Seems like OFAC is digging into cryptocurrency!  The United States Government has announced sanctions on two Bitcoin addresses.  These two Bitcoin addresses are claimed to belong to two Iranians who assisted in exchanging Bitcoin ransom payments into Iranian fiat Rial.

The two Iranians who allegedly own the Bitcoin addresses are Ali Khorashadizadeh and Mohammad Ghorbaniyan according to the US government.  The two have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods, or services, to or in support of, the SamSam ransomware attacks.”

The two addresses have been designated for sanctions.  According to the US Treasury, sanctioned means:

“All property and interests in property of the designated persons that are in the possession or control of US persons or within or transiting the United States are blocked, and US persons generally are prohibited from dealing with them.”

There may be secondary sanctions for anyone who interacts with the two addresses, according to a statement:

“Persons that engage in transactions with Korashadizadeh and Ghorbaniyan could be subject to secondary sanctions.  Regardless of whether a transaction is denominated in a digital currency or traditional fiat currency, OFAC compliance obligations are the same.”

The two addresses in question have a balance of 0.16 btc and the other has nearly 0 btc.  Altogether, the two addresses have received around 1,100 Bitcoins.    The main question, right now, is whether this announcement has any bite with its bark – can sanctions of a Bitcoin address actually work?

Bitcoin is a decentralized global public network.  Address sanctions need to be sanctioned at a network level  – in order for this to happen, consensus needs to be achieved on a global scale, as well it being agreed upon by all individuals who currently do or want to run a Bitcoin node.

Even then, if the above is all agreed upon, the agreement must be complete and total consensus.  The old network with non-sanctioned addresses can continue running if individuals running nodes want to keep it running.

The best example of this is back in 2016 when the Ethereum network reached a general agreement to sanction and delete the theft of Slockit DAO.

Some miners disagreed with that action, so they continued to run the network with the undeleted theft.  This resulted in the hard fork for Ethereum that resulted in today’s two Ethereum and Ethereum Classic chains.

So sanctions can sort of work but only if it is by the people.  But even then, people might disagree and two different chains could be adopted – one with the sanctioned address and one without the sanctioned address.

So can the government officially sanction an address?  Yes and no.  No, insofar as they can’t keep that address from being utilized by the blockchain simply because the US government has no authority over a decentralized blockchain, but yes insofar as the punitive measures they can use on those who do violate their “sanctioned” orders.

It sounds like, effectively, the government is now asking people not to transact with these two addresses.  But how would the government know who’s who?

Well, you’ve got centralized exchanges – that’s easy enough.  They’ve got your name, address, and personal information that centralized exchanges hold.

But what about private wallet addresses?  Cold wallets?  What do you then?  Bitcoin addresses in of themselves are nothing more than a payment address – Bitcoin addresses themselves do not have private information in the address.  But those addresses can and do tell a story on all your past transactions and the current state of that wallet – again this is due to Bitcoin’s open ledger.

Here comes the tricky part though.  How do we know who’s actually guilty and who’s not?  How do we determine if one should be punished or not?  What if you’ve got just a regular individual who accidently mistyped the address and the newly mistyped address happens to be one of the two sanctioned by the government?

Part of mass adoption is asking this question and contemplating what we need to do when X, Y, and Z happens.  What do you think?  Do you think this is important, and do you think this is important enough for us to be worried about it in the future?  Currently, we’ve got banks who won’t let us do financial transactions with OFAC blacklisted countries.  Do you think Exchanges will do that too?  Let us know on our Facebook Page!