Crypto currency

Why KYC doesn’t protect against fraud, and how deanonymizing your wallets

Written by forex

One of the most alluring aspects of bitcoin as a decentralized currency is the fact that you can control belongs to you by right, without any outside interference. This means that nobody can freeze your account or not give you the ability to send or receive payment, as well as what your funds is virtually impossible to confiscate. These features make bitcoin extremely attractive to those who value their financial freedom.

Deanonimizatsiya becoming a business

Contrary to popular belief, bitcoin is not anonymous. Some of the early supporters of the currency were users of “darkweb”. Relying on the anonymity of bitcoin, the fraudsters began to use it for various questionable transactions such as drug trafficking, forged documents, fraud with credit cards. However, bitcoin has a global blockchain that records every transaction ever conducted. This allowed researchers and data scientists to track suspicious crypto-activity. In this case, it is possible to track the movement of funds over a network, to associate addresses with their owner or even to de-anonymize users when they attempt to convert the funds into Fiat currency. When scammers try to cash out the money, they are often asked to provide ID with a photo. As a result, been arrested many offenders.

To create tools for the financial markets and law enforcement agencies have created several companies on blockchain analysis. They develop software that allows to analyze transactions and huge volumes of network data in real-time. Researchers can monitor suspicious wallets, and keep track of “questionable funds” or funds that engage in fraudulent activities. The researchers focused on the analysis of the network and blockchain with the goal of integrating the activities of various wallets, exchanges and “darkweb” into one. Analysis of the blockchain is now a multi-billion dollar industry.

Procedures AML/KYC — just a red herring?

One of the ways to control the cryptocurrency regulators is required full compliance with cryptocurrency startups with regulatory requirements and ensuring compliance with the conditions of the law on combating money laundering and deanonimizatsii users. These laws are completely ineffective and useless in the fight against the financing of crime and terrorism. To bypass the system scammers simply use the existing offshore banking infrastructure by directing funds in a “tax haven” with minimal reporting requirements.

These requirements make financial services more expensive and aimed at the creation of useless paperwork than crime prevention, as well as make the life of law-abiding citizens in the race for financial services, with an indication of unnecessary personal information. In other words, the laws on anti-money laundering (AML) procedures and “Know your customer” (KYC) increase the barrier to entry into the global financial system, and the billions in banks do not serve the people are deprived of the opportunity to be part of the global economy.

Storage is not adequately large centralized databases of millions of customers, including personal information, has led to serious information leaks. This is comparable to the epidemic has increased exponentially the number of thefts of personal data. The law on combating money laundering and the procedure “Know your client” is just a way to control you and your actions through your finances, and track and monitor all your purchases. Despite the loud statements of the supporters of these measures, they are ineffective in preventing crime.

The battle for privacy continues — new ideas of data protection

Bitcoin users value their financial privacy. But privacy is a fundamental human right. The developers of bitcoin has concentrated its efforts in two key areas: scaling for mass use and to improve privacy. Lately in this area, there were several significant breakthroughs.

Some wallets have started to implement privacy features that will smash to pieces the existing framework for the analysis of the blockchain. These purses possess the function of the p2p service for the “mixing” of coins, to conceal the fact of possession of the bitcoin. One of these wallets have already implemented a function to receive bitcoins from anyone without specifying your address. Another function adds to each transaction, a few additional actions to difficulties tracking and deanonimizatsii users. All these improvements are attacking a heuristic used by analysts to blockchain analysis that in the end makes it totally unreliable and useless.

Currently in development on a significant improvement in system-level protocols. MAST (Abstract Syntax Trees Merkle) is a new way to write smart contracts, which will increase privacy by hiding their unrealized portion, thereby providing less information about the General access. Actively developing another improvement at the Protocol level, which hides the IP address of the sender of a bitcoin transaction.

Schema Snorri (otherwise known as Signature Snorra) are another innovation in the area of privacy. They will replace the existing scheme of the digital signature used by bitcoin and increase privacy by masking the details of the transaction multipoles. Schema Snorri also pave the way to the method of “scripting without scripting” (scriptless scripts) for smart contracts. And then there is the Protocol improved the proof with zero disclosure — allows you to maintain the confidentiality of the transaction, which will significantly complicate the analysis of the block chain. Side-chains also provide more privacy, creating additional blackany related bloccano BTC. This gives many advantages, such as the release licenzirovanie assets and smart contracts. Network Lightning Network will make an analysis of the blockchain far more difficult due to the encrypted p2p remittance channels that will be routed through Tor.

Goodbye, deanonimizatsiya and tracking. Will not be bored

All these achievements in the area of privacy make bitcoin more viable in the protection of personal data of users. Blockchain analysis is doomed: underlying assumptions and heuristic algorithm of the software for the analysis of the block chain are “under attack” and developers will no longer be considered a reliable way of tracking funds and purses, as well as deanonimizatsii users. All of this should weaken the attempts of those who wanted to track and monitor every purchase and de-anonymize everyone. They have already failed, and sympathize with them, we clearly will not. The aforementioned development — an example of successful deliverance from the usual Fiat system of financial exploitation and control. Bitcoin step by step destroys the existing system and replaces it with the much more perfect principles of the Austrian school.

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