Back in 2020,
Notice how unintelligible the bitcoin account of the hackers looks. The account has nothing to do with a real-world identity. It's a cryptocurrency wallet.
The question begging for answers would be, “Are cryptocurrency wallets attached to a real-world identity?”. NO.
“How on earth can you then trust this transaction?”
The answer is simple. Cryptocurrency wallets run on blockchain technology. And what makes blockchain stand out is the high level of trust it brings to the table. No one can authorize a transaction on your behalf without your keys. Blockchain is as secure as that. So, for every transaction you make, it must have been permitted by you.
The high-level security of your wallet goes to the extent that if you lose the keys to your account, you won’t ever be able to recover the wallet again. That’s why you see some cryptocurrency platforms tell you to write your keys in different secure places.
However, cybercriminals seem to have found a sweet spot in cryptocurrency wallets because of their anonymous nature alongside some other ‘loopholes’. Some of them now demand cryptos from their victims as ransom.
Here are four reasons why money-oriented cyber criminals and money launderers use crypto wallets to their advantage.
- Anonymity
Cryptocurrency addresses are anonymous. You don’t know the name or where the address owner lives. All you see is a string of alphabets and numbers. The anonymity doesn’t stop there.
Some crypto wallets providers and Cryptocurrency Payment Gateways (CPGs) - platforms where you can convert cryptocurrency to a fiat (real money) and withdraw - don’t have a Know Your Customer (KYC) policy in place. Monero is an example. More on this below.
KYC allows a company to have uploaded to its website a real-world identity of their customers such as their address and identity card. In case of any fraud, a customer is easily traceable and identified.
- Fast money transfer
Traditional money transfers could take five days before the money gets to the recipient. Cryptocurrency transfers are much faster. Bitcoin transfers could be as ‘slow’ as
For hackers and money launderers, money moving at a lightning speed matters a lot.
- Borderless transactions
How many times have you had difficulty getting paid or sending a payment to a country that is thousands and thousands of miles away from you? If you haven’t experienced it yet, the challenge is real. And it can be annoying.
The same is not true with crypto transactions. It’s borderless with no frustrating border payment policies or hawk-like financial third parties.
Remember the Twitter hack mentioned at the beginning of this article? One of the hackers got
- Pariah states
A pariah state is a country having little to no relation with other countries. North Korea is an example. It has its reasons for being one. To know the facts and happenings in a pariah state is hard.
Hackers from a pariah state may find it easy to launch cyberattacks on other countries. You may not know how the government in such a State handles cybercrime activities because of limited information.
Again, poor international relations means the possibility of cybercriminals’ extradition is relatively zero. Imagine crypto hackers, living in a pariah State, moving huge cryptocurrencies into the secluded country they live in.
Money-focused cryptocurrency crimes present the following challenges to the world.
Cryptocurrency Crime Challenges
- Tracking
Crypto hackers and money launderers move digital assets such as cryptocurrency through several digital wallets before finally turning them into fiat to cover their tracks. Tracking becomes super hard and consequently shakes it off.
Notwithstanding the multiple times a cryptocurrency is moved through different wallets, some breakthrough software can track down illegal cryptocurrency activities on blockchain up to the point of conversion to fiat. But here’s what is unknown yet - if it could track stealth addresses.
- Tracking stealth addresses
Some crypto recipients may use stealth addresses to receive crypto payments. A stealth address is a crypto address a crypto recipient can generate from his main crypto wallet and use only once to receive payment.
Blockchain doesn't store stealth addresses. You can’t trace the payment to the recipient on the blockchain. The address goes into the thin air once payment is received. Meaning the identity of the recipient remains hidden. Here’s a typical example of a stealth address provider.
Monero, a privacy-focused cryptocurrency, provides stealth addresses. It officially disclosed on its page that it is
Putting aside stealth addresses, oftentimes crypto tracker software has to wait for a crypto recipient to turn cryptocurrency into fiat before the software could ascertain the recipient’s real-world identity. Thanks to some Cryptocurrency Gateway Platforms’ KYC policy. What if a CGP doesn’t have a KYC policy?
- Absence of KYC policy by some Cryptocurrency Gateway Platforms (CGPs)
There are CGPs that don’t have a KYC policy. Platforms of this nature open the floodgates for finance-related cyber activities. A cybercriminal would prefer to open a cryptocurrency wallet on a platform where he’s not required to disclose his real identity. Since cryptocurrency wallets are not attached to a real-world identity, these wallets without KYC are perfect for money-oriented cybercrimes.
What if cybercriminals give a fake identity to CGPs? Should CGPs be regulated instead of the entire blockchain industry?
- Crypto Mixers
Crypto mixers have also added to the already complex anonymity layers of cryptocurrency. Mixers are people who combine cryptos – Bitcoin, Ethereum, Dogecoin, and so forth – from different individuals and put the cryptos in one transaction. Tracing how much cryptocurrency each own can only happen in a dream.
Or shapeshifters who turn Dogecoin, for example, into Ethereum to make tracing crypto further complicated.
Conclusion
Like any other sector in the world, there’d always be some loopholes, however small.
Cooperation among CGPs, country governments, cryptocurrency platform owners, and individual stakeholders would go a long way to help in tackling crypto-related financial crimes.
There have been calls from different parts of the world for digital assets regulation followed by arguments and counter-arguments. Fingers remained crossed if there’s a need to regulate some aspects of digital assets if not all the blockchain industry.