Tainted coins due to running an LN node? \ stacker news ~lightning

Tainted coins due to running an LN node?

1651 sats \ 16 comments \ @south_korea_ln 29 Jan lightning

Are there any tools to check if any of my UTXOs are tainted, i.e. tracked by Chainanalysis, etc? I played the lightning liquidity arbitrage game a lot at some point, so I did not end my LN node with the same coins I started the node...

view all related items

125 sats \ 3 replies \ @nullcount 29 Jan

OFAC of the U.S. Treasury occasionally publishes new BTC addresses they want to sanction on their site as a blog post.

OFAC basically defines what "taint" means and rely on banks and exchanges to enforce their sanctions.

Chainanlysis™ does chain analysis on these "sanctioned" addresses to formulate a probability score that a given UTXO originated from a sanctioned address. Their methods for calculating probabilities are opaque and often rely on easily broken heuristics like the common input ownership heuristic.

Ideally, you would limit your LN peers to only known trusted (or KYC'd) sources. This would reduce the likelihood of a sanctioned individual sending you a UTXO via pushing sats thru a LN channel they opened to you.

If you do receive UTXOs from untrusted nodes, you can attempt to do your own chain analysis just to verify that the UTXO isn't one or two transactions from a sanctioned address (read all of OFAC's blog posts to compile your list of sanctioned addresses)

Or, you can do the reasonable thing and recognize that Bitcoin (the protocol) does not care about OFAC's blog posts and this "taint" is only a problem for licensed money transmitters to worry about. Don't send your UTXOs to a licensed money transmitter and don't become a licensed money transmitter and you have nothing to worry about.

0 sats \ 1 reply \ @south_korea_ln OP 30 Jan

Regarding the broken heuristics, the guy I mentioned that is using Chainanalysis while working for a Korean exchange, had this to say:

In fact, Chainalysis wasn't that impressive in its early days, but now it has evolved into a company trusted by U.S. financial and government authorities. Currently, they are doing remarkable work.

He's probably biased~~

As a tangential sidenode, I wonder how the broken heuristic argument ended up going for Sterlingov. Haven't checked up on that.

0 sats \ 0 replies \ @nullcount 30 Jan

Government officials just want someone willing to play "the expert"

They should not trust, but verify.

0 sats \ 0 replies \ @south_korea_ln OP 30 Jan

That's great, didn't know about these lists of sanctioned BTC addresses. I'll have a look at it.

I also hope to do the reasonable thing and not ever have to interact with a licensed money transmitter :)

100 sats \ 3 replies \ @OT 29 Jan

I think technically the coins never leave the channel. They get pulled to one side or the other.

I guess if a bad actor did open a channel with you it might be possible to be labeled as "tainted".

Tainted to who though? An exchange? The FBI?

One cheap way to find out is to send it into Wasabi wallet and try to coin join. If you get rejected, you know there's " taint".

0 sats \ 2 replies \ @south_korea_ln OP 30 Jan

Thanks, that's exactly what I had in mind. Indeed, coins never leave the channel, it's just a multisig between me and my channel partner. But indeed, if the bad actor is the one providing all the liquidity at channel opening and I end up with all these coins at the end, I could end up with tainted coins. Thanks, I'll check into Wasabi wallet, sounds like a cool trick. Were it not of course that then my coins will end up with the "coinjoin" label, which, unfortunately, is also considered suspicious by many exchanges.

Anyhow, lots of hypotheticals. Ideally, I never have to do the conversion to fiat.

100 sats \ 1 reply \ @OT 30 Jan

I think if your TX gets rejected in Wasabi you can still send it out without a coin join.

I personally like that coin joins are becoming more common. True that exchanges don't like it, but bitcoin isn't meant to go back into an exchange.

If you do have tainted coins I heard pegging into liquid and then back out will give you "clean" coins.

0 sats \ 0 replies \ @south_korea_ln OP 30 Jan

Good to know. Or I can just act myself as the aforementioned bad actor and loop out on-chain through some other LN noderunner...

100 sats \ 1 reply \ @_arshbot 29 Jan

I did not end my LN node with the same coins I started the node...

You seem a bit confused. This is not how the lightning network works. Please assume all onchain utxo history you have are tracked or trackable.

If there isn't someone (like Chainanlysis) actively tracking your utxo history, there is nothing stopping them from viewing those footprints years from now.

1 sat \ 0 replies \ @south_korea_ln OP 29 Jan

How am I confused? This is the clarification I provided in another comment:

I'm talking about random people opening large channels to me, pushing all the liquidity through me to services like LOOP to obtain clean coins, closing the channel, and leaving me with their dirty coins.

This is of course a very specific use case of the LN, not how it is usually used. But it's my educated guess as to why I got people opening a 1+ BTC channel with me, pushing all the liquidity my way into my large channel with LOOP, and then closing it right after.

Or am I missing something?

100 sats \ 5 replies \ @endothermicdev 29 Jan

Lightning TXOs are publicly announced when a public channel is opened, so you can assume anyone who is motivated would be able to determine that the funds were in a lightning channel. Any coin movement since then would be between you and your counterparty though. Otherwise, all that can be discerned is a differing balance when the channel is closed.

0 sats \ 4 replies \ @south_korea_ln OP 29 Jan

I'm talking about random people opening large channels to me, pushing all the liquidity through me to services like LOOP to obtain clean coins, closing the channel, and leaving me with their dirty coins.

0 sats \ 3 replies \ @south_korea_ln OP 29 Jan

Can anyone run Chainanalysis on their own coins?

0 sats \ 2 replies \ @south_korea_ln OP 29 Jan

Ah just got the answer from someone whose job is to track tainted coins. Seems like it's possible, but registering an account w Chainanalysis ranges between 70 to 100k per year~~

Not worth the trouble then.

0 sats \ 1 reply \ @037447d9ca 29 Jan

You might be confusing the act of chain analysis with Chainalysis, the company.

0 sats \ 0 replies \ @south_korea_ln OP 30 Jan

Thanks for clarifying. I should have been clearer in my choice of words. Also, regarding the use of the word coins, it'd have been better for me to talk about UTXOs all the time instead.