The Consequences of Cybercrime Increases The Case for Crypto Regulation
Updated: 2 days ago
Cryptocurrencies have become increasingly popular over recent years, but the lack of regulation has exacerbated the pressing issue of cybercrime.
Source: Marco Verch Professional Photographer on Flickr[Link: https://flic.kr/p/Rqi83p]
‘[Virtual Currencies] may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system’. These are the words of ex-Federal Reserve Chairman Ben Bernanke, found in his 2013 letter to US Senators about the potential impact of cryptocurrencies. What he likely did not consider was the profound effect that virtual currencies such as Bitcoin would have on cybercrime.
Bitcoin provides criminals with a golden opportunity to send and receive money anonymously. As considered by Mr Bernanke, the technology is fast, secure, and efficient. Low-value transactions are nearly instant, and high-value ones are typically completed in several hours. Bitcoin is also secure. Its blockchain has never been hacked and no counterfeit currency has ever entered its network. Any currency can be converted to Bitcoin to send, and converted to any currency on receipt, and the transaction itself need not have any direct contact between seller and buyer. While this may appear terrific, it opens the door for criminals to exploit both the public and private sector, using Bitcoin as a method of receiving payment anonymously.
Cryptocurrencies have become increasingly prevalent in recent years. Nayib Bukele, President of El Salvador, has gone as far as making the cryptocurrency legal tender (spoiler: this was a spectacular failure). This increased popularity has been accompanied by a significant rise in cybercrime, specifically ransomware.
Ransomware is a method adopted by hackers whereby an organisation’s computer system is blocked until a sum of money is paid. The threat has existed for as long as data has been stored on computers. However, in the past, collection of payment forced criminals to reveal themselves, or at least ensured they were more readily traceable. But Bitcoin uses pseudonyms and, when coupled with its speed, efficiency, and irreversible transactions, proves highly appealing to criminals. Bitcoin not only allows criminals to collect payment for ransomware attacks, it also allows for other criminals to purchase this stolen data. The lack of regulation surrounding Bitcoin and other cryptocurrencies acts as a catalyst for these ransomware attacks. In 2020, 48% of UK businesses were hit by ransomware, below the global average of 51%. Bitcoin was used for 98% of ransomware payments. The need for regulation to combat these attacks is evident.
This link between crypto and ransomware acted as a major factor in the decision of 1500 computer scientists in the US to write to Congress on June 1st, 2022. They sought to warn of the cryptocurrency’s potential consequences, urging members of Congress to take a ‘critical, sceptical approach toward…cryptocurrencies’ and the idea that they are ‘unreservedly good’. They highlighted, among other things, ‘threats to national security through money laundering and ransomware attacks’. These professionals have deep expertise in blockchain technology, and their worries were not without substance. Reported ransomware attacks in the US increased by 66% from 2019 to 2020, with $350 million of cryptocurrency sent from victims to hackers in 2020. Unreported attacks may be far higher still.
The cost of such attacks is, at best a nuisance, and at worst, a disaster. Colonial Pipeline ransomware attack that occurred in May 2021 resulted in hackers receiving 75 Bitcoin ($4.4 million). The attack crippled the fuel deliveries on America’s East Coast, but one can only imagine the resulting turmoil of a similar attack on California’s power grid during a period of heatwave.
Today’s misconception – exacerbated by reports sponsored by the crypto industry, crypto lobbyists, and crypto enthusiasts – is that the criminal use of crypto is declining. This is only true if expressed as a percentage of total crypto transactions, which themselves increased by 567% from 2020 to 2021. The truth is that associated criminal activity is not growing at the same pace, but it is steadily increasing, and this should be combatted through regulation. However, amid the lack of political understanding of cryptocurrencies and blockchain more generally, whether the regulation necessary to combat the threat will come remains an open question.