In the latest episode of Magical Crypto Friends, Charlie Lee, the creator of Litecoin, Samson Mow, the CSO of Blockstream, Riccardo Spagni, the lead developer of Monero and Whale Panda, discussed the recent new regarding the backlist of two Bitcoin addresses by the Office of Foreign Assets Control [OFAC].
Recently, reports emerged that the OFAC blacklisted two Bitcoin addresses as they were linked to cyber crime. The owners of the addresses are believed to be Iranian nationals and these addresses have more than 7000 transactions, receiving approximately 6000 BTC. Additionally, anyone who interacts with these addresses could potentially be held responsible by the United States government and could face legal punishment.
Charlie Lee stated that backlisting two Bitcoin addresses does not really matter “that much”. However, according to him, exchanges are going to have a lot of work as they have to check thousands of addresses and keep a tab every time someone makes a transaction in order to ensure that none of the addresses belong to the OFAC list of addresses, adding that “this can be like so painful”.
Furthermore, Riccardo Spagni said:
[…] if your job is in exchange is to check that no funds that are being deposited are coming from those addresses and no funds that are being withdrawn are being withdrawn to those addresses, that’s easy. But because of the nature of Bitcoin it’s very easy to move funds like you know from one address pass it through ten addresses and then go and deposit it”
The lead developer added:
“so the question is how far back do you need a check now as an exchange and it seems to me that this is just like all it’s going to result in is some sort of magical number like okay guys we only need to check ten steps back or three steps back which apparently you have you told is the magical number and people are then just gonna watch the coins more than 10 steps or more than three steps this doesn’t seem to be a trivially solvable problem or an easy way to prevent anything from happening.”
This was followed by Charlie Lee stating that this is the same with coins “moving forward” as well, adding whether he would be banned if the coins are deposited to the terrorists address after three steps or whether the exchange would be keeping a track of the addresses even a year later.
“Yeah like exactly so you move it to an intermediary address and then you move it to the banned address and now what the exchange is supposed to be responsible for monitoring that”
Following this, WhalePanda pointed out the possibility of a dust attack, stating, “they can send tiny amounts to other addresses and do some sort of dust attack and then every address is tainted because it’s coming from the blacklisted or the blacklisted addresses”.
To which, Spagni said:
“If you’re using a wallet that gives you coin control and it’s easy to prevent you being affected by a dust attack but let’s be honest I’ll be people using Bitcoin are, a) using wallets that have coin control b) are aware that a dust attack is even a thing and c) have the presence of mind to go and prevent all this stuff”
The lead developer further said:
“here’s another thing what happens if I pay a fee to a miner from a tainted address is the new coinbase output now also tained? […] they’re ways within the Bitcoin blockchain to to wash outputs”
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