The U.S. has developed a covert technology to extract raw Internet data from fiber-optic cables that can identify the I.P. address of anyone who uses Bitcoin. This technology, called OAK STAR, masquerades as a foreign fiber cable site or virtual private network. Moreover, it can track the bitcoin transactions of the Bitcoin users that use that technology. As long as the government has legitimate reasons, it should not be a problem for them to track Bitcoin transactions.
OAKSTAR
Can the U.S. government track Bitcoin transactions if it has the right to? Recent revelations have revealed that the NSA is monitoring Bitcoin users and may be using this information for illegal prosecutions. In March 2013, whistleblower Edward Snowden leaked classified documents about the National Security Agency’s secretive program known as OAK STAR. The program is based on covert corporate partnerships and harvests internet traffic and fiber optic cables. It was designed to monitor the money flow between terrorist organizations.
NSA surveillance of Bitcoin users may have occurred through a sub-program of Oakstar called “MONEYROCKET.” This program targeted people in Asia, Eastern Europe, and the Middle East. This software functioned as a dupe, luring users into signing up for its service, but was collecting data on users. These data included passwords, I.P. addresses, media access control addresses, and billing details.
NSA’s OAK STAR tracking program can link people with their Bitcoin wallets without their knowledge. OAKSTAR requires an unwitting download of software that extracts internet data. Using a trusted VPN package is essential for avoiding such risks. Once downloaded, OAKSTAR extracts information on people’s browsing habits and online activity. While it is a legitimate concern, it’s crucial to stay vigilant against the threat of this new software.
While the U.S. government has not explicitly acknowledged its use of Chainalysis, it has been noted in past cases where the NSA helped the IRS track crypto users. In October 2013, US FBI agents arrested a bitcoin-based online exchange founder named Ross Ulbricht. The charges against him included conspiracy to traffic in narcotics, money laundering, and computer hacking. So can the government track Bitcoin transactions?
Subpoenas
The U.S. government is increasingly focusing on cryptocurrency transactions and issuing subpoenas for exchanges to reveal user data. Coinbase, for example, recently had to provide information about 13,000 user accounts. They had to divulge information like a taxpayer identification number, name, birth date, address, and transaction logs. However, this subpoena was later limited to 480,000 users.
The Justice Department has launched its first criminal prosecution involving cryptocurrency. In an unusual nine-page opinion, Magistrate Judge Zia M. Faruqui approved the department’s criminal complaint against an American citizen accused of laundering $3.6 billion in stolen bitcoin. In addition, a similar case was filed by the government of a country with an embargo on dealings with bitcoin.
The U.S. government may have problems issuing subpoenas to obtain Bitcoin transactions without a warrant. A prominent case involving the issue is United States v. Gratkowski, which allowed the government to issue subpoenas for Bitcoin transactions without a warranty. Another relevant case to this debate is Harper v. Rettig, where a plaintiff sued the Internal Revenue Service for violating her Fourth Amendment rights.
The U.S. government has already added two individuals to its SDN List. These individuals were suspected of laundering proceeds from cybercrime, identity theft, corrupt public officials, and drug ring activities. The infamous exchange, BTC-e, traded $4 billion worth of Bitcoin with anonymity. As a result, BTC-e and its users could engage in criminal activity because they did not have to verify their identities.
Read More: What is the Future of Cryptocurrency?
NSA
The NSA is known for its methods of surveillance, which include gathering data on user data, including passwords, browser history, I.P. address, user sessions, and media access control addresses. It has been using these data to target people with criminal intentions, such as cyber targets and organized crime. While it is unclear how the NSA can monitor these transactions, the fact remains that they can get access to any data, including bitcoin transactions.
A recent NSA report revealed how the government could track Bitcoin transactions. The NSA is said to be able to track Bitcoin users’ passwords and internet activity by tapping into a particular public ledger called the blockchain. They can also track users’ unique device identification number (MAC address), akin to a social security number. But despite these NSA-developed tools, the government can still collect such data, even with the cryptanalytic software they use to detect and track online threats.
The NSA’s XKeyScore program is another example of how the spy agency collects information on internet users. The NSA has been collecting data from internet users since at least 2013 and recently revealed that it is using a robust system to monitor global communications. In addition, the NSA also harvests internet data traveling along fiber optic cables. Although the NSA has largely shrouded its methods, the documents revealed that the spy agency had been targeting Bitcoin users.
The NSA can track Bitcoin transactions through this program, which was revealed by Edward Snowden, a former NSA contractor. Snowden’s revelations are also timed with a sudden drop in bitcoin’s value. As bitcoin is a freely traded commodity, it reflects market sentiment, and some people mistakenly thought it was Prism-proof. These sell-offs are probably a reaction to the fear of the NSA tracking cryptocurrency transactions.
IRS
The U.S. government can’t stop all people who buy and sell bitcoins, but it can track some of them. That is precisely what they did in the case of Ilya and Heather. The couple used various methods to move their bitcoins around the Bitcoin ecosystem. They set up accounts for themselves at exchanges and used unhosted wallets to buy and sell bitcoins. These methods aren’t as easy to trace as those shady individuals.
Financial records contain sensitive information, including the identity of the person making the transaction. The Bank Secrecy Act requires banks to keep these records secure, but the government can obtain access to this information without a warrant under a recent case called U.S. v. Miller. Because of this precedent, privacy advocates are worried that the government may be expanding its financial surveillance program. Despite its shady intentions, the U.S. government has taken steps to protect its citizens.
The majority of Bitcoin users are motivated by privacy concerns and curiosity. But because the anonymous nature of Bitcoin also makes it a tempting option for criminals, it can be used as a form of finance. However, the associated data can track Bitcoin transactions and reveal financial histories. In the recent Silk Road bust, U.S. agents recovered nearly $30 million in Bitcoins, a fraction of the total amount of that drug trafficking ring’s proceeds.
The U.S. government has been auctioning off bitcoin for years. It is an example of a growing trend. However, Uncle Sam has failed miserably at timing the market. That means 500 bitcoin Uncle Sam sold to Riot Blockchain in 2018 is now worth $23 million. The government also sells bitcoin confiscated during criminal sting operations. This is a considerable risk for taxpayers who make the mistake of not reporting cryptocurrency correctly.
