4 questions to ask about bitcoin and other crypto-currency

Bitcoin is a decentralized peer-to-peer payment network with no central authority or middlemen, making it perfect for criminal activity

Article updated August 2, 2017.

By Tony Moore
Police1 Member

There are many aspects of bitcoins – a form of digital currency often referred to as crypto-currency – but in this article I will limit myself to the four reasons why I think that law enforcement should be concerned about the growth of this digital currency.

Bitcoin has seen a large rise in popularity since I began investigating and studying this and other crypto-currency in use on the Internet.

Here are four questions law enforcement professionals need to ask about bitcoin:

1. Is Crypto-Currency Legal?

Although there has been much debate over the legality of crypto-currencies, the U.S. District Court, Eastern District of Texas recently ruled on the legality of bitcoin in a case brought by the Securities and Exchange Commission.

In that case, Trendon Shavers was charged with the operation of a Ponzi scheme, using the name Bitcoin Savings & Trust. His scheme managed to bilk more than 4,100 customers out of millions of dollars.

The SEC argued that bitcoins were an “investment contract” and an exchange for conventional currencies and the court agreed, citing, “It is clear that bitcoin can be used as money. It can be used to purchase goods or services. Therefore, bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”

2. What About Theft?

Just like cash, theft of bitcoins has already occurred and will more than likely occur again. Is it theft of currency, property or financial investment?

Consider this: You respond to a call indicating bitcoins were stolen. Would your report indicate cash was taken? Based on the U.S. District Court decision, one could definitely argue that position.

Or what if while conducting a narcotics investigation, you discover several bitcoin wallet addresses, QR codes in the suspect’s possession, or Bitcoin mobile applications on his phone?

Taking into consideration other key factors, would you arrest for “Possession of a Controlled Substance for Sales” charge? Could the suspect be negotiating drug sales via Bitcoin?

3. is Bitcoin use Anonymous?

Criminals looking to hide their tracks might be lured to the pseudo-anonymity of bitcoin, but because transactions are published in the blockchain, it gives law enforcement some means of tracking transactions.

With the assistance of an academic abstract published by researchers from the University of San Diego, I have been able to successfully track certain bitcoin transaction patterns in the deep web. This same concept, although extensive, can easily be adopted by law enforcement to track patterns of local drug dealers and other criminals drawn to the potential anonymity using bitcoins.

4. is bitcoin a Platform or a Currency?

Because the bitcoin protocol is versatile and open source, uses for other platforms have already been developed.

From new encrypted messaging systems such as Bitmessage to Namecoin, a new domain name service (DNS) used to register websites without a central registering authority.

With increased threat to one’s identity and privacy, Internet users are demanding a return of anonymity to the Internet. I foresee a time when the bitcoin protocol will change the way we transverse the Internet.

Like email and social media changed the way we communicate, bitcoin will change the way we transact. This could very well create a challenge for law enforcement. Knowing the protocol and understanding its function can allow us to be ahead of the game.

About the Author
Tony Moore is a deputy sheriff with the Los Angeles County Sheriff’s Department, where he is assigned to the Sheriff’s Headquarters Bureau Electronic Communications Triage Unit (SHB eComm). His expertise is in public information, emerging Internet trends, social media and Internet investigations. He is a certified POST instructor with the State of California, teaching classes on social media, public information and Internet investigations via the California Peace Officers Association (CPOA). He has been a guest speaker at the International Association Chiefs of Police (IACP) Tech Symposium, Los Angeles Police Department’s (LAPD) Annual Detective Symposium, California Crime Prevention Officers Association (CCPOA) Convention, and CFED West’s Annual Convention on the same topics.

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