The thing I never understood about it was how he planned to cash out his Bitcoin. Isn't it a public ledger where anyone can see where the money is moving?
It turns out that a lot of surprisingly impactful criminals never really figure out how to launder their money. Ulbricht appears to have had no real plan for how to actually benefit from his criminal proceeds, instead enjoying the feeling of being 'bitcoin rich' whilst living an unremarkably lifestyle.
Paul LeRoux seems to have also been a bit like that, albeit more successful at the laundering part. Nonetheless, when he was finally caught it turned out most of his wealth was in the form of precious metals under physical guard, and IIRC there was some sort of dispute over theft.
The anti-money laundering system has some questionable tactics in it: it grants virtually unchecked power to regulators and the US Treasury to squash whoever they like for whatever reason they like, and those powers were badly abused under the Bush administration. Think punishment without trial for people who criticised Israel, stuff like that. However it's an evolved system that does appear to raise the bar to serious organised crime.
But how effective are they if you’re putting in half of the tumbler’s pot? As in, if you put in a quarter of a million dollars, and others do too, you have a high likelihood of getting some of yours back. So the coins are still traceable to you.
A well written Tumbler wouldn’t connect any of your money to your own wallets, it’s not hard to think how an algorithm would do this. Just keep an internal ledger and make sure the money doesn’t come back to the source.
Ross probably could’ve even made his own tumbler. Giving out his money to anyone that sends him some would be a naive way to think about it.
In terms of amount, I don’t think it would be hard with all the illicit activity on bitcoin to launder even this amount of money, but it’s not like he would need all of it right away.
Anyways, this is in response to “isn’t this a public ledger?” To which the answer is, “not if you make part of the ledger private—outside the blockchain—it isn’t.”
I’ll admit, my knowledge of how Bitcoin’s blockchain works is limited. My question was based on a claim I heard a few years ago about how tumblers are ineffective. So I wasn’t aware that coins could exchange hands outside the public ledger. My understanding was that every transaction (even tumblers) was on the chain. Is there anywhere I could learn more about this?
Of course they can change hands outside the ledger. We could create paper wallets and exchange them on the street and the blockchain isn't going to know that happened. A tumbler is just a more complex version of that.
Imagine this scenario: You have 10 BTC of illegal funds you'd like to launder. I, and 3 of my friends each have 5 BTC and they're all wanting to do the same.
I transfer some money into a new wallet from 2 of my friends and give it to you. Your money goes to me and 1 of my other friends.
This way the blockchain has no link between your source funds and the money that you received.
This is a simple example. If you split the money into random amounts and do this a few times with new wallets each time it can easily become untraceable.
