The FBI sees the anonymous Bitcoin payment network as an alarming haven for money laundering and other criminal activity — including as a tool for hackers to rip off fellow Bitcoin users.
That’s according to a new FBI internal report that leaked to the internet this week, which expresses concern about the difficulty of tracking the identify of anonymous Bitcoin users, while also unintentionally providing tips for Bitcoin users to remain more anonymous.
The report titled “Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity,” (.pdf) was published April 24 and is marked For Official Use Only (not actually classified), but was leaked to the internet on Wednesday.
In the document, the FBI notes that because Bitcoin combines cryptography and a peer-to-peer architecture to avoid a central authority, contrary to how digital currencies such as eGold and WebMoney operated, law enforcement agencies have more difficulty identifying suspicious users and obtaining transaction records.
Though the Bureau expresses confidence that authorities can still snag some suspects who use third-party Bitcoin services that require customers to submit valid identification or banking information in order to convert their bitcoins into real-world currencies, it notes that using offshore services that don’t require valid IDs can thwart tracking by law enforcement.
Bitcoin is an online currency that allows buyers and sellers to exchange money anonymously. To “cash-out,” the recipient has to convert the digital cash into U.S. dollars, British pounds or another established currency. Bitcoin is used as a legitimate form of payment by numerous online retailers selling traditional consumer goods, such as clothing and music. But it’s also used by underground sites, such as Silk Road, for the sale of illegal narcotics.