Cryptocurrency and Crime – While the cryptocurrency market has never been so successful – as evidenced by the Bitcoin boom in recent months – cybercriminals have not waited to exploit peoples lack of knowledge and trust for their own benefit. Scams, money laundering, terrorist financing. This brings the question, is cryptocurrency safe? In this article I’ll shed some light on that.
One could also ask is cryptocurrency illegal? That answer is a bit murky. With the ability to stay anonymous while hiding from paying taxes to paying for and hiding money gained through criminal activities and virtually no way of tracking a sender or receiver, its a legitimate question, is cryptocurrency legal or should it be? The answer to that rests in what country you live in. For example El Salvador recently made history by legalizing Bitcoin.
El Salvador Makes Bitcoin legal. Could it bring the opportunity cybercriminals and organized crime were waiting for….. Read more
The dark side of cryptocurrencies mobilizes Law Enforcement around the globe including the French gendarmerie, which puts its experts on the ranks to dismantle highly structured networks.
Captain Paul-Alexandre Gillot, from the Center for Combating Digital Crime (C3N) testifies for CNEWS about the new techniques used by hackers and organized crime, but also about the boom in fraud related to this technology.
Cryptocurrency and Crimes – There are several: First, there is the scam, especially related to the recent wave of phishing after the hack of Ledger [NDR: French company specializing in securing cryptocurrencies], since identifiers were recovered by these hackers last year. An investigation is being carried out by the OCLCTIC on this subject.
Cryptocurrencies are also often used in ransomware-type cyberattacks. Then we see two other forms of fraud, related to money laundering and aggravated tax fraud laundering. There is also money laundering linked to drug trafficking, either by sellers on the dark web or through organized crime. It is also found for arms trafficking and to a lesser extent for the financing of terrorism. Finally, we can also note the use of cryptocurrencies for the purchase of child pornography content.
The global health crisis has allowed all of this to flourish, as many more people are using their computers, especially for commuting. We’ve seen that since the end of the first containment, the number of attacks has skyrocketed again from April-May 2020 onward to a high we’ve never seen before.
Between 2019 and 2020, the number of scams recorded by the national gendarmerie in France (excluding the police) increased by 22% overall, and not just counting cryptocurrency-related fraud. As for ransomware attacks, they have exploded by 48.54% between 2019 and 2020, and we have seen an explosion in ransoms paid to these criminals. We don’t encourage companies targeted by ransomware to pay. Some sums reach tens of millions of euros, imagine the arsenal cybercriminals can then have. It’s a vicious circle.
To bounce back on the Bitcoin boom, we also note that there is a development of the parallel economy to the banking system that is being put in place, especially with credit cards that can be reloaded with cryptocurrencies and now with the possibility of paying with these currencies on PayPal. All this contributes to make their access easier, but cybercriminals have understood this and are surfing on this wave.
Cryptocurrency and crime -In order to understand these mechanisms, we must first know what cryptocurrencies are used for and what this technology is. Basically, these electronic currencies were created in order to offer a monetary system capable of replacing the traditional banking system. In the traditional system we know, everything goes through the banks, including your account and everything is centralized.
Here, in case of a problem, if you have been robbed of money for example, the bank will be able to vouch for you and reimburse you. This is not the case with cryptocurrency, since these intermediaries do not exist, as the system is decentralized.
Electronic currencies rely on the blockchain, which is a real open-air ledger that anyone can consult, anywhere and at any time. The idea is that each actor in this decentralized system has access to and can host all or part of this account book.
For example, a transaction that concerns two individuals, everyone can see it. On the other hand, we are talking about semi-anonymity here, since only the Bitcoin addresses are visible, for example. You have the account number, but not the identity of the person behind it.
As soon as a transaction is registered in the blockchain and validated (after going through 3 confirmation blocks lasting about 15 minutes), this transaction becomes completely indelible. The issuer, who pays, cannot go back on it. With cryptocurrency and crime on the rise, is your cryptocurrency safe if a fraudulent transfer has been made, without your knowledge or not, you can’t go back, nor can you claim this money from someone, since it has been transferred from one individual to another.
You can use cryptocurrencies with the help of a wallet, a virtual wallet. There is the hot wallet, which is your online wallet and the cold wallet which can be found in the form of a USB key (Ledger for example) and which requires physical access to confirm transactions. The latter allows you to become almost your own bank. You can open an almost infinite number of accounts to host your different cryptocurrencies on it.
The main requirement is to either keep your private key or the SEED (Backup Sentence), a string of 12 to 24 words that allows you to recover access to all your accounts. If someone gets your SEED, they will have access to your entire cryptocurrency accounts. Similarly, if you lose this private key, you no longer have access to your wallet and that money is lost forever. So here there is no guarantor, and you are totally responsible for your money. It is above all a way to make a financial transfer to the other side of the planet, whatever the amount, in less than 15 minutes.
Today, cryptocurrency and crime make ransomware a national priority, coordinated by the J3 section of the Paris public prosecutor’s office. Hackers who target companies demand up to several million dollars. If you put them in a bank account, it falls under a classic investigation to trace the beneficiary of these funds. With cryptocurrency, your money will be able to bounce fifty different times around the planet, to different semi-anonymous accounts, because you’ll only have the associated cryptocurrency address.
Transactions can be tracked, but you still won’t know who is behind them. In addition, the downside for investigators is that they are confronted with tools used by cybercriminals to make these transactions even more opaque in order to launder cryptocurrency funds. The first service used is swapping, which allows one to exchange one cryptocurrency into another (like exchanging euros into dollars).
The second system relies on the use of mixers, which are major players in the laundering of ransom money, but also other crimes paid in crypto. The idea is of course to cover the tracks, anonymizing the transactions and cutting the link. All this seems like cryptocurrency should be illegal.
There are two complementary methods to trace the hackers as far as cryptocurrency and crime is concerned. On the one hand, we use technical data to shed light on part of the opposing infrastructure (by consulting servers used by the criminals, for example). On the other hand, there is the "follow the money" part to find out who will be the ultimate beneficiary of the funds. But laundering techniques are becoming more and more complex and criminals are willing to pay people or services between 4 and 12% of their ransom or money so that it cannot really be traced back to them.
Cryptocurrency and Crime – Is the legal arsenal sufficient to intervene?
Yes, the current legal framework is sufficient. However, we may be confronted with more technical limitations in the future. And to get hold of certain elements, we will try to use special investigation techniques. The majority of our cases are followed by the J3 Cybercrime section of the Paris Public Prosecutor’s Office, which is making our means of action evolve in the right direction.
Today, there isn’t a real number to put to the number of victims of crypto scams around cryptocurrency crimes as many people don’t report being a victim of a scam or ransom attack, because of embarrassment. So there are a certain number of facts that go under our radar. Moreover, we can’t trace back to other victims if we get our hands on the hacker’s wallet. For money laundering it is very complex, since the actors who play a role in swapping services and mixers.
Is cryptocurrency safe -We also had a case of a mixer where we only knew 5-10% of the mixer’s portfolio. We don’t have a clear visual on who is really using cryptocurrencies, it’s even more opaque than the traditional financial system. Also, if there are cryptocurrency exchanges that will change your cryptocurrency into fiat currency (bitcoin into euros for example), these will identify who is receiving the money. But those who launder money also go through a system of "mules" to further muddy the waters.
India’s High Court deny bail to a man accused of defrauding people into investing into a cryptocurrency he created. Read more here.
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