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BITCOIN MYTHS“anonymous”“untraceable”
“invisible to law enforcement & the taxman”
©2016 Juan Llanos
©2016 Juan Llanos
Digital Assets tend to be global, open, nodal and evolutionary. They live on the Internet and vary widely in scope and use.
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
browser
tokensrewards
Bitcoin Protocol
VenRipple XRP
LitecoinLinden Dollars
Entropia Universe
QQ Online
Exchanges
Altcoin ExplosionRegulated Exchanges
BeenzFlooz
Colored CoinSmart Contracts
Ethereum
Square CashAmazon Coin
Sovereign CoinReal Estate
EquitiesDerivatives
Bitcoin Open Source Protocol Solves Double Spend Problem via Open Ledger
?e-GoldWOW
Ripple Protocol
R3 CordaMoneroDashZcash
Source: Hub Culture
©2016 Juan Llanos
an accounting systemsoftware / program
database → blockchain
©2016 Juan Llanos
“A Peer-to-Peer Electronic Cash System”Satoshi Nakamoto
“A peer-to-peer network that allows for the proof and transfer of ownership without the need of a trusted third party.”
Goldman Sachs
“An open platform for value exchange.”Richard Brown (R3)
©2016 Juan Llanos
PEER
PEER PEER
PEER
PEER
PEER
PEER
PEER PEER
PEER
PEER
PEER
PEER
PEER
PEER PEER
PEERPEER
PEER
PEER
PEER
PEER
PEER
PEER
PEER
PEER
PEER
PEER
PEER PEER
PEER
PEER
PEER
PEER
PEER PEERPEERDOUBLE-SPEND: SOLVED
DISTRIBUTED CONSENSUSTRANSPARENT LEDGER
TRANSFER & IDENTITY: SEPARATEDPROGRAMMABLE
©2016 Juan Llanos
HOW BITCOIN &ITS BLOCKCHAIN WORK
Less technical video [5 minutes]https://youtu.be/l9jOJk30eQs
More technical video [22 minu tes]https://youtu.be/Lx9zgZCMqXE
Public-Key Cryptography Explainer [5 minutes]https://www.youtube.com/watch?v=3QnD2c4Xovk
©2016 Juan Llanos
Digital Payments Network (B)Digital token (b)
Open Protocol (B)
©2016 Juan Llanos
©2016 Juan Llanos
Digital Payments Network (B)fast, secure
low cost, globaltransfer of value
©2016 Juan Llanos
Digital Token (b)counterfeit-proof “online cash”unit of transaction → bitcoindollar value → open market
Inflation-proof → total capped
©2016 Juan Llanos
Open Protocol (B)applications beyond payments →
, escrow, tamper-proof voting, notary services, etc.
PLATFORM FOR INNOVATION
©2016 Juan Llanos
freedom to ownfreedom to transferfreedom to innovate
censorship-resistance
permission-less innovation
end of 1/4
©2016 Juan Llanos
©2016 Juan Llanos
©2016 Juan Llanos
+ 2006
“Virtual currencies promise to benefit commerce on many levels, from serving the unbanked to new
financial products. I challenge our innovators: devise creative solutions to prevent virtual
currency abuse.”2013, Jennifer Shasky Calvery, former FinCEN Director
©2016 Juan Llanos
©2016 Juan Llanos
IS IS NOT
…whoever as a business:
● Exchanges virtual currency for government currency, and one virtual currencies for another (e.g., exchanges)
● Mines and makes a payment to a third party on behalf of a customer (e.g., for-profit miners)
● Accepts value from A and delivers it to B (e.g., some wallets)
● Accepts value from A and delivers it to A at a different time or place (e.g., vaults)
…whoever
● Mines, uses or invests virtual currency for own benefit
● Provides network access services to money transmitters
● Acts as a payment processor by agreement with a seller or creditor
● Acts as intermediary between BSA-regulated institutions
©2016 Juan Llanos
©2016 Juan Llanos
Exchanges Wallets
TPPPs MTs + Other
• Risky “product”(no value limits, global, etc.)
• No identity & location of either S or R (FT+T rules, Sanctions) • Limited monitoring: blockchain data insufficient
(no transaction metadata + dark web)
• “Evil” smart contracts• Regulations designed for intermediaries, not P2P• Clash with privacy/confidentiality
FINANCIAL CRIME CHALLENGES
©2016 Juan Llanos
BITCOIN MYTHS“anonymous”“untraceable”
“invisible to law enforcement & the taxman”
Reid-Harrigan (2011), Meiklejohn et al (2013)©2016 Juan Llanos
• Direct (“self-help”) detection & investigation (vs. deputized)
• Global monitoring (vs. intra-company)
• Digital, global, real-time information sharing (vs. analog & after-the-fact)
• Traceability + attribution + immutability• Third-party doctrine
(privacy forfeited voluntarily; no warrants/subpoenas/MLATs)
• New layers - Algorithmic/programmatic enforcement
FINANCIAL CRIME OPPORTUNITIES
©2016 Juan Llanos
end of 2/4
CURRENT ISSUESillicit purchases
theftransoms
©2016 Juan Llanos
Source: Mastering Bitcoin
©2016 Juan Llanos
Source: Coinalytics (Skry)
©2016 Juan Llanos
Source: Mastering Bitcoin©2016 Juan Llanos
THIEVING TECHNIQUES- AGGREGATIONS → bitcoins were moved from several addresses into
a single one - FOLDING → addresses not associated with the theft, used to “clean”
the stolen money- SPLITS → a large amount of bitcoins was split among two or more
addresses- PEELING CHAINS → small amounts were peeled off from a
succession of one-time change addressesSource: A Fistful of Bitcoins
©2016 Juan Llanos
BEHAVIORAL INDICATORS- TRANSACTION VOLUME: observe transaction volumes and pay close attention to outliers from an
expected distribution as they may stem from a major theft.
- OBFUSCATION PATTERN: aggregations, foldings (i.e., combining blacklisted transactions with clear transactions), splits and peeling chains
- FREQUENCY OF USAGE: the thief must construct his fake transactions fast, resulting in a short time span between transactions involving these coins. This motivates measuring transaction frequency to use it is an indicator of risk. Whenever frequency increases above average values, there are reasons for suspicion.
- CHANGE ADDRESSES & MULTI-INPUT TRANSACTIONS: heuristics such as the detection of change addresses or the combination of addresses from multi-input transactions, which are likely to belong to the same user, can detect connections between apparently unrelated transactions.
- COINBASE TRANSACTIONS: these transactions do not have inputs, i.e., they create new bitcoins without using up the bitcoins from other transactions.
Source: Towards Risk Scoring of Bitcoin Transactions
©2016 Juan Llanos
©2016 Juan Llanos
Source: Skry
©2016 Juan Llanos
Source: Novetta
©2016 Juan Llanos
Source: Skry
Law Enforcement
end of 3/4
PRIVATE vs OPENBLOCKCHAINS
Source: Coindesk
©2016 Juan Llanos
©2016 Juan Llanos
Source: Antony Lewis
©2016 Juan Llanos
Source: Skry
©2016 Juan Llanos
ETHEREUM
SidechainsBTC
Corda
©2016 Juan Llanos
O O
O
C
C
C
O
O
“The Real Value of Blockchain Technology” [6 minutes]https://youtu.be/YIVAluSL9SU
©2016 Juan Llanos
Clearing & Settlement
Smart ContractsInheritanceEmployeesLogistics
Legal
Asset LegitimacyWinesJewelry/ArtLandElectronicsGenerics
Internet of ThingsAPPLICATIONS IN DIFFERENT INDUSTRIES
Source: Globant
Credential Certification
Energy Identity
Gaming
APPLICATIONS IN DIFFERENT INDUSTRIES
Source: Globant
Source: Bloq
©2016 Juan Llanos
end of 4/4
©2016 Juan Llanos
©2016 Juan Llanos
Thank You!Juan Llanos @[email protected]
