How much Bitcoin is in your wallet?
By: Simon Manka
Tags: Bitcoin, Bitcoin Wallet, Privacy, Scam, Anonymous

You can not prevent deposits to your Bitcoin address from criminals and bad actors

How much Bitcoin is in your wallet? Sure you know how much you had last time you checked, and you think you can be very confident that your balance hasn't changed because you haven’t sent any Bitcoin to anyone. But did someone send you Bitcoin? If they did wouldn’t that would be awesome! Perhaps someone made a mistake and accidentally sent Bitcoin to your wallet. Perhaps someone sent you Bitcoin that you’re not expecting as a gift. But what if someone sent you Bitcoin that you’re not expecting, and they are setting you up?

You see, we all have wallets and addresses for our Bitcoin and we control what we send to people, when we send it and we control the amount we send. We have absolutely zero control over what gets sent to us. Because our addresses are publicly available for all to see on the blockchain, we don’t need to trust a third party to be in control of our finances- or so we are told. We are only in control of what we send, not of what we receive, so the truth is we do not have full control of our finances. On its face this sounds like a non issue- if someone wants to send free money to your address, why wouldn’t that be a great thing? Well, let’s explore why full control of your finances means both what you send and what you accept, and why anonymity is a critical third element that helps achieve full financial control and freedom.

One variation of a major example would be this: You notice that your Bitcoin address now holds a total of 5 more Bitcoin, but you were not expecting any payments. You think this is odd, but you’re a bit excited to have ~$50,000 US dollars worth of Bitcoin just magically in your account. This seems like good news because you know that no one can take these new Bitcoin from you unless you decide they can and actually send them out of your own wallet. No one can take your Bitcoin. However, the judicial system can take your freedom.

There are many iterations of how this could be a setup. If anyone can send you money and you can not control whether or not you accept that money you can be easily framed for any number of crimes. Money laundering, robbery, selling drugs, these are all crimes that follow the money and convictions can occur based on who holds the money. $50,000 or 5 Bitcoin in your account that can be directly tied to a crime is no longer a good thing to hold in your account, it’s a massive liability, and there is nothing you can do to prevent the deposit of that Bitcoin into your address. It is your burden to prove that you had no role in the 5 Bitcoin in your account, and your failure to prove that can be a major problem for you.

The extreme example outcome would be that you are completely innocent and you are convicted of a crime you did not commit. This would be an excellent outcome for the true criminals, potentially getting them fully away with the crime. Other potential incentive for the criminals to attempt to frame you for a crime, besides having you serve as a fall guy, could be to get the police off of their tail or to simply waste the police forces time and resources, perhaps buying a little more time and freedom for the actual criminals in the process. Imagine a strategic drip of red herrings as deposits into Bitcoin addresses and the amount of time and freedom this deception could create for the criminals. The criminals could even deposit Bitcoin into the accounts of other criminals they know, or have worked with in the past, which could increase the likelihood of arresting the wrong person for the crime and the police closing the book on the crime as “solved”. Sleight of hand is a powerful tool.

The less extreme and more likely outcome to this scenario where a criminal purposefully deposits Bitcoin into your account as a setup would be that you suffer major inconvenience, lost time and spend your own money to defend yourself against an unsubstantiated crime. You will take a financial loss and spend time you will never get back. You could get fired from your job, your relationships with family and friends could be stressed and ruined, your credit could be destroyed and you could fail background checks, all because of something you have absolutely zero to do with- other than your Bitcoin address accepting all deposits.

Being framed for these types of crimes sounds far fetched you might say. The reality is that this scenario may be highly unlikely, though we can all agree that criminals would prefer to get away with their crimes, and if this is a way for them to do it, why wouldn’t they try it? With that said, the likelihood of this happening doesn’t matter if it happens to you. If it happens to you it is no longer an ambiguous worry or a percentage game, but a critical fight you are thrown into. Let’s look at some other examples that could be more probable.

We all receive an exorbitant amount of spam emails. There are tons of active con artists and scammers out there. Even the most ridiculous scams work, just look at crypto Twitter anytime Vitalik Buterin makes a post. For a hint look at what he currently has as his name on Twitter:

“Vitalik “Not giving away ETH” Buterin”

These scams, and many others, work which is why they are prevalent. People fall for ridiculous things all the time. With that in mind there are a few prolific scams I can see coming.

The first is when a scammer sends some Bitcoin to your account and claims they made an honest mistake. They can claim it was an accident and kindly ask for it back. Depending on the person being scammed, there are a few ways they could end up losing out. They could send the Bitcoin back, and then the scammer could claim they never received it and ask for it again, thus receiving multiple sums of Bitcoin. This could happen for a few iterations before the unsophisticated Bitcoin user catches on or learns to use block explorer. People have fallen for much more ridiculous scams, so i see this as not too far fetched. People have a strong sense of decency and fair play and this scam would play on those feelings in a strong way. Plus many Bitcoin users have themselves made mistakes in sending Bitcoin, and can relate to the issue, which could lend them to be more likely to help out someone else in that situation.

Another would be when scammers identify who you are on the blockchain, find your contact information and deposit a little Bitcoin into your address. The scammers could then use any number of stories to blackmail and extort you. They could blackmail you by claiming they paid you for any number of items- they could try to extort someone by saying they will go to their spouse and make any number of claims, they could claim they will go to your employer and say that they paid you for trade secrets- this could work extremely well against government employees or careers that require clearance. It could be targeting a doctor that they said illegally sold them pain killers or other controlled substances. The scam works if just one of the people responds and starts trying to make the problem go away, or even better if the person being scammed just happened to do some of these nefarious things and thinks they are actually getting blackmailed. Some people will make the mistake of paying the scammers with the hopes that the scammers will go away.

In the spirit of scams, another example to consider is around services provided, money owed and lawsuits. If someone can identify your address on the blockchain they can send you Bitcoin. They could easily device a scheme where they claim you had an agreement, let’s say for you to provide some type of service. They can make the claim they paid you for those services, show the payment went through, and then say you failed to perform services that were agreed upon. To take it a step further they can illustrate a loss and perhaps a hardship accompanying it and attempt to sue you for that amount. Let’s say they know who you are and they know their lawsuit is frivolous. Perhaps their intent is just to make you suffer, make you lose time and make you take a financial loss defending yourself. If you don’t defend yourself against frivolous suits, you could actually lose by default! This would be a pretty horrific outcome, but in any event if someone wants to cause you pain, they simply need to send some Bitcoin to your address, craft any type of story they want and make the claim that they paid you to do something you didn’t. This could happen at the corporate level, and could be autonomously launched at scale to sink a company via smart contracts. One company could aim to damage another in order to run them out of business, or to weaken their finances and balance sheet, making them able to acquire or make it cheaper to acquire them. They could launch a great number of lawsuits in this manner, buy the company, and instantly make the company worth more when they drop the lawsuits and clear up the issues they created to begin with.

A scam could also be a fabricated story that someone made a loan to you and they could then claim that you never paid them back. They could of course claim that you were supposed to pay them back with a certain interest % by a specific date in time. They could make up elaborate late fees and penalties. The sum of Bitcoin they could expect back is limited only by their imagination. Granted these examples would create scenarios that would be hard for the perpetrators to pull off, but the inconvenience they could cause you alone could be a big issue. This could also cause you great hardships if they reported your lack of payment to crediting agencies with the intent of ruining your credit.

There are a lot of other ways not being able to control what gets sent to your wallet can hurt you. Fungibility is critically important and comes into play here. Let’s say that a major hack occurs. The hackers decided to do their own form of “airdrop” and taint every single existing address with a small portion of stolen coins. This could create a number of issues and I’m a bit surprised a version of this hasn’t happened yet. The hackers could preemptively create thousands of wallets, and distribute stolen Bitcoin from the hack to a large mix of wallets that they control, and random wallets that are held by people that have nothing to do with the hack. This could be a way to buy the hackers time by creating thousands of addresses to chase down that have nothing to do with the hack, or alternatively if the hack is large enough they could send Bitcoin to every single address. The more time the hackers have to operate the more likely they are to salvage funds before the wallets that hold the coins are fully watched, and the remaining wallets are tracked down to determine which are nefarious and which are not. The problem there is ordinary people would potentially have to identify themselves in order to ‘clear their name’ and prove they have nothing to do with the hack. I’m always surprised that the hackers don’t make a bit of a sacrifice play and distribute some coins at a loss, considering their gains are pure return anyways. This confusion would play into their hands, and is directly available to hackers simply because Bitcoin holders do not have the ability to control what they receive to their accounts. Governments and those who want to ID people on the blockchain could execute this as a means to force people to identify with their Bitcoin addresses in order to clear their name, and clear their Bitcoin as not being associated with illegal activities or a hack.

Anonymity is so critical when it comes to cryptocurrency. It provides the ability to truly achieve fungibility, it provides safety by helping to avoid the potential for blackmail, extortion and other crimes such as being targeted for being wealthy, as we have seen more and more instances of this arise. Anonymity deserves much more attention addressing its importance.

Another issue with receiving funds to your account, irrespective of the intent or method in which it was deposited into your account- for example it could be a genuine accident- would be the tax implications. If you receive funds you may have a serious tax liability on your hands. If you don’t know where the funds are from and plan to return them, you might still need to pay taxes on them depending on where you reside (tax codes vary greatly country to country). You’re also in a moral dilemma, with little information to help you. No matter what you want to do, whether it be to return the coins, to keep the coins, or to find out if someone else should have gotten them, you are going to waste time and effort trying to figure out what happened. You will have to waste time determining if you have to pay taxes now, etc. On top of that, based on the potential scams, hacker distributions, lawsuits and potentially being framed for a crime, you will have a lot more to worry about besides just the tax implications.

The last issue to discuss for now would be the problem created by having zero ability to block deposits from a source of funds that you can not legally accept. Either funds you can not legally accept or funds from a source which is counter to your company or non profits mission. Government officials have strict rules around fundraising and donations. These rules limit the amounts of money the official can raise from a single entity, as well as rules around who can contribute. Aside from that, there are major issues that can arise from the political standpoint- if a politician is shown to accept money from a cause or group they publicly oppose, this could undermine their campaign, their agenda and their credibility. This same issue can come into play with non profits. Depending on the non profit, the non profit could quickly lose their public support, their non profit status, their credibility and their mission could suffer or be halted if they are shown to accept money from a negative or opposing entity. This means the hard work being done by these groups could be completely undermined, stopped and undone as a result of their inability to prevent deposits into their Bitcoin wallets. With the trend of more and more charities and non profits accepting Bitcoin as donations, it would simply take a clever individual to come up with a plan to contribute to the group they want to damage, and either send it from a group that charity can not be associated with, or send Bitcoin with a damning story. In any event there would be a lot of headaches as a result of receiving the money and headaches and effort spent would be the best case scenario if someone actively tries to sink a charity, non profit or official.

The point of all of this is that anonymity is an incredible protection layer that can be used for good. Anonymity could prevent a great deal of these headaches, it is not just a feature bad actors want to hide illegal transactions. The other key take away is that there are many ways you can lose time, money and suffer quite a bit due to the fact that you can not prevent Bitcoin from being sent to your address. At best Bitcoin sent to your address nefariously is a hassle. At worst you could get framed for a crime, sued, scammed or your credibility sunk. Bitcoin is amazing, but I think we haven’t yet tapped into the problems created by addresses that say yes to everything, and don’t shield your identity.

Thanks for reading and feel free to follow me on Twitter for other opinions and info @ForkingBlocks