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Friday, August 21, 2015

Ashley Madison, Bitcoin And The Blockchain Of Evidence

In an emerging story that shows the perils of being too clever by half, it seems some accountholders at the notorious hookup-on-the-side website Ashley Madison are being given a choice: Pay us in bitcoin, or face being outed as a user -- and implicitly, an adulterer -- of the site.

Aside from the threat to its recipient, bitcoin is giving its naysayers another reason to hate its existence. Yet this threat shows the promise of the blockchain technology which underlies bitcoin, and which arguably holds more value than that of bitcoin-as-medium-of-exchange.

The threat also helps illustrate the myth of anonymity.

Some bitcoin users believe that bitcoin is untraceable and therefore the perfect medium to engage in crime without the crime or its proceeds being traced. The professional bitcoin opponents who wish to monopolize the technology (by driving out others with claims of illegitimacy) adopt and repeat this argument for the nefarious and strategically competitive reasons. This does not make sense, however. Cash works just fine for that purpose -- go ask any veteran merchant in the illicit goods or service of your choosing. (Tip: Don't talk to anyone with the "street cred" of a criminal record. These are the idiots who get caught. I'll explain, keep reading. Go to the ones without a criminal record. They're the smart ones.)

The essence of bitcoin is the blockchain. That is a chain where each transaction can be stored in a block, and the blocks are arranged in a sequential, one-dimensional chain that grows in a linear fashion. But here's the key: The hash which comprises part of the "DNA" of each block contains a record of each and every preceding transaction. 

That means there's a record, a "footprint" or "fingerprint," of prior activity. That's evidence. That's a chain of evidence. And given the nature of bitcoin as a medium of exchange where transactions are verified (so there's no double-spending of a bitcoin) on a distributed public ledger relying on consensus among all participating network members (represented by individual computer nodes) to vote on the legitimacy of a transaction, you have a systemic protection against hacking, corruption or other malfeasance that can occur in any centralized system where information can be corrupted once anyone with access either gets in, or decides to go rogue.

This "trust issue" is both the core of the bitcoin solution (and the main tenet behind the blockchain technology's promise) 

I've had prosecutors and investigators ask me -- in all seriousness -- about bitcoin's anonymity, and they've literally not been joking; they've believed the myth of bitcoin's anonymity and bought into the lie that bitcoin is a criminal tool. 

The exact opposite is true. Bitcoin's blockchain basis gives you a historical, sequential record. That is a chain of evidence. 

Now, how good is that chain? There are limitations in any human system. But at a minimum you can trace the beginning transaction (the holdup of the schmuck with an Ashley Madison account) and the liquidating transaction (the getaway) and that gives investigators a good lead. No system is perfect, and I won't inadvertently help prospective criminals by revealing the holes in any human-based system. But here is one principle to hold constant: Any human-based system can be flawed, either in its design or in its implementation. Why? Because humans are imperfect, they make mistakes, and they are also susceptible to all sorts of impulses, temptations and distractions which compromise performance. 

So the entire issue of trust is based on one or more of a set of assumptions, in which one incorrect assumption, error, mistake or accident results in a "breakdown" where something goes awry. Trust makes you more vulnerable to human nature. Computer software makes you equally vulnerable; worse, its centralized design means that anyone with control over the information flow can corrupt your output.

Think about that the very next time you do a Google search, or make any transaction over the Internet.

Other Applications Of Blockchain Technology:  Here's one. See this article from June 2014. 

About the author: Eric Dixon is a veteran New York corporate lawyer, investigator and strategic consultant to businesses, individuals, elected officials and several emerging bitcoin and blockchain industry companies. Mr. Dixon is the author of the first bitcoin protection bill to be submitted to the United States Congress. Mr. Dixon is the co-inventor to multiple blockchain-related systems which are the subject of patents pending before the United States Patent and Trademark Office. He can be reached at EDixon@NYBusinessCounsel.com.


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