How we pay for things has been changing. Smart devices are steadily replacing credits cards and cash. The internet has enabled the fast and tumultuous conception of cryptocurrencies, in particular that of Bitcoin. Unlike conventional currencies, Bitcoin is digital and decentralized, which means that for the first time in history, people can exchange value without middlemen. A report by Juniper Research predicts that by 2019 there would be 5 million Bitcoin users.
Bitcoin and other crypto currencies can be tendered in exchange for goods and services in real life. The only real constraint is the availability of an internet connection. As such it offers a lower cost alternative to banking and money transfer systems, which require a bank account and the payment of fees. Moreover, international monetary transactions can take three days to clear, whereas Bitcoin transactions are considered settled after just one hour.
Bitcoin is far from being the only cryptocurrency, in 2015 there were approximately 600 cryptocurrencies available in the market. Nevertheless, Bitcoin has the dominant market share.
There are no physical Bitcoins, instead, a Bitcoin, or some fraction of it, is a chain of digital signatures stored in the blockchain. Blockchain is a distributed ledger and record-keeping system maintaining Bitcoin transactions while ownership information remain anonymous. This ledger is completely open and accessible and acts as a system of checks and balances for Bitcoin.
Technically speaking, Bitcoins are nothing more than amounts associated with addresses, strings of letters and numbers, “1Ez69SnzzmePmZX3WtEzMKTrcBF2gpNQ95” is one such example.
Unfortunately, some of block chain’s advantages also raise legitimate concerns for their potential for criminal exploitation, particularly issues relating to digital identity of ownership. The past and present ownership of every Bitcoin is recorded in the blockchain. However, the identity of the Bitcoin owners stays hidden. Crooks can finally enjoy the anonymity of cash without risking being caught out in the real world.
Some notable cases of criminal behaviors were widely reported including Ross Ulbricht, the 31 year old American who created Silk Road online platform, a Bitcoin market facilitating the sale of USD1 billion in illegal drugs, he was sentenced to life in prison in February 2015. There is also the 33 year old American Trendon Shavers who pleaded guilty to running a USD150 million Ponzi scheme, the first Bitcoin securities fraud case, and another 30 year old, the Frenchman Mark Karpelès who was arrested and charged with fraud and embezzlement of USD390 million from the Bitcoin currency exchange Mt. Gox. These are mega examples of how criminal masterminds saw illicit opportunities in the way Bitcoin worked.
Many will recall that on Friday 12th May 2017, thousands of computers around the world were infected with WannaCry ransomware, users files were locked and the attackers demanded Bitcoin payments to remove the malware.
WannaCry swept through Europe and Asia, locking up databases of systems like the UK’s National Health Service, Spain’s main telecoms provider Telefonica and other businesses and institutions around the world. Once infected, a victim’s computer denies access and displays a message that demands the equivalent of around USD300 in Bitcoin. Europol has reported that payments of ransomware attacks have thus far been almost exclusively in Bitcoins.
Bitcoin is being used not only for ransomware attacks but also across a range of cybercrimes, including as payment on the darknet, DDos, phising and extorting money from victims as well as being used as payment method for criminal services.
Moreover, Europol reported that, according to its data, Bitcoin accounts for as much as 40% of criminal to criminal payments online, with PayPal accounting for 25% of those reported. Bitcoin’s anonymity is obviously a powerful tool for financing crime by keeping shady transactions secret.
The integral anonymity of Bitcoin prevents analysis of its users. A recent study has found robust evidence that computer programming enthusiasts and illegal activity drive interest in Bitcoin*.
For those out there still not completely happy with the anonymity that Bitcoin has to offer, don’t fret, Zcash is a recently launched cryptocurrency which is even more anonymous than Bitcoin. Its creators say it will give people complete financial privacy because its “Shielded transactions hide the sender, recipient, and value on the blockchain”. While the Bitcoin blockchain contains records of the participants in a transaction, as well as the amount involved, Zcash’s blockchain shows only that a transaction took place, not who was involved or what the amount was.
While the majority of Bitcoin users may be law abiding people motivated by privacy concerns, criminals however, need bank accounts and most importantly anonymity to execute large scale crime. Bitcoin essentially has allowed criminals to make peer to peer cash transactions at enormous scale.
What started as the promise of letting people communicate and perform transactions in an anonymous and completely democratic way has turned into a nightmare for law enforcement in the prevention of illicit activity.
* Characteristics of Bitcoin users: an analysis of Google search data. Aaron Yelowitz & Matthew Wilson (2015) Characteristics of Bitcoin users: an analysis of Google search data, Applied Economics Letters, 22:13, 1030–1036, DOI: 10.1080/13504851.2014.995359.