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Bitcoin Is Too Transparent, Says Blockchain Surveillance Firm Executive

Last Updated March 4, 2021 4:52 PM
Andrew Quentson
Last Updated March 4, 2021 4:52 PM

James Smith, CEO of Elliptic, a new start-up that specializes in the provision of blockchain intelligence to law enforcement and other financial institutions, stated during the Blockchain Money conference held in London last week that “Bitcoin is too transparent.”

In his presentation Smith stated that they have identified 200,000 bitcoin addresses, but “we don’t try to identify every user, what we identify is criminal authority.” The “vast majority of the activity in bitcoin is perfectly legitimate,” he stated, before introducing Alphabay, a darknet drugs market.

They are pretty well run, he says. They have job postings, press releases, for what they do, and “we study them every day,” Smith says, “we think it’s a pretty well run business.” In explaining the flow of funds, he stated they enter through Bitcoin Frog, a mixer, and exit through local bitcoins which does not require much AML/KYC, Smith stated.

Smith, in explaining they try to track and identify illicit activity, mentioned Ransomware which, at its peak, was making tens of million dollars a day, says Smith. In this case, the funds usually enter legitimately as ransomware victims buy the bitcoins from reputable exchanges such as Coinbase or Gemini. Funds then flow out through Btc-e, Smith stated, an eastern European exchange which, like localbitcoins, does not implement many, if any, AML/KYC measures.

Dr. James Smith, Elliptic's CEO, Presenting at the Blockchain Money Conference in London
Dr. James Smith, Elliptic’s CEO, Presenting at the Blockchain Money Conference in London

“We’re trying to move bitcoin forward in compliance with regulation,” Smith said, before I asked him how Zcash would affect the work Elliptic does:

“I talk to the founders of Zcash quite regularly,” Smith stated. “If the entire world uses Zcash, then there will be different layers of visibility. $100 million businesses will reveal information to each other,” he continued.

“It is naïve to think we’ll move to a world where transactions are completely opaque,” Smith said, “but it is realistic to think that we will move to a world of selective transparency,” he argued, before adding that “bitcoin is too transparent.” Sometimes individuals use mixers, he said, to make it more private, but “exchanges ask us to notify them if transactions come from a mixer,” Smith concluded.

When the blockchain concept gripped the world’s imagination earlier this year, many analysts and business consultants argued that blockchains lack privacy and reveal sensitive information to competitors. Many companies working in the private blockchain space, therefore, found privacy to be an important consideration and a reason to not use public blockchains.

However, Zcash’s breakthrough  may provide a solution for both public and private blockchains as it allows for sharing of information with chosen parties, such as regulators or employees, while at the same time not revealing them to anyone else, including miners. Ethereum plans to add same capacity. Bitcoin, too, may follow, thus, potentially, solving the privacy problem.

Images from Shutterstock and Andrew Quenston for CCN.com.