It could be one of the major Florida cybercrime stories of 2014. Here's the background.
In 2008, a pseudonymous Japanese programmer, Satoshi Nakamoto, developed an online currency called “Bitcoin” to lubricate international transactions.
Unlike other types of currency, Bitcoin lacks a central issuer. Instead, it uses public records to verify transactions. Students of the technology say that it’s something of a double edged sword – it has many very cool legitimate uses, but it also can be abused. Famously, the owner of the narcotic trafficking website, Silk Road, used Bitcoins in his operations – he also allegedly paid for 6 murders for hire to shield his business interests.
In a recent blog post, we discussed the cases of State of Florida v. Espinoza and State of Florida v. Reid. They concerned two Bitcoin traders jailed on money laundering charges. Miami police together with the U.S. Secret Service's Miami Electronic Crimes Task Force led the investigation. Both men allegedly operated via the website LocalBitcoins.com, which connected buyers and sellers of Bitcoins. (Transactions need to be completed in person.) Despite having a 99% plus positive feedback rating on his profile, Espinoza (a.k.a. MichelHack) now finds himself facing very serious money laundering charges.
Reid, a Canadian citizen, also faces very fraught charges. Investigators say that Reid had collected over 400 Bitcoins in his virtual wallet – worth over $316,000. Nicholas Weaver, a Bitcoin expert and International Computer Science Institute (ICSI) researcher, says that the cases in Miami could have huge implications, because LocalBitcoins.com had been one of the final online oases where people could buy Bitcoins anonymously. “The biggest problem that Bitcoin faces is actually self-imposed, because it’s always hard to buy Bitcoins … the reason is that Bitcoin transactions are irreversible, and therefore any purchase of Bitcoins must be made with something irreversible – namely cash. That means either you have to wait several days for the wire transfer or bank transfer to go through, or if you want to buy them quickly, you pay with cash through a site like localBitcoins.com.”
Several enterprises that have attempted to serve as Bitcoin transaction hubs have been humbled by fraud. For instance, last year, BitInstant – once a thriving destination – got shut down, after that site’s CEO, Charlie Shrem, was busted on charges of money laundering. Shrem allegedly helped a Florida man convert $1 million into Bitcoins to trade for narcotics on Silk Road, a web-based “drug bazaar.”
Many case watchers believe that the Espinoza and Reid cases may just be the tip of the iceberg. Weaver said: “I would expect many more state cases like this one, because it will act to strangle the life blood of online dark markets … if you want significant amount of anonymous Bitcoins, right now this community is about the only mechanism still available.”
If you have been arrested in connection with a computer crime in Florida – such as Bitcoin related money laundering – you likely will need substantial legal assistance. Call Florida cybercrime attorney, David Seltzer, today at 1-888-THE-DEFENSE (888-843-3333), or email our team. We are available 24/7 to take your call and help you figure out a strategic defense.