3 steps to destroy Bitcoin for anonymous usage

3 steps to destroy Bitcoin
for anonymous usage
Arne Babenhauserheide
Bitcoin is often treated as a haven for black market buyers and people
who want to avoid illegitimate laws. However 3 simple steps would suffice to
mostly obliterate Bitcoin for black market usage of ordinary users.
Breaking Bitcoin
Three steps to break Bitcoin for small scale anonymous usage:
1. infrastructure: Make it possible for users to register their Bitcoin wallets with their
real identity.
2. law or terms of service: Make it illegal to accept money from unregistered users.
3. program: create a script to check transactions whether the transferred bitcoins
were tainted by being in wallets of unregistered users. Tainted bitcoins lose value,
because non-anonymous services won’t be able to accept tainted Bitcoins anymore,
so anonymous services become more expensive.
That’s it. It will not deanonymize all of Bitcoin, but it will deanonymize most users and
making any kind of sustainable profit from Bitcoin will require identity fraud - which
carries so harsh penalties that most small scale black market sellers will not dare going
that far.
And enacting this does not even need a state. It can be be pulled off by any large entity
which accepts Bitcoin as payment, like Paypal or Microsoft.
It gets worse
And it gets worse: large scale Bitcoin owners and black market sellers will have an
incentive to pressure their buyers into registration after their sale, because that will
increase the effective value of their Bitcoins. Implement the method I outlined, and
greed will drive the users themselves to make Bitcoin a hostile place for anonymous
People might run shemes to sell at high price to anonymous users and then pressure them
into registering, so the bitcoins will become more valuable. Or to sell them registration
with false identities. Which they could even report later, when they transferred their
bitcoins at high value to someone else to disrupt a competitors business.
Happy Ending
Voilà, for ordinary Bitcoin becomes a viable, happy do-good, decentralized currency with
full public accountability which can reduce the trust requirement in the banking system
and simplify tax enforcement, while people who can launder money today can still use
that power in Bitcoin and even get a few new tools in their toolbox to increase their
power relative to ordinary and/or law-abiding users.
The prince marries the princess, the king exercises his right of the first night and all live
happily ever after.
I hope I could show that Bitcoin isn’t the haven for freedom and state-free happiness it
is often touted to be. It can reduce the power of banks due to the required trust in their
actions - and I think that it will be used by banks themselves as a very efficient backend
for reliable transactions - but the total accountability inherent in Bitcoin is hostile to
any kind of free expression and independent life, because it allows others to judge you by
your actions years later and as such creates pressure to self-censor how you use Bitcoin.
And as I showed here, on the longterm only large criminal organizations will be able
to retain anonymous usage of Bitcoin, while all others will either be driven into buying
the services of these organizations to stay anonymous (which makes them susceptible to
blackmail: their Bitcoins could lose most of their value at any point) or into registering
their Bitcoin identity and giving up on anonymous usage of Bitcoin.