U.S. OFFICIALS ARREST ALLEGED OPERATOR OF MIXING SERVICE BITCOIN FOG

U.S. officials have arrested Roman Sterlingov, a citizen of Russia and Sweden, after identifying him as the alleged operator of custodial bitcoin mixing service Bitcoin Fog. According to an arrest warrant, Sterlingov faces three charges: unlicensed money transmission, money laundering and money transmission without a license.

An affidavit filed by a special agent of the Internal Revenue Service revealed that Sterlingov was identified through blockchain analysis. The tactic used by law enforcement also allowed it to “[confirm] that over 1.2 million BTC ... have been sent through [Bitcoin Fog] since the site was launched in 2011,” totaling around $336 million at the time of the transactions.

An observer can obtain a lot of information from a publicly-accessible ledger like Bitcoin. It can be analyzed using heuristics such as the common-input-ownership and transaction graph, which allow the observer to link together multiple addresses they believe belong to the same wallet, called “clusters.” The observer can then try to connect these clusters to real-world identities, which can be pretty straightforward if the targeted individual doesnt fully understand Bitcoin privacy best practices.

Bitcoin mixing is one way users can break the many transaction heuristics. The practice consists of literally mixing one‘s funds with other people’s with the intent of obfuscating those coins‘ histories. And although mixing doesn’t erase the coins‘ past trail, it can provide good forward-looking privacy, which helps preserve Bitcoin’s censorship-resistant nature.

Governments have been used to controlling money‘s issuance and its peoples’ transactions for centuries. It isn‘t, therefore, a surprise that in this case the government is working to close down a mixing operation, which provides an option for Bitcoiners to reclaim their spending privacy and help the separation of money and state. And although the State can claim that mixing is characterized as an unlicensed money transmission when conducted through a custodial service like Bitcoin Fog, it’s doubtful that it could argue the same about alternative methods employed by Bitcoiners such as CoinJoin, which ultimately just facilitates Bitcoin transactions.

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