The FBI is apparently wary of the virtual cryptocurrency Bitcoin due to its applicability for criminals to use it to hide transactions from law enforcement—or, as they see it, use the currency for money laundering and scams. All of this was revealed in a leaked internal document outlining the Bureau’s concern about the virtual currency and all the mayhem that could arise from its use.

The report is titled  “Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity,” [Scribd] and was published by the Feds on April 24 only to be leaked to the Internet on Wednesday. In the report, the Bureau lists concerns about the anonymity built into the decentralized currency and also unintentionally provides tips and tricks to those who might want to use it to hide their tracks:

Bitcoin is unique because it is the only decentralized, P2P network-based virtual currency. The way itcreates, operates, and distributes bitcoins makes it distinctively susceptible to illicit moneytransfers, and manipulation through the use of malware and botnets.

The Bitcoin community is filled with people looking forward in a world of increasing and object transparency on their activities online and the quasi-anonymity contained in the mechanics of the cryptocurrency appeals to that. Certainly, there’s an acknowledgement that criminals will use the currency in order to hide their tracks, after all in order to make a transfer all a person need have is access to a computer, a Bitcoin wallet address and the target address.

The FBI document goes on about how Bitcoins could be used to hide illicit activities and prop up a black market. Also amusingly, the Feds also see the problem of Bitcoin’s volatility as barring man of these criminal enterprises from using the services—but this anonymity business spells doom if the marketplace finds some sort of stability.

“If Bitcoin stabilizes and grows in popularity, it will become an increasingly useful tool for various illegal activities beyond the cyber realm,” the FBI writes in the report. “For instance, child pornography and Internet gambling are illegal activities already taking place on the Internet which require simple payment transfers. Bitcoin might logically attract money launderers, human traffickers, terrorists, and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers.”

As for the helpful advice to anyone who wants to use Bitcoin to cover their tracks, criminal or otherwise, Kim Zetter at Wired kindly pulled that out of the lengthy PDF document for us:

• Create and use a new Bitcoin address for each incoming payment.
• Route all Bitcoin traffic through an anonymizer.
• Combine the balance of old Bitcoin addresses into a new address to make new payments.
• Use a specialized money laundering service.
• Use a third-party eWallet service to consolidate addresses. Some third-party services offer the option of creating an eWallet that allows users to consolidate many bitcoin address and store and easily access their bitcoins from any device.
• Individuals can create Bitcoin clients to seamlessly increase anonymity (such as allowing user to choose which Bitcoin addresses to make payments from), making it easier for non-technically savvy users to anonymize their Bitcoin transactions.

The takeaway from the FBI’s concern here should be that Bitcoin is becoming a workable technology that is showing a lot of promise. Unlike other currencies of a similar type it’s shown to actually work, it has an economy, growing and bustling exchanges, and a community who keep the market moving.

Every technology can be subverted for criminal activity, especially anonymizing technologies; however, the merits of anonymity in an ever-growing-surveillance world where identity and credentials are a commodity means that this is a Red Queen’s race between personal security and criminal enterprise. The fact that Bitcoin provides a maverick anonymity and high availability to those who might use it means that it will be very useful to the private and personal sector as much as it is to the criminal element.