The Rise And Crackdown On Crypto Crime

Taking advantage of the decentralized system, these thieves know there’s no way for a third-party to reverse the transactions.

Bitcoin has raised a lot of questions since its inception. Governments, nations and institutions have begun considering how to regulate and prevent crypto crime. Experts question when the “bubble” will burst—or if it is a bubble at all. Speculation aside, one thing is certain: cryptocurrency and the blockchain have become targets for criminals around the world.

What Is The Blockchain?

The blockchain is still a relatively new technology. The decentralized, immutable peer-to-peer, digital ledger bears a record of every transaction in the history of that particular blockchain. No one person manages the blockchain, and there are no third parties involved in transactions. This eliminates the fees and regulations often associated with middlemen. 

Blockchains can be public or private, but both maintain user anonymity; that is, anybody viewing a blockchain can easily see, but cannot modify, transactions that take place between crypto wallets.

However, crypto wallets are typically not traceable back to a specific person. This feature was designed to enhance security, but it has also made the blockchain a prime target for crypto crime.

The Rise Of Cryptocurrency Crimes

The rise of crypto crimes has been concomitant with the spike in Bitcoin and other virtual currency prices (Bitcoin was trading at $11,877.60 USD at the time this article was written). The growing popularity of cryptocurrency has sparked a rise in high-tech criminal activity, including illegal tradingICO hackings and phone-portings.

But these are just the tip of the iceberg. Some of the latest cryptocurrency crime sprees reveal that that you don’t have to be a techie to hack the system

Last month in Thailand, attackers took a resort visitor hostage until he transferred $100,000 of Bitcoin into their online wallet. But this wasn’t the first such attack on digital currency holders. In the Ukraine, a Bitcoin exchange executive was held for ransom. The price? $1 million in Bitcoin. In another instance, a New York City man was taken hostage by a friend until he sent $1.8 million of Ether (the second-most popular cryptocurrency, trading as ETH) to his “friend’s” virtual wallet. In Istanbul, a businessman was held up by a gang of armed assailants demanding his cryptocurrency wallet password. They gained access to $2.83 million.

Taking advantage of the decentralized system, these thieves know there’s no way for a third-party to reverse the transactions. They also know that the nature of the blockchain ensures anonymity. Virtual wallets typically can’t be traced back to their owners.

Fighting Back

But where there’s crime, there are organizations ready to fight it. Companies such as Chainalysis are working hard to track blockchain crimes, despite the blockchain’s anonymity. By tracking the unique crypto IDs associated with every user on the blockchain, the company maps out how the suspect is moving funds or liquidating them for fiat (traditional currency). Working with law enforcement and gleaning information from crypto crime victims, the company has been successful in identifying several of the perpetrating thieves.

Other companies, like blockchain services firm Bitfury, have created software to give law enforcement and investigators the upper hand in tracking potentially criminal transactions. The system scores tracked blockchain addresses for their risk potential of being related to crypto crimes. It also integrates with other software to create legal reports.

Bitcoin, other cryptocurrencies and blockchain are still in their nascent stages. While 2017 was known by some as the year of the ICO, some now believe that 2018 might become the year of cryptocurrency hacks. But as tools to hack the “unhackable” system continue to evolve, new technologies are expected to become more powerful at stomping out the growing underworld of crypto crime.

Sign up for our Newsletter