The whistleblower who revealed the NSA’s extensive surveillance of US citizens in 2013 recently leaked documents detailing the agency’s efforts to monitor the Bitcoin blockchain and identify its users.

Much of the support surrounding Bitcoin comes from its potential as a monetary policy outside of any one domain and outside the direct influence of sovereign entities such as central banks or governments. One of the key features of Bitcoin hailed as a virtue by some and a risk to others is its anonymity. The transactional data on the blockchain is obscured through cryptographic hash functions, so the data itself is incredibly secure despite being shared on a public ledger.

However, as soon as a Bitcoin holder uses trusted third parties such as exchanges or other payment processors to cash out to fiat currency such as US dollars, this data can be analyzed for linkages, whereby personally identifiable information can be linked to certain Bitcoin addresses. Privacy is then compromised in a cascading effect.

The documents Snowden leaked to The Intercept reveal that the NSA has been tracking Bitcoin activity as far back as 2013 in a program titled OAKSTAR, at one point going so far as to make the cryptocurrency a number one priority. Liberty Reserve, the Costa Rica-based virtual currency service that was revealed to be a massive money laundering service for criminals around the world, was second.

One of the main tools implemented by the NSA to track user data and gather intel on terrorist financing was called MONKEYROCKET. The descriptions within the documents suggest that it was a virtual private network, or VPN, which was marketed  to cater the interest of criminals looking to anonymize their web presence. One memo describes MONKEYROCKET as being the “sole source of SIGDEV [signals intelligence development] for the BITCOIN targets” with usernames, passwords, and internet activity laid bare.

This is quite the prescient development following Snowden’s discussion with Peter Van Valkenburgh at Blockstack Berlin early March, in which he expressed his doubts about the long-term viability of Bitcoin given that the network consists of a shared, public ledger which records all transactions.

That is simply incompatible with having an enduring mechanism for trade, because you cannot have a lifelong history of everyone’s purchases, all of the interactions be available to everyone and have that work out well at scale.

When it comes to the dichotomy of radical transparency versus radical privacy, Snowden appears to lean towards privacy. He later highlighted his interest in cryptocurrencies such as ZCash which are designed specifically to have strong privacy features rivaling that of Bitcoin.

The news that the NSA is actively working to de-anonymize the Bitcoin network also puts other blockchains such as Ethereum within the same level of scrutiny. With the increasing capability of chain analytics to track suspect activity and the harvesting of user data across a variety of platforms, the core principles of blockchain and cryptocurrencies could be challenged by the existing powers-that-be.

 

Surveillance image via AdobeStock

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