a common symptom that many attacks may generate, an arbitration mechanism is proposed to determine the approval or abandon of certain transactions involved in confliction. Experimental results verified our statistical assumption and proved that the CCP is robust in handling many transactions in confliction scenarios and can significantly enhance the security of the current bitcoin systems. Unlike many of the existing efforts, this work examines the security issue of bitcoin from a new perspective, which can be extended further to a much larger scope of attack analysis and prevention.
Today, more than 100 blockchain projects created to transform government systems are being conducted in more than 30 countries. What leads countries rapidly initiate blockchain projects? I argue that it is because blockchain is a technology directly related to social organization; Unlike other technologies, a consensus mechanism form the core of blockchain. Traditionally, consensus is not the domain of machines but rather humankind. However, blockchain operates through a consensus algorithm with human intervention; once that consensus is made, it cannot be modified or forged. Through utilization of Lawrence Lessig’s proposition that “Code is law,” I suggest that blockchain creates “absolute law” that cannot be violated. This characteristic of blockchain makes it possible to implement social technology that can replace existing social apparatuses including bureaucracy. In addition, there are three close similarities between blockchain and bureaucracy. First, both of them are defined by the rules and execute predetermined rules. Second, both of them work as information processing machines for society. Third, both of them work as trust machines for society. Therefore, I posit that it is possible and moreover unavoidable to replace bureaucracy with blockchain systems. In conclusion, I suggest five principles that should be adhered to when we replace bureaucracy with the blockchain system: 1) introducing Blockchain Statute law; 2) transparent disclosure of data and source code; 3) implementing autonomous executing administration; 4) building a governance system based on direct democracy and 5) making Distributed Autonomous Government(DAG).
Bitcoin and its peculiar, decentralized transaction system, have already ignited interest by professional and retail traders in search for profits and by economists and legal experts, looking for possible regulation to contain illegal uses. We instead examine the unexpected and ongoing success of Bitcoin from a sociological perspective, first questioning its unusual legitimation system, backed by the so called ‘blockchain technology’, instead of by governmental authorities. Then we collect data and elements to reconstruct Bitcoin’s history as a cryptocurrency, starting from the mysterious story surrounding its birth. We then follow its spread and development through social networks and words of mouth, together with its sudden booms and bursts, finally to suggest that both users and institutional regulators should be aware of the risks of Bitcoin and of its alleged power to challenge our very notion of money.