Bitcoin and money transfers

Despite the steadily growing interest in the bitcoin cryptographic currency, it is somehow considered by default that its practical use for profit is limited to using bitcoins for operations with illegal goods, organizing service mixers and bitcoin exchanges, as well as trading in online stores for the same enthusiasts of cryptocurrency and, in fact, the most widely discussed in the context of the growth of its course theme - accumulation.

But many properties of this currency, and, first of all, the guaranteed anonymity of the user in the system could be very useful for solving other problems. Below will be considered one of them.

Money transfers

In the context of the organization of remittances, we will talk about four main schemes:
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• Classic (cash transfer)
• Electronic (bank transfer)
• Cryptographic (money transfer in bitcoin e-currency)
• Enhanced cryptographic participation with an intermediary bank

All schemes are considered in the model of two interacting nat. (or legal) persons, Alice and Bob, who want to carry out a transaction between them for a certain amount.

Classic scheme

Description of the scheme

Alice meets with Bob and gives him the money in person.

disadvantages

• The inability to ensure guaranteed anonymity of participants in the transaction
• The need for physical participation of persons conducting the transaction
• The possibility of intervention by third parties
• The need to ensure the physical security of the preparation and conduct of the transaction

Electronic circuit

Description of the scheme

Alice makes an electronic transfer to Bob

disadvantages

• By definition, no anonymity
• Control and the ability to block transactions by third parties

Cryptographic scheme

Description of the scheme

Alice, through an electronic exchange, buys a virtual peer-to-peer BTC cryptocurrency in the bitcoin system, after which she transfers money to Bob's bitcoin wallet. Bob sells BTC on the exchange, transferring money to his account. The bitcoin system provides guaranteed anonymity of transactions.

disadvantages

• The ability to restore transaction history (in the event of the anonymity of both Alice and Bob being compromised, you can restore the entire history of their operations).
• Possible insufficient liquidity of Bitcoin assets and exchange rate risks.
• He has high technical literacy requirements for Alice and Bob.

Enhanced cryptographic scheme with an intermediary bank

Description of the scheme

1. Alice in cash or cashless transfers money to the account of an authorized company (we will call her Charlie). Charlie instructs the Bank for a ruble transfer in favor of the seller (speculator) of some intermediate electronic currency (the scheme was tested using Liberty reserve, which ceased to exist in May 2013, but it does not matter to understand the idea, so she), which work bitcoin exchange. Charlie buys bitcoins at Liberty reserve.
   As part of an alternative scheme of action, Charlie can order a currency transfer in favor of a non-resident - Bitcoin Exchange - to purchase a software product (Bitcoin).
2. Bitcoins are bought for a random number of generated bitcoin wallets (you can create 115 792 089 237 316 195 423 570 985 008 687 853 853 269 984 665 640 564 039 457 584 007 913 129 639 936 wallets in total. The total amount of money in the wallets will be equivalent to the original amount minus the transfer fee. Working with random wallets ensures that transaction history is not recoverable (service mixers provide the same service). Between the data and any other wallets, there is a sequence of meaningless transfers from one wallet to another (there is no mandatory commission within the bitcoin system). This is necessary for “mixing” relevant transactions into their total number, which makes it impossible to perform heuristic analysis.
3. Then Alice instructs Charlie to transfer Bitcoins to Bob’s wallet (s), or to give Bob her wallets (their numbers and cryptographic keys) on her own. The second option may be appropriate in the event of suspicion of spying on wallets. From the point of view of third parties, it will look like the money came to the wallet (from the stock exchange) and the money went (to the stock exchange), and no one will know that the wallet has been transferred from one person to another.
4. Bob instructs Charlie to sell his bitcoins (according to the inverse scheme described above) or sells them on the exchange himself.

Notes

1. At each step, there is an automatic destruction of further unused information on the previous steps. This approach ensures the safety of Alice and Bob, even if third parties intervene in Charlie’s work.
2. The time of the transaction in the Bitcoin system is determined solely by the verification factor of this operation by the system. The minimum and sufficient degree of verification is achieved within ten minutes. One hundred percent verification, which is unnecessary, takes about an hour. If transactions are conducted by persons trusting each other, or by the same person between their accounts, the transaction occurs instantly.
3. The scheme eliminates the two main risks of Bitcoins - the possible lack of liquidity of Bitcoin assets and exchange rate jumps.
4. In the Russian bitcoin market, the main problem is the introduction of rubles into the system. Constant repetition of the chain Alice - Charlie - speculator - bitcoins - Bob is unprofitable and inconvenient. A one-time purchase of a sufficient number of bitcoins using one of the well-known commodity schemes with their subsequent turnover to service their own clientele would be reasonable. Because of the impossibility of tying a bitcoin account to an individual from the point of view of an outside observer, a bitcoin transfer operation between wallets owned by the bank (Charlie) and wallets owned by any other users of the system will be indistinguishable.
5. The advisable step for Charlie would be to establish his own Bitcoin exchange. This requires a very modest expenditure on the opening of the site and the remuneration of labor of 13 people with appropriate software and hardware. Almost free event will attract third-party clientele and increase turnover.

Practical implementation example

Below is a scheme for solving the practical (and most relevant for Russia) problem of tax-free capital outflows (in this example, in the USA).

1. Alice's money is credited to the company Charlie at an intermediary bank.
2. A bank transfer is made on behalf of Charlie for the purchase of goods, bitcoin e-cryptocurrency, from Mt.Gox Co Ltd (Shibuya, Tokyo, Japan) with the execution of a transaction passport and all related transactions. It makes sense to perform this step once in order to further service all customers through the acquired bitcoin pool.
   An alternative scheme for acquiring bitcoins to bypass the laws on currency regulation and currency control, which is a two-step purchase of a Master Card card (https://www.aurumxchange.com/cards) from Aurum Xchange (AURUM CAPITAL HOLDINGS INC.) Followed by a waste of translated on her money for the purchase of the so-called Mt.Gox Redeemable Code, allowing to transfer money to an account in Mt.Gox with a commission for transfer of 3%.
   The maximum monthly limit of one Master Card is $ 100.
   The maximum monthly limit of Mt.Gox is 500 tons. $.
3. Purchase of bitcoins on the Mt.Gox (commission 0.55%)
4. Chain of transactions between bitcoin wallets, guaranteeing anonymity and non-traceability of the main transfer
5. Sale of bitcoins on the Mt.Gox (can be made on behalf of several users)
6. Accumulation and withdrawal of funds to an account at a US bank by bank transfer from Mt.Gox

PS Examination of the practical applicability of the described cryptographic money transfer scheme with the participation of an intermediary bank for anonymization of the transfers themselves and tax optimization when transferring funds showed:

• High interest in this service to potential users (Alice and Bob).
• No less high interest of banks and (for some reason) one real estate office in the possibility of providing such a service (Charlie).
• Full practical inapplicability and lack of competitiveness of the service in the conditions of the current Russian market situation (precisely because of the latter, and not the shortcomings of the scheme itself).