Have you ever read news about hackers stealing millions of dollars in cryptocurrency? And when such things happen, how can criminals be tracked?
With the growing popularity of Bitcoin and other digital currencies, anyone can become a victim. But where there is a crime, there should be justice. Let’s find out how law enforcement agencies answer wrongdoers and how it’s possible to bring them to justice.
Cybercrime in the Crypto World
The world of cryptocurrency has opened up many possibilities for individuals and businesses alike. With its decentralized nature and the promise of secure transactions, it has become a popular method of conducting financial transactions. However, this newfound popularity has also attracted the attention of cybercriminals. Cybercrime in the crypto world refers to any criminal activity that takes place in the realm of cryptocurrency, including phishing and scams, hacking of cryptocurrency wallets, ransomware attacks, and darknet markets.
Given the rapid increase in cybercrime in the crypto world, it is crucial that law enforcement agencies take a proactive approach to combating this issue. Failure to do so can result in severe financial losses for individuals and businesses, as well as contribute to a rise in organized crime. Moreover, cybercrime in the crypto world can have implications beyond financial losses, such as the facilitation of human trafficking and drug trade. Therefore, it is imperative that law enforcement agencies take appropriate steps to tackle cybercrime in the crypto world, ensuring the safety and security of individuals and businesses alike.
Overview of the Crypto World
Crypto is a type of digital or virtual currency that employs cryptography to guarantee its security. It operates in a decentralized manner, implying that no central authority or institution controls it. Instead, transactions are documented on a publicly available ledger known as the blockchain, which ensures transparency and the inability to change previous transactions.
Individuals can buy, sell, and trade cryptocurrencies on cryptocurrency exchanges. They serve as middlemen between those who buy and sell cryptocurrencies, allowing for the easy execution of transactions and providing liquidity in the market.
The underlying technology behind cryptocurrencies is blockchain. It is a decentralized, distributed ledger that records transactions in a secure and transparent manner. Within the blockchain, each block includes a cryptographic hash of the preceding block, resulting in a chain of blocks that cannot be modified without altering the entire sequence.
Types of Cybercrime in the Crypto World
The popularity of cryptocurrencies has made it a target for cybercriminals. Here are some of the types of cybercrime that are prevalent in the crypto world.
Social engineering and phishing
Social engineering and phishing are tactics used by cybercriminals to obtain sensitive information such as seed phrases or private keys. They can use phishing emails or fake websites to trick individuals into divulging their personal information. Additionally, scammers may promote fraudulent ICOs (Initial Coin Offerings) or investment schemes to dupe people out of their cryptocurrencies.
One popular scam in the crypto world is the rug pull, where scammers create a new cryptocurrency and heavily promote it on social media and other platforms. They attract investors, drive up the price, and suddenly disappear with the funds, leaving investors with worthless tokens. Rug pulls have become the predominant scam in the DeFi ecosystem, constituting 37% of all cryptocurrency scam revenue in 2021, which is a stark increase from 1% in the previous year.
Cryptocurrency wallets are the tools where many people store and manage their cryptocurrencies. However, they are susceptible to hacking attacks, which can result in the loss of funds. Cybercriminals can gain access to wallets by exploiting vulnerabilities in the software, stealing private keys, or tricking users into downloading malware.
The popularity of cryptocurrencies also impacted the surge of cryptocrimes. According to Chainalysis, 2022 was the biggest year for cybercriminals, with $3,8 billion stolen.
Ransomware attacks refer to a form of malicious software that encrypts the data of a targeted individual or organization and demands a ransom in return for the decryption key. Cryptocurrencies have become a preferred method of payment for ransomware attackers, as they offer a level of anonymity, and many perpetrators believe it can’t be traced back to them.
Another reason for crypto being popular for such attacks is that it allows sending millions of dollars in seconds across any border. Statistics say, approximately 98% of ransomware payments are made in Bitcoin.
Darknet markets are online marketplaces that operate on the dark web and facilitate the buying and selling of illegal goods and services. Cryptocurrencies are the preferred method of payment on these markets due to their anonymity and lack of regulation.
The use of cryptocurrencies on these markets has made it difficult for law enforcement agencies to track and prosecute offenders. Yet, despite the popularity among darknet users, only less than 0.01% of Bitcoin transactions go to the darknet.
Challenges Faced by Law Enforcement in Tackling Cybercrime in the Crypto World
There are several challenges that law enforcement agencies face in addressing cybercrime in the crypto world.
The anonymity of cryptocurrency transactions. Anonymity is a fundamental feature of blockchain technology that powers cryptocurrencies, and it makes it challenging to trace the movement of funds and link them to specific individuals or entities.
Cryptocurrency mixers (aka tumblers). These are services that mix different cryptocurrency transactions together to obscure their origin and make them harder to trace. These services further complicate the task of tracking illicit cryptocurrency transactions.
The lack of regulation. As cryptocurrencies are not recognized as legal tender in many jurisdictions, there are no clear laws or guidelines on how to regulate them. It may complicate investigating and prosecuting crimes related to cryptocurrencies for law enforcement agencies.
Jurisdictional Issues. The absence of a central authority means that cryptocurrencies can be used across borders, making it challenging for law enforcement to track and investigate transactions that take place outside their jurisdiction.
Resource Constraints. The complex nature of the technology and the constant evolution of new threats make it challenging to keep up with the pace of developments. Additionally, limited resources can hinder law enforcement agencies’ ability to invest in the necessary technology and expertise to investigate and prosecute these crimes effectively.
Lack of crypto professionals. With the complex and constantly evolving nature of cryptocurrencies and blockchain technology, it is difficult for law enforcement officials who do not have a background in this area to keep up with the latest trends and techniques used by cybercriminals. There’s a limited pool of talent available to meet the demand for this type of work, while the necessity is constantly growing along with the popularity of cryptocurrencies. According to the survey, 74% of agencies’ employees aren’t equipped to investigate cryptocrimes effectively.
Law Enforcement’s Response to Cybercrime in the Crypto World
The anonymity of cryptocurrency transactions is one of the primary challenges faced by law enforcement in the crypto world. However, law enforcement agencies have been implementing blockchain analytics tools that use machine learning algorithms to trace cryptocurrency transactions. These tools analyze the blockchain to identify patterns and anomalies, track stolen funds, and monitor darknet markets. It helps link transactions to individuals or entities, helping law enforcement to identify and prosecute cybercriminals.
As security forces often lack expertise in the technical aspects of cryptocurrencies and blockchain technology, implementation and usage of such tools is possible because of close collaboration between law enforcement agencies and blockchain professionals. Companies with expertise in blockchain analysis and machine learning facilitate the work of security forces, so even if criminals used mixers to hide traces, they can still be tracked.
There are successful cases in investigating crypto-related crimes. IRS Criminal Investigations has seized more than $3,5 billion worth of cryptocurrency in 2021, the Department of Justice seized $56 million in a cryptocurrency scam investigation and $2.3 million from the Colonial Pipeline ransomware group, and Israel’s National Bureau for Counter Terror Financing seized an undisclosed amount in a terrorism financing case.
The ability of security agencies to seize illegally obtained cryptocurrency is growing. But while the demand for educating justice practitioners on blockchain and cryptocurrency is still high, there is a shortage of experts in this field.
As cryptocurrencies become increasingly mainstream, it is essential that law enforcement agencies have access to a skilled and knowledgeable workforce capable of investigating and prosecuting cybercrimes in the crypto world. Without adequate resources, it will be challenging to stay ahead of the sophisticated tactics used by cybercriminals, leading to continued losses for victims and difficulties in enforcing the law.
In DeepDive we have a proven experience in cybersecurity and particularly in blockchain. Our comprehensive training and consulting services can provide justice practitioners with the knowledge and skills needed to tackle cybercrime effectively in the cryptocurrency space. If you need assistance in fighting cryptocurrency-related crime, contact us to discuss cooperation.