Bitcoin software development firm Elliptic claims to have developed what will almost certainly turn out to be a controversial technology: a software program that is able to identify who owns specific wallets. Using machine learning, the company’s tool can skim through the web and dark web, monitoring activity coming from a single wallet, and making highly accurate guesses on who that wallet belongs too.
Elliptic claims that it has been developing this technology in an effort to aid traditional banks who want to become involved with bitcoin. While regulations vary from country-to-country, banks are generally required to track where money comes from and where it is going, in order to discourage and prevent criminal activity.
These tracking burdens have discouraged traditional banks from getting involved in Bitcoin due to the difficulty of tracking bitcoin transactions, or at least tracking them with a high-degree of specificity. If a bank user were to use bitcoin to launder money or engage in illegal activities, the bank could find itself in serious legal trouble.
Bitcoin transactions have always been highly transparent due to the public ledger. Every single transaction is tracked and monitored by the larger community through the block chain. Yet the block chain itself is hidden behind a sort of “veil of anonymity” and the actual identities of bitcoin users and the locations of their wallets is largely hidden.
This anonymity has been among the most appealing features for many bitcoin users. Bitcoin offers a relatively safe, government and central bank free banking experience that allows people to manage their finances anonymously. For libertarians and many more, this anonymity is a godsend.
If Elliptic’s technology delivers on its promise, the company could enable traditional banks to get involved in bitcoin, and could lead to more mainstream adoption. As Tom Robinson, Elliptic’s cofounder says, the technology could be a “game changer for the institutionalisation of bitcoin.” This would help propel bitcoin towards full mainstream adoption.
The company is planning to launch an API later this year, which will make it easy for banks to easily attach Elliptic’s software to their own systems. Representatives for the company claim that approximately five banks have already signed up for the API, though the representative would not disclose which banks in specific.
While the technology may be well-received by banks, it will likely be met with a cold shoulder, or even outright disdain, by traditional bitcoin users. Bitcoin has become a global favorite because it allows for anonymous transactions and the protection of privacy. If Elliptic’s software delivers on its promises, government agencies and others will now be able to quickly and easily trace bitcoin transactions to specific people.
Representatives for the company claim that it did not develop its technology in order to be intrusive, but given how the technology works and what the outcomes are, it’s difficult to argue that the technology is anything but.
So far the technology has not been shown in public, so the company’s claims cannot yet be verified. It is possible that the company is exaggerating the accuracy and capability of the bitcoin tracking technology, and also possible that work-arounds could protect people looking to remain anonymous.