The Good, The Bad, and the Tricky

Ben Franklin poses in sunglasses for cryptocurrency webinar. According to a recent Visual Capitalist article, there are now more than 5,000 cryptocurrencies in circulation, fueling an exploding $200 billion industry. Clearly it is a boom time for virtual asset service providers, or VASPs, like cryptocurrency exchanges and wallet providers. Despite its notoriety, mystique still surrounds cryptocurrency, from its use of blockchain technology, to the benefits and weaknesses of trading decentralized money, to national security implications. With crypto’s rise comes global implications. Its use often makes its way into headlines about criminal activity, such as the recent arrest of a 19-year-old and his friends for their alleged roles in a highly publicized Twitter hack. Forensic tools are in a constant state of development. For example, blockchain analysis tools assisted investigators in quickly identifying the young Twitter hackers, according to a post on the CipherTrace blog.

Two Sides of the Digital Coin.

There are many upsides to cryptocurrency. Transactions are secure without bank oversight. They can be processed at any time, not just during business hours. It has purchase power anywhere. Finally, cryptocurrency may provide greater benefit to developing countries where the local currency may swing due to exchange rate instability. In such countries, and where many citizens may be unbanked, supplanting traditional coinage with cryptocurrency could stabilize finance and open its doors to many.

With crypto’s rise comes global implications. Shortcomings generally are human ones; intermediaries, like unregulated exchanges, create vulnerabilities. The ability to use pseudonyms in executing crypto transactions makes it ideal for bad actors, criminal syndicates, and terrorists. According to the international Financial Action Task Force, the risk of money laundering and terrorism financing is increased through “chain-hopping,” or “quick exchanges between different virtual assets,” which “allows the multiple layering of illicit funds within a short timeframe, allowing money laundering networks to disguise the origins of funds and launder illicit proceeds.” Some countries, like Venezuela, have even tried to use cryptocurrency to circumvent sanctions.

Financial losses from criminal activity in this space are climbing. According to the CipherTrace Crytocurrency Crime & Anti-Money Laundering Report, Spring 2020, “In the first five months of 2020, crypto thefts, hacks, and frauds totaled $1.36 billion, suggesting 2020 could see the second-highest value in crypto crimes ever recorded. In a trend that continues from last year, fraud and misappropriation still make up most of the year’s stolen crypto compared to hacks and thefts. Of the $1.36 billion stolen, fraud and misappropriation account for 98% of the total value—nearly $1.3 billion.”

This fast-changing technology is sometimes outpacing law enforcement agencies and the intelligence community, challenging their ability to detect, monitor, and stop cybercrime. But criminals have no reason to rest easy. A former stockbroker recently learned that the hard way. Following a multi-agency federal investigation, he quickly pleaded guilty to running a $33 million cryptocurrency scam.