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Bitcoin: Online Currency and the Black Market

In May of 2015, Dylan Soeffing, a senior in college, was arrested at his apartment with over eight-hundred Xanax pills, a small amount of marijuana, and more than $170,000 in cash. Mr. Soeffing allegedly told police that he had coordinated his year and a half old drug business almost entirely through the Darknet - part of the Internet not accessible through ordinary search engines - utilizing Bitcoins. Mr. Soeffing was charged with fifth- and seventh-degree criminal drug possession, and police advised that other charges could be forthcoming.

The alleged use of the newest version of virtual currency wouldn't be unique. The use of Bitcoin to purchase child pornography, facilitate murder for hire, illegal weapon sales, and pave the Silk Road website has been well established.

What is Bitcoin?

Bitcoin is recognized as a virtual currency that is run off of a peer-to-peer network. This means that two parties can interact and transfer currency to one another without a middle-man or other intermediary. Each transaction is verified by the other's network and then recorded in the public distributed ledger called the Block Chain. Bitcoin can be used as a form of payment for products and services.

Why Would Anyone Use Bitcoin?

Utilizing Bitcoin as a form of payment is popular because the operation fees are lower than the those required by credit card companies. Additionally, it avoids the processing and exchange rate fees of traditional financial institutions.

Bitcoin's appeal in the criminal world is due, in large part, to the anonymity it provides. Unlike state-sanctioned currency, Bitcoin has no supervising authority and is not regulated by any agency. This lack of regulation is furthered by the fact that users remain anonymous even to one another.

Bitcoin is structured so that while every transaction is recorded and traced in the Block Chain, the only tracking services provided show which coins are in which account in order to prevent fraud and counterfeiting of the coins themselves. However, unlike other financial transactions, Bitcoin does not record transactions using people's identities or unique credit card numbers. Instead, Bitcoin only records transactions as addresses, which do not have to be tied to individuals' identities. This means that the only tracing on Bitcoin transactions shows where those transactions occurred.

How Do Bitcoin Transactions Work?

Bitcoin is a free website that allows people to transfer money just like they do through their bank. After downloading the Bitcoin Client, which is essentially your account, the BitChamp will tell you where to send your payment. When you initiate the transfer, the program creates a transaction message which "signs" the transaction request. This transaction is then published publicly to the Bitcoin network and verified moments later.

At no point during this transaction are the goods or identities of the parties disclosed to the public. Only addresses are recorded. Additionally, there is no requirement that you keep the same Bitcoin account. They are freely created and destroyed.

How Does Law Enforcement Identify Bitcoin Users?

Bitcoin presents difficulties for law enforcement because of its almost complete anonymity. However, the fact that these transactions are public means that the government does not need any type of court process to track these records. Cases so far have suggested that law enforcement monitor the website, track patterns, and attempt to analyze usernames.

Do Bitcoin factor into your current legal proceedings? Get the preparation, dedication, trial experience, and personal attention you need in your criminal defense case. Contact George Hildebrant, Attorney at Law, today.

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