The Bitcoin (BTC) virtual currency is a distributed, decentralized form of money, but that doesn't mean that those who use and abuse BTC can't be tracked. In a bizarre situation that is playing out in real time on the Internet today, a thief who allegedly pilfered up to $100 million worth of BTC is being tracked by his victims and curious onlookers alike.
The Sheep Marketplace, which was a deep Web location where goods of a dubious legal nature were bought and sold, was robbed of all of its users' BTC and shut down operations on Nov. 21. In the non-digital world, if a thief physically robbed a bank of its paper money, law enforcement could potentially track down the stolen cash by way of bank note serial numbers. The actual BTC unit itself is not trackable, though in the virtual BTC world a different kind of scenario is now playing out that provides insight into the nascent world of virtual currency.
BTC account holders have cryptographic account addresses where the currency is held, and each transaction is tagged in what is known as a blockchain record. BTC holders can go through the digital equivalent of money laundering by way of a "tumbler." A tumbler essentially reshuffles the BTC and divides it up across multiple other addresses and transactions, making it significantly more difficult to follow the money.
The Sheep Marketplace thief knows the ins and outs of BTC and is using tumblers to evade trackers. One of the victims of the Sheep Marketplace theft however figured out an ingenious way to try to track what could have been an entirely untrackable theft. In a thread that has been playing out on the popular Reddit social media site, a user identified only as "sheeproadreleaded2" is detailing how the thief is now being tracked. sheeproadreleaded2 is sending new micro-payments of 0.00666 BTC to the alleged thief, which enables a transaction confirmation that can be tracked.
The effort has led to the discovery of the Bitcoin address 1CbR8da9YPZqXJJKm9ze1GYf67eKAUfXwP, which is currently (as of 9 a.m. EST Dec. 4) holding a balance of 92,000 BTC, which at a value of approximately $1,100 USD/BTC is worth a staggering $101 million.
So, the alleged thief might well have been identified, but given that there is no central authority in the Bitcoin world, there is no immediate or obvious remediation that can occur. The BTC account holder with the 92,000 BTC is the only one who can send that money back to the victims—unless, of course, the thief somehow becomes a victim of some other heist.
The other possible scenario is that some form of traditional police work is able to get a hold of these BTC. Don't forget, in October the FBI was able to use standard good police work to track down the untrackable Ross Ulbricht, also known as "Dread Pirate Roberts," the operator of the illegal goods Silk Road Website. As part of that takedown, the FBI also gained access to all BTC that Ulbricht held.
So, theoretically, if the Sheep Marketplace thief is tracked down for "other" activities in the physical world, and law enforcement gets a hold of the attacker's BTC wallet, then perhaps there can be some attempt at returning the BTC to the rightful holders. It's a remote possibility, but the world of virtual currency is still a very new one—Bitcoin after all was only created in 2009.
As BTC usage grows and as incidents like the Sheep Marketplace theft occur, strategies and solutions are likely to emerge that will provide better protection for users. If they don't, confidence in BTC will eventually erode, and without confidence a currency cannot exist.
Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.