Could Bitcoin wallets replace briefcases full of cash?

Increasing numbers of criminals are looking to digital currencies (or cryptocurrencies) to undertake criminal activities. By looking at why cryptocurrencies are attractive to criminals, investigators can better understand what skills or resources they may need to develop to prevent and manage cryptocurrency related incidents.

In the past 12 months, the number of bitcoin users has more than doubled. Almost 200,000 transactions are made on the bitcoin blockchain each day and this doesn’t include the thousands of other digital currencies being developed across the globe.

The use of cryptocurrencies is continuing to grow and, while we have yet to see mass adoption of the technology, its use among the criminal elements of society has been quick, with recent research finding one-third of all bitcoin users are using it for illegal purposes. In one investigation in Bulgaria, police confiscated computers and phones from a major crime syndicate, which were found to contain 213,519 bitcoin. These coins are now worth approximately USD 2.5 billion.1

But what makes so cryptocurrencies so attractive to criminals?

1. Cryptocurrencies aren’t like traditional currencies

To understand why cryptocurrencies are attractive to criminals, we need to look at the underlying technology which, once understood, shows cryptocurrencies are very much dissimilar to traditional currencies.

At their core, cryptocurrencies are a decentralised database that lists how many coins each user holds. For bitcoin, this is achieved through a publicly viewable ledger, which uses cryptography (complex mathematical algorithms) to secure transactions.

There are several benefits to such a system. First, you can transact with anyone and know you are guaranteed to receive the amount you are due to receive (ie. no double spending). Second, transaction fees are low and transfers are quick.

1 As of 6 March 2018

And third, there is no central authority that can stop your transaction from being processed – bitcoin transactions can be made peer to peer without any third party intermediary checking whether the payments are being made for legitimate purposes.

2. Forget the briefcases full of cash

Unlike traditional currencies, which are either held in cash or bank accounts, cryptocurrencies are stored using “private keys,” which are essentially a long list of jumbled characters.

To transfer bitcoin, you only need the address of your destination “wallet” and the transfer will be verified over the blockchain. The verification is done by miners who, in return, receive bitcoin for supporting the network.

The ability to store bitcoin on a key like the above is of benefit to anyone looking to store value. However, it is particularly useful for money launderers, drug traffickers or just about any criminal wanting to hide and transfer assets.

The reasons for this are simple – there is no limit to how much bitcoin can be stored on each address.

This means money launderers no longer need briefcases full of cash – you can now travel internationally carrying potentially millions of dollars with nothing but a piece of paper, or, if discretion is of utmost importance, memorise the keys.

3. Transactions can be anonymous

There is a lot of media reporting that describes bitcoin as being anonymous; however, the truth is bitcoin transactions sit on a publicly viewable ledger, which isn’t very good for secrecy – anyone can analyse the blockchain to see where payments have been routed.

But smart criminals will know they should use anonymous wallets and tumblers or mixers, which make the tracing of payments difficult.

There are also a growing number of cryptocurrencies that use technology that makes payments virtually anonymous. An example is Monero, which currently sits with a market capital of almost USD 6 billion and uses privacy technology to make payments very hard to trace.

In ransomware attacks, which encrypt victims’ files and ask them to pay a ransom for the decryption key, cybercriminals have traditionally asked for bitcoin as payment. However, Control Risks’ cyber threat intelligence analysts have seen a move towards ransom payments being requested in Monero due to its anonymous characteristics and this trend is only likely to continue.

So, where does this leave investigators? In a relatively new industry like blockchain, it is not surprising to find skills gaps as the technology grows at a rapid rate, which includes shortages of investigators who can respond to cryptocurrency related incidents.

While traditional forms of investigation, such as digital forensics and forensic accounting, will always be needed, investigation teams will also need to include individuals with skills in blockchain analysis and wallet tracing. However, more importantly, investigators will need a solid understanding of how cryptocurrencies and blockchain technology more broadly work. Control Risks recommends organisations evaluate their in-house investigation capabilities in this area and be ready to bridge any gaps by using qualified external consultants. Is your investigations team prepared to handle an investigation that involves cyptocurrency?