Real Life Cypherpunk

No, the hurricane didn’t blow this blog away, but I’ve been hosed nonetheless.  Still, I want to get back to writing, so will maybe stick to something a bit shorter-form.

Lately, I’ve been fascinated with the rise in value of Bitcoin (BTC), a distributed, anonymous, cryptographic token transaction system intended for use as a currency.  My original thought on the technology was “nifty idea”, but never would have thought it would have much in the way of real value (not that virtual goods can’t have real value, but BTC isn’t, by itself, much of a game).  I certainly didn’t see it rising again after the initial bubble and crash, but if you look at the charts, you’ll see that the value is now above the June 2011 bubble and crash.  That crash was precipitated by a security breach and subsequent flash-crash at Mt. Gox (the largest Bitcoin exchange). Subsequent high-profile security breaches in the immediate months following surely didn’t help, but it’s worth noting that such incidents didn’t cease in November 2011, BTC was able to regain its value despite the occasional digital bank-robbery.

So given my interest, and my surprise, I was fascinated by this essay by Gwern on anonymous black-market website Silk Road (the site itself can be found here, I link to this for educational/informative purposes only and not to encourage you to do anything illegal).  The essay is a very detailed, down-to-brass-tacks look at how Silk Road works and what its weaknesses might be.

Silk Road is designed to conduct business with only the minimum amount of information possible.  A normal e-commerce website ends up with the following information:

1. Payment information for the buyer
2. Payment information for the seller
3. Reviews left by the buyer for the seller
4. Information sent by buyer to seller (including at least a shipping address)
5. Information sent by seller to buyer (if sent via site)
6. The seller’s name / pseudonym
7. Users IP addresses
8. Metadata about users connections

Making the process anonymous involves several technologies:

• Bitcoin (1, 2) plus Coin Tumblers (but note that the latter may be illegal, on account of being very straight-forwardly money laundering)
• Public-key cryptography (4, 5)
• The Onion Router (7, 8)

So Silk Road actually ends up with:

1. Bitcoin addresses the buyer used to transfer bitcoins to Silk Road
2. Bitcoin addresses the seller used to transfer bitcoins from Silk Road
3. The reviews left by the buyer for the seller
4. Encrypted gibberish sent by the buyer to the seller (including at least the buyer’s address), plus a public key for the seller (which everyone can see)
5. Encrypted gibberish sent by the seller to the buyer, if any (the buyer has no need to post a public key, they can send it to the seller in their message if they need a reply)
6. The seller’s pseudonym
7. The last hop of the connection path users take to access the site

Silk Road can also strengthen their resilience against outside attack by only keeping recent data for items 1, 2, 4, and 5, and no data for item 7 (there is, however, no way for users to verify that they are in fact doing so).

Silk Road also employs several technologies / methods to mitigate the effects of anonymity:

• Pseudonymous escrow
• Reputation economy (presumably the reason they allow for pronounceable seller pseudonyms (6), while keeping information to an absolute minimum in so many other ways), plus methods for quantitative and qualitative analysis of buyer feedback data
• Seller account auctions (SR admins say the primary reason for this is to make the sort of attacks (note that includes scams or stings) that can be done with new accounts at least very costly to do repeatedly; of course, this also makes money for whoever’s running Silk Road)

So Silk Road not just a straightforward application of Bitcoin.  Bitcoin is just a main ingredient in the whole cypherpunk stew!

Also, this is not to imply that the system doesn’t have weaknesses.  It still falls short of the goal of full cryptographic anonymity.  For one thing, the seller ends up with a physical post address for the buyer.  Postal addresses are a lot harder to generate and anonymize than Bitcoin addresses or private keys, and the movement of physical packages is a lot easier to inspect and trace than TOR connections.

Gwern suggests that Silk Road could be brought down through DDoS or acquiring a large number of accounts for some coordinated scam.  Acquiring new accounts to do individual stings is too high cost for too little gain, especially since the value of “flipping” a Silk Road buyer is very low (there’s little they can do to get information on Silk Road sellers).  Perhaps law enforcement will decide to do some stings anyways to make an example of a few cypherpunk drug-purchasers; the ineffectiveness of that tactic as a deterrent doesn’t stop people from trying.

Gwern doesn’t mention the demise of Bitcoin scenario described by Moldbug in this post, where the value of Bitcoins is brought down by a broad-scale legal attack on the Bitcoin exchanges, indicting them all for money laundering (Bitcoin tumblers might be more deserving of this attack, but targeting the exchanges will be easier and more effective).  That wouldn’t prevent people from trading Bitcoins for goods.  But Silk Road’s selection still isn’t as good as Amazon’s, and Bitcoins are still not sufficiently liquid when it comes to things like rent and groceries, so the value of a Bitcoin in rent and groceries still depends on the exchange rate with less science-fictiony currencies.  Not that it would be impossible to find someone on Silk Road to ship you food, but you really don’t want to buy your necessities at black market prices if you can help it.  Being able to spend money earned at a black market premium on things not sold at a black market premium is a big advantage of illicit trafficking.