"Dirty" Bitcoin: what is it, and what follows from it

“Dirty” Bitcoin: what is it, and what follows from it

By bit.team

Everyone who deals with cryptocurrency at least once, but has heard such a term as “dirty” or ”black” Bitcoin. It was said that these are assets that are associated with illegal actions. Naturally, they are subject to withdrawal. Even if a person is not to blame, one might think that his funds may be confiscated, accounts blocked or investigated by some law enforcement agency. This is what this horror story looks like.

But before assessing all these consequences, it is necessary to understand several concepts that are of great importance. Let’s figure it out together.

And so…

The first question that comes to mind is: what was the reason that Bitcoin became black or dirty? Was it some kind of incident? Was it a robbery? Was it a scam?

One of the reasons why BTC can be tainted is related to its use in criminal activities.

According to Coinmarketrate.com there are companies that do this kind of analysis, such as Chainalysis. When an analysis of the blockchain is carried out and it is found that at some point in history these Bitcoins were used for some criminal activity, then we can say that these coins were “corrupted” by this incident.

But this is not always related to a specific situation, perhaps the contamination comes from use in some service, for example, on the black market. If the user, before selling them for fiat money, used them to buy and sell illegal goods.

So far we have seen examples and descriptions related to illegal situations, but Bitcoin can also get dirty because it is associated with something with a negative reputation.

For example, they could be the result of a controversial donation to a certain group of people, which causes rejection or controversy. That is why someone may not want to accept these BTC in the future.

After all, Bitcoins are dirty because they are associated in a certain way with something that is not generally accepted or universally recognized.

Although this concept does not necessarily have to be negative all the time, since the connection with a certain event does not mean that it is a disadvantage. In some cases, it may even be positive.

Suppose someone received Bitcoins from Satoshi Nakamoto, such a connection can increase the price of these BTC due to a certain historical reliability.

Who has to do with dirty BTC

Since Bitcoin is a decentralized currency, there is no person or organization that determines whether Bitcoin is dirty or not. There is no criterion, no written law that tells us exactly which BTC and how it became black. There is not even a formal definition, because we have seen that in many cases it can be called that way.

However, there is some general consensus that Bitcoin can be considered dirty:

  1. Fraud Products

A person is being scammed, and with the help of some platform reports what happened, indicating which address was used for the attack.

After that, Bitcoins will be considered dirty in this way, and they can be distinguished from other coins. The only problem is that the report does not have to be truthful, and if for some it is enough to blacklist BTC, for others it is not enough and contradicts decentralization and freedom of the network.

After all, anyone who doesn’t like a person can use this resource to harm them. In this case, we could say that his crypto asset is dirty, but since the reports won’t be taken very seriously, in reality it won’t have any impact.

Moreover, such a report will be made on a specific site. If we wanted to make sure that the funds are not dirty, we would have to check all possible reports, which is impractical.

Another problem is that even if this is true, if a fraudster uses an exchange wallet, does it mean that now the entire exchange wallet is corrupted?

  1. Attacks on Twitter

For some time there was a fashion for hacking celebrities’ Twitter accounts, and using their followers to promote a fake advertising company. Basically, it consisted of sending money to an address and then receiving a prize.

However, we all know that it was a scam and that no one will get anything. In this case, the entire community knew the addresses and could report them, thus obtaining several reliable sources of information that this was part of a scam.

Although we will see later that receiving funds from these publicly stated addresses does not mean that Bitcoins are still dirty.

  1. Maintenance problems

When a person or company loses their funds as a result of hacking, a specialist is usually contacted shortly after the incident to investigate what happened.

After the analysis, the company or the person responsible for the investigation may decide that it is appropriate to mark the funds associated with the theft.

But instead of doing it publicly, it is preferable to contact certain services, for example, exchanges, to inform them that these funds are proceeds from theft. This is a widespread practice in such cases.

  1. Extortion incident

Here Bitcoin is not dirty, as they were used to pay the ransom. Instead, it can be argued that the addresses are dirty because someone linked them to these BTC.

It can be the company itself that published this information, an anonymous forum, a research agency or a tool for analyzing the blockchain.

Reliability will be determined by the experience and reliability of the organization.

Who decides that the BTC is dirty?

The next thing to determine is the source of the information, since different sources may have different ideas about what is considered dirty and what is not.

Some sources of information that consider BTC dirty are public, some are free, but do not make the information public or require us to register, and some are paid, which may or may not be available to the general public.

In the end, whether the BTC is dirty or not depends on the source we are referring to. And this leads to numerous problems and considerations that we need to pay attention to.

Businesses and service providers are required to comply with anti-money laundering laws and regulations. This does not mean, since it is practically impossible, that they should refuse any funds that are considered illegal.

These laws and regulations imply that they must make sincere efforts to minimize money laundering, and for this they must implement an appropriate program. Efforts are a vital part of this issue.

There are many services, such as exchanges, that claim to meet the requirements and do everything possible to implement AML (anti-money laundering) programs, but this is just a facade that allows users to commit money laundering.

There have been examples in the past when exchanges have received lawsuits. This happened with BTC-e, but there are newer ones on the list, such as BitMEX, KuCoin, OKEx and Hubi.

The answer to the question of whether exchanges are required to recognize dirty Bitcoins is problematic, since there is no clear way to determine whether they are such in the first place. Without professional help, this task is difficult, especially with the large volume of trade that we observe on these services.

Further complicating matters is the fact that it is not so easy to determine whether these funds were sent to another person, to someone who is trying to replenish the account, and this person has nothing to do with the case for which they were marked.

Money laundering has to do with dirty Bitcoins, since the person who committed the crime will probably want to launder this money in order to be able to use it in the rest of the economy. So there is no simple answer here.

Some exchanges need to improve their efforts if they want to identify these issues, but this issue is also related to the jurisdiction in which they operate. The fact that these platforms have been used in the past to try to expand legal boundaries is no longer good.

This applies not only to exchanges, but also to any platform or person accepting BTC in exchange for a product or service. The only way to limit the use of these currencies is to force everyone to comply with these programs so that they are effective.

For how long is Bitcoin considered dirty?

We can interpret this question in two different ways:

On the one hand, we have an example of a hacker who manages to steal BTC from the exchange, but he does not move funds from the wallet where they were. As long as they stay there, we can say that they are dirty for an indefinite period of time.

First, the hacker will want to move them later to be able to launder them.

On the other hand, we have a hacker who starts moving funds through different wallets and different addresses, where other people are also involved. In this case, we can say “no”.

As long as it is impossible to determine whether the person who triggered the event that polluted them has power over these funds, it can be assumed that they are no longer polluted. However, this is just an opinion.

If a person has committed a crime with these BTC, the first thing he will want to do is clear them so that they are no longer associated with this event. This is known as money laundering.

Some people believe that Bitcoins will retain their corrupted status even if they were sent to different people and distributed on different exchanges. This opinion is erroneous, and now we will see why the BTC will not remain so indefinitely.

It is likely that some of the Bitcoins in our possession were once held by someone associated with Silk Road. We can’t say they’re still dirty. During all this time, they have been moved to various addresses, services and people. Therefore, this connection is not as relevant now as in the past.

Obviously, their new owners have nothing to do with this black market, and therefore they should not be considered dirty.

The same can be said about the banknotes in our wallet or wallet. Perhaps in the past they were used to buy something illegal. But we cannot say that they are black, as that would be simply absurd.

How to Find out that BTC is Dirty

To carry out such an analysis, it is necessary to use forensic tools that are not so easy to use. Therefore, an ordinary person does not have enough funds to determine this issue.

However, even if you have access to these tools and you know how to use them, this may not be enough to make a conclusion. These tools are not infallible, and they won’t tell us exactly what we want to know.

This is due to the fact that each of them has different sources of information. If the tool has no information that certain addresses were used for something illegal, then it will not mark them as criminal.

Is it worth worrying about at all?

If you are reading all this, it means that you are concerned about the presence of cryptocurrencies that have been used dishonestly in the past. Or at least you’re getting some curiosity that your Bitcoins might be dirty.

It is very rare that you received Bitcoins directly from a villain who committed some terrible actions that blackened the coins. Moreover, this does not mean that they can still be considered dirty.

Now you can see for yourself how crazy it all looks. Therefore, you should not worry about it as something more than a curiosity in the world of cryptocurrencies.