Good Bitcoin, Bad Bitcoin: Blockchain Analytics and Fungibility

Elliptic, a Bitcoin analytics and security firm based out of London, announced 'The Bitcoin Big Bang' on Thursday. The software is a Bitcoin 'transaction monitoring and compliance' visualization that could identify in real time which Bitcoins are legal in a given jurisdiction.

Cointelegraph interviewed privacy researcher and security expert Kristov Atlas and market analyst Tone Vays to discuss their perspectives on privacy, price and compliance in relation to Elliptic's Bitcoin blockchain analytics.

Elliptic's team of PhD data scientists and engineers have been working to map the 35 GB blockchain in an attempt to identify major players in the Bitcoin economy. The main goal, according to the team, is to deliver a suite of AML (anti-money laundering) compliance products to companies operating under regulatory pressure, a technology that may bring relief to many in the financial industry.

The software has already identified major players — such as Mt.Gox, Silk Road variations, and many other players to whom Elliptic has granted pseudonymity — and exchanges that have, knowingly or not, enabled trades of Bitcoins that have flown through the Silk Road and other Dark Web markets for illegal goods.

Elliptic's CEO James Smith

This ability is believed to bring much peace of mind to large financial players who may be concerned about entering the Bitcoin market, or about regulatory uncertainty and risk of legal punishment. Elliptic's CEO James Smith said:

"We have developed this technology not to incriminate nor to pry; but to support businesses’ anti-money laundering obligations. Compliance officers can finally have peace of mind, knowing that they have performed real, defensible diligence to ascertain that their bitcoin holdings are not derived from the proceeds of crime.”

What About Privacy?

The consequences of such a technology are vast and certainly controversial. The ability to do mass monitoring of Bitcoin transactions — and automatically alert companies, regulators and law enforcement as to which coins are associated with illegal goods — is basically the definition of surveillance. In this case, blockchain surveillance.

This means that bitcoins associated with illegal goods or services in this or that jurisdiction could be tagged and effectively branded “white bitcoin” or “black bitcoin.” White bitcoins would be accepted by merchants under AML regulatory pressure, while black bitcoins would be rejected and may possibly mark their users as suspects of illegal activity.

This could split the Bitcoin market in two, drying up the fungibility of bitcoins associated with illegal trade in a given jurisdiction. This also raises many questions, of course, about the security of Bitcoin users in such a world.

Atlas, of the Open B