How A Law From 1816 Could Offer A Solution To Bitcoins Dirty Laundry

More and more cases of hacks, stolen money and tainted cryptocurrencies are making it into the circulation of the crypto-sphere. This is as a result of two key things, first of all, its difficult to write specific laws to govern cryptocurrencies and secondly, more and more people are finding ways of accessing cryptocurrencies without having the make payments. Basically, it’s easier to steal cryptocurrencies than ever before, so more and more people are getting the hands on them and ruining the currency for everyone else. Bitcoin is arguably one of the currencies that is most affected by this blight.

Referring to Bitcoin specifically, the currency is notoriously easy to trace, as you know the blockchain keeps a record or a ledger of all transactions that have been made. The problem with stolen and corrupt currency is that the transparency of the ledger decreases as it becomes tainted with incorrect and falsified information that has been used as a vehicle to conceal stolen coins. This information can be corrupted within unregulated exchanges that essentially jumble up large amounts of coins at a single address, spitting them back out at a point that makes them very hard to retrace.

At present, when corrupted currency is being investigated, coins that come out of unregulated exchanges are all considered as dirty because the chances are that during the mixing process, every coin has taken on data from the corrupted currencies in there.

Therefore, it is often very difficult to trace the source and the journey of these coins, meaning corrupt and damaged coins are left to circulate the blockchain.

Now, researchers from Cambridge University have realised a method for investigating the location and source of corrupted currencies by looking over a 200-year old law that was written into the British Constitution in 1816, to protect customers with investments in firms that had or could go bankrupt. The law, is known as Clayton’s Case and essentially outlines that whoever paid into the firm first, should receive their share back from the firm first, it’s a first in first out rule, often referred to as FIFO.

According to Wired, the researchers from Cambridge realised that they could apply this rule to Bitcoins exiting unregulated exchanges. Assuming that the first coin in would be the stolen one then, under this guise the first coin out of the exchange would also be the stolen one. By applying this principle, according the Wired, the team found that:

“In massive thefts—like the 2012 heist that took 46,653 bitcoins from the cloud provider Linode, or the 2014 theft of 896 bitcoins from bitcoin “bank” Flexcoin—they could create far tidier answers about where those stolen coins ended up than the haircut method could. Using the FIFO method, they linked the Linode haul to fractions of tainted bitcoins at around 372,000 addresses.”

The haircut method refers to the standard method of mixing the coins up and assuming that each one is slightly corrupted.

Essentially, by using a FIFO method, the original location of the corrupted bitcoins became more clear.

“Arbitrary as it may be, FIFO does have hundreds of years of legal history behind it, the Cambridge researchers argue. And given how powerful it may be as a mechanism for sorting out mixed-up bitcoins, it could be only a matter of time until someone applies that precedent to try to claim their stolen stash.”

I agree with this sentiment, FIFO is a system that has worked in the UK for hundreds of years, whilst it clearly needs adapting and better explanations of how it may work need offering, this could pave the way for ensuring that victims of cryptocurrency hacking may one day be able to trace and reclaim their stolen currency.

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