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Comment by RockyMcNuts | Hacker News Reader

Trace the funds to where? an Internet cafe in an ex-Soviet nation where they were split up into smaller amounts to be put in cold storage? then what, when those smaller amounts start being used to buy gold 5 years later? Isn't the whole point of Bitcoin that any transfer is irreversible, and it's hard for authorities to interfere and regulate, unlike say USD?

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The question was about blockchain not bitcoin, so I'm assuming the correlary is a private shared blockchain used to replace SWIFT between a consortium of banks. Bitcoin would not make sense as a SWIFT replacement because it's completely public. Banks have no interest in showing their balance sheets to the general public.

We're doing something like this with lykke.com. Fiat money are implemented as Colored Coins on top of Bitcoin. It has a range of advantages over pure fiat - tracking of issuance publicly, lower settlement times, integration with smart money capabilities of Bitcoin, and more.

Makes sense, but as you noted, none of the security benefits you mention are related to the blockchain and could just as easily be implemented by SWIFT or the banks. Nor is it clear why it would have been easier to trace the final destination within the network.

In fact it seems the whole situation could have been avoided if the bank had followed the recommended practice of having a secure wire room with a computer that's not connected to any network other than SWIFT. And if they don't do that they can have the same problem on a private blockchain network.

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