Feds fear Bitcoin traffic will fund hacking campaigns

The Federal Bureau of Investigation (FBI) has expressed fears that the anonymous payment network Bitcoin may become a sanctuary for criminal activity.

In a leaked report posted by Wired, the company explains how hacking groups are using the anonymous service to gather and traffic funds.

Authorities say the payment service's peer-to-peer architecture makes it difficult to identify suspicious users and obtain transaction records.

"Since Bitcoin does not have a centralised authority, enforcement faces difficulties in detecting suspicious activity, identifying users, and obtaining transaction records – problems that might attract malicious actors to Bitcoin," the report stated.

The FBI reported that the hacking group LulzSec was able to gain $18,000 in donations through Bitcoin during its run. The service allowed for the group to receive funds without revealing the identities of donators or recipients.

Six Lulzsec hackers were recently indicted by US authorities in a case involving the group's AntiSec hacking campaign.

Bitcoin is an online currency system that allows users to exchange virtual money anonymously.

The peer-to-peer service allows for users to send electronic currency without the need for a central authority. Bitcoin allows users to "cash-out," and convert digital coins into real money.

The service uses a fluctuating exchange rate that is dependant on the amount of people who use the system.

Bitcoin developers say the service is one of the most private payment systems available online, but is still traceable. Lead Bitcoin developer Gavin Andresen told V3 it was still possible for FBI agents to trace where funds are coming from.

"The simple answer is Bitcoin is more private than any other online payment system but is less private than cash," said Andresen.

"It is possible for somebody with the right knowledge and resources to associate your IP address with your Bitcoin transactions. And if that somebody has subpoena power over your internet service provider they will be able to associate your Bitcoin transactions with you."