How to hide money laundering on the blockchain

This is a summary of the key points from this article: How to Not Get Caught When You Launder Money on Blockchain?

Seems like successfully laundering Bitcoins is fairly complicated, lots of pitfalls.

Secrecy is usually binary, it is all or nothing. If there is secrecy for 99 transactions and then a failure on the 100th, the previous 99 are all compromised as well. Assuming that the entity receiving the money is known (e.g. a darknet vendor, or ransomware address) then any transaction that deanonymises the entity will deanonymise the previous payments as well.

Successful evasion doesn’t carry forward to the future (although failures do), and failures propagate back to the past.

Maintaining secrecy for long periods of time is harder. Supporting a high operational tempo increases the difficulty with the tempo.

Obfuscation for Coin Movements

Rule 1: Do not rely on transaction obfuscation to hide the origins of dark coins. Do not merge nor split coins by using elaborate chains. Avoid using an address to receive multiple payments.

Rule 2: With multiple rounds in similar input-output amounts, coin-mixing allows enhanced security. However, exchanges will shun coins that exit coin-mixing rounds.

Rule 3: Unless users make certain mistakes (e.g., returning to bitcoin immediately with very similar amounts (Yousaf, Kappos, and Meiklejohn 2019), shapeshifting can provide enhanced security for money laundering.

Evasion for Traceability Analysis

Protocol Strategies

Rule 4: Do not query your address balance online.

Rule 5: Leave an air gap between your address and the web

Rule 6: Observe wallet behavior to detect obscure, un- intended behavior. Similarly, do not accept default wallet behavior in transaction fee amounts. Wallet leaked data/metadata may facilitate linking your addresses.

Blockchain Strategies

Rule 7: Do not use hierarchically created addresses, which may be recovered even if you have deleted them from your wallet.

Rule 8: Avoid too specific bitcoin amounts, and use frequent denominations when receiving payments.

Rule 9: Hinder traceability analysis by controlling the chainlet patterns used in preceding transactions.

Rule 10: Payment transactions must consider chainlet frequencies to minimize traceability which is achieved by receiving payments through transactions of ≤ 2 inputs and ≤ 2 output

Conclusion

A second issue is related to within-exchange transaction activity, which remains hidden from the blockchain. In the same vein, second layer solutions, such as Lightning Network, leave most transactions off the main blockchain, and complicate traceability issues greatly. AI deployment efforts must develop and deploy models that combine on and off- the-chain transactions and produce probabilistic traceability models.

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