Wagner James Au / New World Notes

When I read that the FBI had seized $2.3 million in Bitcoin paid to Colonial Pipeline hackers earlier this week, my first thought was:  This proves that Bitcoin can't be free from the powers that be, because it rides on rails that they control.

Because as it happens, that's the title of a post I wrote back in 2011, citing the observations of Bill Maurer, who's now Director at the Institute for Money, Technology and Financial Inclusion at UC Irvine, and one of the world's foremost experts on alternative/experimental forms of money and finance.

"Indeed," Bill tells me now, "the Colonial Pipeline case demonstrates that the much-touted anonymity of the Bitcoin blockchain is illusory: given the right analytics and determination, an algorithm can deduce the addresses associated with specific transactions–especially big, highly publicized ones where the amounts transacted, and in what chunks, are known (since presumably Colonial Pipeline told the federal authorities in what pieces they transferred the ransom)."

That's due to the nature of transactions like these, he went on:

"Bitcoin transactions are not like, 'Here's $4M of my total stash of fungible $100M,' but, 'Here's THESE pieces of Bitcoin adding up to $4M' which makes it easier to spot transactional patterns than, say, actual physical cash. In this case it seems the FBI also got the private key(s) associated with some or all of the transactions, which means that they somehow got access, and I'd guess it's either through an informant or just plain sloppiness on the part of the attackers, by, say, having their private key on an accessible device or server somewhere."

Or to put it another way: This shows that Bitcoin transactions are not any more anonymous than real world currency transactions — especially when the authorities have a very good reason to trace them.

But surely there still are legitimate uses for Bitcoin that don't require anonymity, right? After all — as every single Bitcoin evangelist in your life has probably told you — El Salvador just made Bitcoin an official currency in the country.

So does that show Bitcoin can become a means for purchasing goods and services? Maurer believes there's much more (and much less) to that move:

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