There are some outstanding projects in the cryptocurrency space. There are also decent intentions and genuine actors who believe in an alternative financial system and the separation of money and state. However, just like all walks of life, there are also plenty of criminals laced throughout this nascent industry. Cryptocurrency crime is rife, and sometimes it feels as if the two industries go hand in hand. Why is that?
If the next generation of school children grow up to understand the separation of money and state, then bitcoin will have succeeded.
— Erik Voorhees (@ErikVoorhees) August 14, 2012
$1.7bn of cryptocurrency stolen in 2018
When trying to defend cryptocurrency and its groundbreaking technology, statistics like today’s AML report by CipherTrace don’t help. A total of $1.7bn of cryptocurrencies was stolen throughout 2018, with some $950mn coming from exchanges.
The proliferation of cryptocurrency crime in the form of hacks, ICO exit scams, and Ponzi schemes is impossible to deny.
A further report by Chainalysis found that as much as 60% of all attacks were orchestrated by just two professional groups, whom they name as Alpha and Beta. That means that organised criminals seized over $1 billion worth of cryptocurrency!
Cryptocurrency exchanges were hacked out of ~$1B in 2018 by professional groups whose distinct “signatures” might be the key to defending against them. Read more in our latest blog #cryptocurrency #cryptocrime https://t.co/tD84oqxQQ1 pic.twitter.com/tCnCPbKqxz
— Chainalysis (@chainalysis) January 28, 2019
While the intentions of the Beta group seem to be for personal gain, Alpha’s are more disturbing. Whether for laundering money, facilitating crime, or even shutting down a network, crime and crypto, in this case, prove to make good bedfellows.
Beyond the massive hacks that steal the headlines, CipherTrace identified 10 major new trends in criminal activity in the space right now. These include crypto dusting (spamming wallets with small amounts of tainted cryptos) and cryptojacking.
While some of the top 10 threats are more pressing, CEO of CipherTrace Dave Jevans told Coin Rivet that cryptojacking is:
“No different from viruses and malware infecting computers. It will not shut down a company, it will not steal $500mn from an exchange. It makes small amounts of money from unused computing power on people’s computers and browsers.”
And not always so small, when you consider the case of Shominru Mining Botnet. This mega-malware managed to infect over half a million devices and mine a whopping $3.5mn of Monero.
Moreover, cryptocurrency crime is often exacerbated as perpetrators of ransomware prefer payment in cryptocurrencies like Bitcoin as they are harder to trace than credit card payments.
Bitcoin’s shady past is hard to shake off
Bitcoin’s intentions as a peer-to-peer exchange of value with no interference from centralised institutions got off to a genuine start. However, when it became the preferred method of payment for the dark web’s Silk Road, cryptocurrency crime kicked off in earnest.
Bitcoin became synonymous with criminal activity, being used to pay for weapons and drugs as well as financing terrorists. This went a long way toward making cryptocurrency and Bitcoin, in particular, a threat in the public’s mind. On top of ransomware payments demanded in Bitcoin, it became well-known as a currency for facilitating nefarious deeds.
Federal agencies shut the Silk Road down in 2011, but Bitcoin’s reputation was stained forever.
No one needs anonymity like a criminal
Cryptocurrency and crime go hand in hand thanks to its anonymous nature. After all, no one needs anonymity like a drug baron or child trafficker. If you’re buying illegal goods, evading taxes, or laundering money, cryptos have so far been a pretty good bet.
Many people have also used cryptocurrency as a way of sending money outside of their country. And with unlimited amounts on unregulated exchanges, unlike banks, the sender doesn’t have to justify the source of the funds.
Lack of regulation in the space further highlights cryptocurrency crime in the news.
However, as the new AML/CFT regulations arrive in 2019, criminals will find it much harder to cover their tracks.
Steeper AML/CFT regulation will mean that the 38 member countries, including the US, EU, and G20, must subject cryptocurrency exchanges and custodial services to KYC in their jurisdictions.
G20 Leaders committed to "regulate #crypto-assets for anti-#moneylaundering and countering the financing of terrorism in line with FATF standards".
➡️ FATF Report to the #G20 Leaders' Summit https://t.co/ZZECBoAZSc pic.twitter.com/njbTxzH8TL— FATF (@FATFNews) December 3, 2018
This will mean that criminals will have to resort to more creative ways of laundering the money they steal.
Cryptocurrency crime – The association lives on
One can argue the fact that cryptocurrency crime receives an unfair amount of attention when you consider the history of traditional banks and money laundering, and the fact that the US dollar is still the criminal’s bill of choice when it comes to financing their deeds.
It’s actually much easier to launder money with cash without leaving a trail than through cryptocurrency and the inevitable digital footprint you leave behind.
As regulation begins to follow a clearer path and weed out shady ICOs and money launderers, perhaps moving forward, cryptocurrency and crime can finally part ways.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.