Blockchain is a distributed ledger that enables individuals to conduct exchanges and can eliminate third-party involvement.1 Blockchain technology enables the first incident in which peers can conduct transfers of value directly, fostering increased efficiency in financial transactions.2 Furthermore, as a result of eliminating the traditional reliance on a bank, blockchain technology makes it cheaper for customers to engage in financial transactions, such as remitting money abroad. Bitcoin is driven by blockchain technology and a Bitcoin transaction exemplifies a peer-to-peer value transfer.3
In essence, blockchain is a continuously expanding database that stores transactions in real-time. With respect to Bitcoin, blockchain eliminates the need for the traditional server because the entire processing network is accessible through the internet and is self-sufficient insofar as miners are incentivized to feed an algorithm, which in turn maintains the entire ledger.4
Specifically, decentralized miners receive a small payment in Bitcoin, incentivizing these volunteers to continue compiling recent transactions into blocks by solving the computational puzzle.5 These miners have created an effortless verification system in which any participant or owner of the Bitcoin currency can verify the transactions of permissionless blockchains, increasing the transparency of records.
As a result of this revolutionizing network of cryptographic protocols, companies employing blockchain technologies can have efficient, irreversible, and immutable transactions while recording the identities of involved parties. However, cryptocurrencies like Bitcoin, which uses blockchain protocols, do not typically record the identities of parties within a transaction and only capture proof of the transaction itself.6 As such, many individuals have taken advantage of Bitcoin’s anonymity and have participated in the illegal sale and purchase of drugs as well as in other crimes.7
However, given the capability of blockchain to track users’ activities, investigators can team up with financial services companies to prevent hacking and even fraudulent transfers. For example, exchanges or online retailers will generally record customers’ Bitcoin addresses through Know Your Client forms, gaining access to their future and past transactions.8 The sharing of one’s Bitcoin address allows the service to link this information to the customer’s blockchain pseudonym.9 Therefore, though the blockchain network only contains metadata, the metadata can be linked to an individual or to an IP address. In this way, blockchain can be an incredibly powerful tool for investigators as well as for officials within law enforcement.
Similarly, given the right set of controls and permissions, criminal investigators and government officials can use blockchain-based technologies to prevent illegal activity and flag possible fraudulent transactions. Specifically, investigators can use solutions that incorporate workflows, which are triggered as a block moves through the various stages of an administrative process. Each change in stage is recorded by the blockchain as an irreversible transaction. A workflow is initiated that helps generate the paperwork within a streamlined system. The collective network prevents fraudulent transactions by verifying every newly created block and the publication of cryptographic hashes during each step of a process would provide irrefutable “proof of existence”.10 Furthermore, criminal investigators working within consumer protection no longer have to require all financial services to both maintain extensive identification records and then provide them to the government; encryption and web-of-trust technologies can provide a viable alternative, in which private information can be safe-guarded, while trust is maintained.11 In essence, officials are starting to realize the power of blockchain – not only in its potential to revolutionize the financial industry, but also in its utility in promoting law enforcement.
See What is Blockchain?, IBM BLOCKCHAIN, http://www.ibm.com/blockchain/what_is_bloc kchain.html (last visited Oct. 11, 2016). ↩
How does Bitcoin work?, BITCOIN, https://bitcoin.org/en/how-it-works (last visited Oct. 11, 2016). ↩
John Kelleher, What is Bitcoin Mining?, INVESTOPEDIA (Apr. 30, 2014, 5:42 PM), http://www.i nvestopedia.com/articles/investing/043014/what-bitcoin-mining.asp. ↩
See John Bohannon, Why Criminals can’t hide behind Bitcoin, SCIENCE (Mar. 9, 2016, 9:00 AM), http://www.sciencemag.org/news/2016/03/why-criminals-cant-hide-behind-bitcoin. ↩
Cameron Camp, Bitcoin May Help Criminals, But Blockchain Can Help Thwart Fraud, AMERICAN BANKER (May 11, 2016), http://www.americanbanker.com/bankthink/bitcoin-may-help-criminals-but-blockchain-can-help-thwart-fraud-1080937-1.html. ↩
Marc Prosser, Can Blockchain Technology Stem Government Corruption?, COINDESK (Oct. 25, 2015, 10:50 AM), http://www.coindesk.com/can-blockchain-technology-stem-government-corruption/. ↩
Edan Yago, Block Chain Technology Offers New Crime-Fighting Options, COINDESK (Apr. 14, 2014, 11:15 PM), http://www.coindesk.com/blockchain-technology-offers-new-crime-fighting-options/. ↩
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