It's not just things like online drug dealing.

It's things like, you know, viruses, which will increase your hard disk and hold you up to ransom from the original crypt, a locker through things like Wanna Cry.

And in the old days, kidnapping just didn't work because you couldn't get the money away on the existence of cryptocurrencies changes that in ways that may have wider ramifications.

What we've been looking at is how you go about tracking stolen bit kinds.

Suppose you're foolish enough to let people know that you got $10 million worth of bit kinds, and somebody comes into your house and sticks a gun up your nostril and gets you to transfer them to him.

How can you go about tracing the stolen loot while people have known since the beginning of bit kind that you can in fact trace stuff?

Because the Blockchain is entirely public and all the transactions are there for everybody to see?

But how do you go about doing this?

In practice, people like Malta, Mirza and Ryan or Burma come out with a couple of approaches.

The first approach, they said, is poisoned tenting on poison tenting.

The incident.

You put a bad bit kind into a transaction or address, then it poisons everything that's there.

So if you open a new ball, it and you put in three stolen bit kinds and then seven freshly mined bit kinds.

Then when you go and spend that u T X or it's 10 stolen bit kinds.

The problem with this is that over a few thousands or tens of thousands of blocks, it completely poisons the entire block.

Check in at least the active Blockchain that people are using for trading, So the second method that they come up with was what they call haircuts ending on here.

If you put three stolen bit kinds into a new wallet and then seven freshly mined ones, then you end up spending 10 bit kinds, each of which is 30% tented, and you just write the software to track all this.

Now the problem with haircut tenting is that within a few 1000 blocks you end up with all the active bit kinds in the Blockchain being tented just a little bit under 10% because something over a 6% of all bit kinds have been stolen at least once.

So what can we do about this?

Well, the breakthrough came and I was talking with David Fox.

It was one of our law lecturers and is now law profit at Edinburgh.

And he pointed me to what lawyers and there was Clinton's case.

And this was a judgment of the High Court in London in 18 16 after a bank went bankrupt during the Napoleonic War and they had to sort out who owned what among the rubble on the master of the rules.

One of the senior judges in England at the time ruled that you had to do first in, first out right.

The first money that went into an account is used to satisfy the first checks that are drawn on it.

And so this gives us a sound legal basis for trying to do some computer science because first in First Out or Pfeiffer was something that programmers and communications engineers understand very, very well.

So we went and wrote some suffer, which does a five for tens of the Blockchain, and so whenever kinds are stolen and put in a transaction, perhaps joined with other kinds, the kinds that went in first of the kinds that go out.

The first Satoshi in is the first set, our CEOs and so on.

And when we run this over the Blockchain, we find that a fascinating thing happens that the tent remains concentrated rather than being spread out.

So, for example, if you look a theft of about 1000 bit kinds in 2000 and 40 and trace it forward to 2016 then if you use plays and tainting or haircut tenting, then it effects about 1.5 1,000,000 addresses, which is a lot.

However, if you use five foot tenting, then only 11,000 addresses are affected.

So what's happening here is that bad bit kinds tend to keep on circulating in bad neighborhoods of the Internet.

On dhe, we find that whereas, you know, with haircut tenting, most of the bit kinds out there attended one way or another.

If you use five foot tenting than the majority of bit kinds aren't tinted it all.

The tent is concentrated among or gosh, about 20% or sort of the Bitcoin stock.

All of a sudden, we've got a practical way to trace stolen Bitcoins forth over the short term.

If somebody came into, then armed robbery at your house yesterday on over the medium term, if a bit kind exchange goes bust and it turns out that somebody inside it has been stealing bit kinds for a year or so, so it's fit for both purposes on this has got all sorts of inflict interesting implications.

I know that the regulators have started insisting that Bitcoin exchanges be regulated.

Now the U.

S Financial Crimes Enforcement Network, which is part of the U.

S Treasury, started requiring Bitcoin exchanges to be regulated in 2013.

The busted BT C E, which was a big criminal operated Bitcoin exchange in Greece on day, went and busted a few places in America as well.

And so now the message has got a cross and even in, you know, relatively remote places like the Philippines, they've now got round to passing laws, saying that all Bitcoin exchanges have gotta register as foreign exchange the others.

And that means that when you change bit Kearns, whether into dollars or euros or pounds or even into Pisa's, you've got to produce your passport in a couple of utility bills so that there's a record of who you are.

The European Union, for its part, has decided from the amend the fourth anti money laundering directive that they're going to require companies who provide hosted Bitcoin wallet service is toe also fall under the regulation.

And this means that if you get your Bitcoin wallet run online by service company, as the great majority of bit kind users do, then you'll have to provide your passport and your gas bills.

Justus.

If you're opening an account, ID HSBC.

There's an interesting top level view of this, which is that very often when a new, disruptive technology comes along, people build systems and the completely ignore the existing laws for a while, and they try and build something better.

And if they do build something better than it gets, you know, blessed with regulation and absorbed into the system ever comes along.

And it says we're not a taxi company.

Were a service company, were, ah, platform Andi.

So they start providing cheap taxi rides in London, and then people notice that some of the cars around safe that the drivers are working 16 hours a day that they're getting less than minimum wage, that they're not getting criminal records, background checks that sometimes they read customers and the crimes aren't reported.

And eventually the mayor of London says, Listen, Paul, you are a taxi company on we're pulling your license.

See you in court.

On the moral is that very often when you get a new and disruptive phenomenon coming along, you can sort it out perfectly well by applying existing law to it once you can figure out an intelligent way to do that.

And so what we've done is produced software which enables you to track stolen bit kinds effectively on.

We're going to be making this publicly available so that if you're a bit kind gets stolen, you can apply it to the dock, the Blockchain, and you can find where your property is gone.

And we're also going to be publishing attention, which will be a public list of kinds that have been publicly reported to be stolen on.

We hope that that will be taken over by the authorities, perhaps by Europol or somebody like that on will then have to be taken into account.

Buy Bitcoin exchanges when the pond off whether to give value for a piece of Cryptocurrency that somebody's offered them.

If I'm holding some Bitcoin on a SW, far as I know legitimately, why do I want to go and find out if they might actually be stolen?

We'll think this is a thing.

This is a perpetual problem with anti money laundering measures in that normally actually wants to know the truth, right?

Citibank.

What doesn't want to know that they got John Gotti is a customer, and they would push back very, very hard against laws which said that Citibank see you had to go to jail if it turned out that a Mafia boss was a customer.

So instead the lobby for laws which say that Salama's Citibank has got a passport into gas bills off every customer.

They don't have to go to jail.

And so Mr Gotti is good finding passports and gas bills, and Citibank doesn't have to go to jail, and everybody's happy.

And so we've got our souls that, ah, equilibrium in the anti money laundering world of traditional money.

That doesn't really quite work.

However, once you move into the world of crypto currencies, the fact that Cryptocurrencies Air completely traceable changes the game entirely.

You know, once you have got public information off what money went where and when, it suddenly becomes impossible to.

For banks, it's Enron and say No, Hang on a minute.

We didn't know.

So the bit kind People have been lobbying for a least five years to a bit kind to be declared money because if Bitcoin becomes the money now, what if there was a secret mathematical relationship between Pink?

You would that change anything?

What if he was actually equal to some multiple of Q.