How to use my Bitcoin wallet?

Here we go again. The discussion and debate over Bitcoin’s legitimacy and its labeling as the province of anarchists and criminals is about to get louder again. Why? Because Dark Wallet, an easy to use browser plug-in that makes bitcoin transactions far harder to trace, is coming on the scene.

The release of yet another bitcoin wallet wouldn’t be of particular consequence except that Dark Wallet makes using bitcoin easier (a good thing) and much better for illegal transactions (a bad thing). Dark Wallet, assembled by a team of programmers called unSystem, uses a recombinant approach to making bitcoin transactions untraceable. It combines transactions from multiple transactors and then splits and recombines them multiple times. The result is a blockchain ledger containing enough blended transactions that purport to make it impossible, and certainly much much harder, to recreate original the transaction flow. That means law enforcement, the agencies tasked to “follow the money, ” will have a tougher time reading the blockchain.

Remember, Bitcoin’s anonymity has been hugely overblown. The blockchain ledger makes all transaction flows transparent. Dark Wallet’s creators are building the capability to make their bitcoin transactions untraceable.

Dark Wallet’s proponents, like many of Bitcoin’s earliest supporters, view this as their right, to freely transact with whom whomever they want and for whatever purpose. That’s a form of freedom, no doubt. They also view this as a step in the coevolution of technology and society. As some suggest, with Bitcoin and Dark Wallet, we can deconstruct and rebuild society, avoid the coercion of taxes, and more.

Putting the philosophical debates aside, my concern is that Dark Wallet and its imitators will swing the pendulum of US regulatory and law enforcement attention from “watchful waiting” into active efforts to make Bitcoin and perhaps other math-based currencies wholly illegal. Thus far, US regulators have taken a “let’s see what happens” approach, not wanting to squelch the early bloom of innovation in math-based currencies, and largely regulated them as the currencies they claim to be. We know the Financial Crimes Enforcement Network (FinCEN) and other law enforcement agencies are aware of Dark Wallet and are watching closely. Once sufficient evidence of Dark Wallet-enabled illegal activity – money laundering, illicit goods transactions, or (worse) terrorist financing – is gathered (and it won’t take much in my opinion), Bitcoin could be forced into the shadows and lose its potential to enhance the larger universe of legitimate transactions.