Criminals Drop Bitcoin in Favour of Other Cryptocurrencies for Anonymity

Criminals are dropping bitcoin in favour of other cryptocurrencies in a bid to achieve greater anonymity for their criminal activities.

That’s according to the co-founder and president of Blockchain Intelligence Group. He estimates that the number of illegal transactions involving bitcoin fell from half the total volume to around 20 percent last year.

In an interview with CNBC, Shone Anstey, co-founder and president of Blockchain Intelligence Group, said:

“Now it’s significantly less than that.”

This is despite the fact that the overall transaction volume in bitcoin has grown. At the time of publishing, on the 31st August, bitcoin is trading at $4,614, a 0.77 percent rise in 24 hours. Over the past seven days its value has increased by 10.52 percent. Its market cap is now worth $76.3 billion.

After bitcoin recently soared above the $4,600 mark it would be natural to think that criminals would favour it more. However, it appears that that isn’t the case.

Criminals Look Elsewhere

Instead, it seems that criminals are now turning their attention to other cryptocurrencies. According to a U.S. Homeland Security official criminals are ‘looking more closely at other currencies like monero and ethereum.’

The official said:

“What the criminals are starting to see, and some of the trends we’re picking up as well, is that bitcoin also works equally just as much against you as it does for you.”

According to Chainalysis, the leading provider of anti-money laundering software for bitcoin, the rise of cybercrime in ethereum has risen with initial coin offering (ICO) financing. In a blog post, it states that total cybercrime revenue rose from $100 million in June to $225 million in August this year.

The highest grossing exploit was the DAO hack in 2016 after the DAO had sold over a billion tokens worth $150 million. Taking advantage of a vulnerability, criminals managed to steal around $74 million worth of DAO tokens from 11,000 victims.

Smart coding company Parity has also been subjected to a security breach. On the 19th July, it reported that more than 155,000 ether, worth $35 million, had been stolen.

Chainalysis states that as ICOs are time sensitive access to the sale necessitates investors to trade their ether quickly for alternative tokens. As a result, investors may find themselves tricked into providing their credentials to fake websites.

This was certainly the case for victims of the CoinDash ICO, which occurred prior to the Parity hack on the 17th July. A hacker was able to steal over $10 million after changing the contract address of the ICO project. Investors unaware of the situation continued to place their funds into the hacked CoinDash account. Consequently, around 43,500 ether was sent to the fake address.

Chainalysis adds:

“These credentials are then used to drain accounts. The average financial loss incurred per victim has increased by 20% from $6,700 in June 2016 to $8,000 since the DAO.”

Since the DAO, Chainalysis estimates that there has been around 30,000 victims of cybercrime on ethereum, each losing an average of $7,500.

Monero Gains in Value

Since the beginning of 2017 monero’s value has increased significantly. At the time of publishing its trading at $140, which is an 8.45 percent rise in 24 hours. Over seven days its value has increased by 60 percent. Its market cap is worth just over $2 billion.

As can be seen from the chart below, monero was trading at $16.40 at the beginning of 2017. Then its market cap value was worth nearly $224 million.

Its explosive growth could be down to the fact that it is designed to be more private than bitcoin. This means it’s completely anonymous and virtually untraceable. Consequently, this makes it the perfect altcoin for criminals to use.

The highest it has reached is $154, up over 1,000 percent this year, according to CoinMarketCap.

For those craving the need for secrecy on the dark web criminals are turning to monero. Darknet marketplace AlphaBay was one site that permitted people to use monero and ethereum as alternatives to bitcoin. However, AlphaBay was shut down by law enforcement on the 20th July. According to a report, authorities in the U.S., Canada and Thailand coordinated raids on the 5th July, which saw equipment being seized. Europol claim that since 2014, when AlphaBay was founded, an estimated $1 billion in transactions has been processed.

Authorities Get Savvy

AlphaBay is not the only darknet marketplace that authorities have shut down.

According to the U.S. Justice Department and Europol, another large dark web marketplace was also seized this year. Known as Hansa, it listed thousands of vendors selling illegal drugs, illicit products and counterfeit identification documents.

Following that was the announcement from the U.S. District Court for the Northern District of California. On the 26th July, a grand jury had charged Russian national Alexander Vinnik and the bitcoin exchange he is alleged to have operated, BTC-e, with money laundering and other crimes related.

Derek Benner, Homeland Security Investigations (HSI) Acting Executive Associate Director, said:

“Homeland Security Investigations is strongly committed to tracking down criminals who seek to strike at the foundations of global financial security through complex money laundering schemes. The resulting indictment is a clear representation of why our close law enforcement partnerships are vital to our shared missions. HSI will continue to aggressively target those who deliberately seek to exploit financial systems for personal gain.”

The Homeland Security official added:

“We’re getting a lot better through law enforcement tracking those [criminals] and holding the exchanges more accountable. I think [bitcoin]’s a lot more legitimate than people give it credit for.”

Bitcoin Will Still be Used

Even though a July report from the EU suggested criminals were rarely using cryptocurrencies, they will still find it attractive. This is because they can convert it easily into cash without any middle men.

However, while bitcoin was perceived to be anonymous when it first emerged, it doesn’t offer the same level of anonymity that monero does. So much so, that Llew Claasen, the executive director of the Bitcoin Foundation recently said at a conference:

“Bitcoin is not completely anonymous and it is fairly easy for someone, say a revenue officer, to work backwards to find who was responsible for a transaction.”

Featured image from Shutterstock.

Morgan Stanley: We Don’t Expect Cryptocurrencies to be Fully Disruptive

Leading global financial services firm Morgan Stanley has given its view as to how disruptive cryptocurrencies are going to be to fiat monies.

According to the bank, the crypto-revolution is not going to replace traditional currencies.

In a report, Morgan Stanley said:

“We think that cryptocurrencies as a group are likely to see some adoption outside of the incumbent financial system, but we do not expect them to be fully disruptive.”

In a ‘Fintech Gauntlet chart,’ Morgan Stanley has illustrated that disruption is possible, but it will be slow to take place. However, the bank suggests that only through regulation will cryptocurrencies be capable of gaining trust among the people. This will also enable them to enter the financial system.

The bank adds that digital currencies such as bitcoin are acting more as assets than as a way of transacting with.

It stated:

“With high volatility, low acceptance, relatively slow transaction times, and negligible fraud/transaction validity advantages (at least for now), bitcoin (and all cryptocurrencies) are functioning more like assets than true currencies or transaction mechanisms.”

High Electricity Use

One thing that is often debated is the amount of electricity required to mine each bitcoin. When bitcoin first appeared all that was required to mine it was a simple home computer.

However, as the mathematical problems to unlock new bitcoins became more complex to solve, networks with greater power than home computers were set up to mine the coins. As a result, this requires the use of more power and electricity.

According to Morgan Stanley, in the early days of bitcoin the energy generated could power a small power plant. Fast-forward to 2017 and the power generated is more than enough to power one million homes.

Additionally, as reigning networks don’t require huge amounts of electricity to function, it will be interesting to see how cryptocurrencies continue to mature.

Bitcoin Acceptance is Shrinking

This isn’t the first time that Morgan Stanley has made a statement regarding the crypto market.

In July, the bank said that bitcoin acceptance among top merchants was on the decline. In a research note to analysts it said that ‘bitcoin acceptance is virtually zero and shrinking.’

According to the bank, in 2016 the cryptocurrency was accepted at five of the top 500 online merchants. Yet, in 2017 that number had dropped to three. Of course, while the numbers may hardly be drastic, it does give some insight into what merchants are thinking. This is that accepting the digital currency may not be worth it.

It’s believed that this drop is down to the fact that people are more likely to hold on to their coins when its value goes up, rather than spend them.

The analysts said:

“The disparity between virtually no merchant acceptance and bitcoin’s rapid appreciation is striking.”

Overstock’s Confusion

Online retailer Overstock is confused. Confused by the fact that so many online companies don’t accept bitcoin as a payment option.

In July, Jonathan Johnson, the president of Medici Ventures, the venture capital subsidiary of Overstock, said that there had been a ‘modest’ uptick in the number of bitcoin transactions on the site. He also added that it was ‘crazy that so many retailers don’t accept bitcoin.’

One of the reasons may be down to the fact that retailers aren’t willing to pay for the costly transactions of bitcoin. Yet, Johnson believes this is irrelevant.

He stated:

“The cost of accepting bitcoin is very low. It’s actually cheaper for us to complete a bitcoin transaction than it is to complete a credit card.”

When Overstock first began accepting bitcoin in 2014, the company kept 90 percent of bitcoin and converted 10 percent back into cash. Now the company keeps 50 percent in bitcoin.

Such is Overstock’s commitment to the advancements of digital currency acceptance that the firm now accepts over 40 cryptocurrencies. Earlier in August, the company announced that it would allow customers to use major digital currencies such as ethereum, litecoin, Dash, Monero and bitcoin cash to buy online from Overstock’s nearly four million products. By integrating with ShapeShift, the world’s leading instant digital asset exchange, Overstock will be able to convert the cryptocurrencies into bitcoin.

Patrick M. Byrne, CEO and founder of Overstock, said:

“Overstock is pro-freedom, including the freedom of individuals to communicate information about value and scarcity without relying on a medium created through the fiat of unaccountable government mandarins. For that reason, we have been an early proponent and adopter of cryptocurrencies.”

Increasing Bitcoin’s Acceptance

Even though there are a handful of online merchants who accept bitcoin for payments such as Starbucks, Subway, Dell, Expedia and Microsoft, many would like that number to rise.

So much so that cryptocurrency fans launched a petition on Change.org urging Amazon to accept the digital currency. At press time, on the 25th August, there were 5,380 supporters of it with a goal of reaching 7,500.

Whereas CoinGeek, a bitcoin and blockchain news site, sent $100 in bitcoin to the financial directors at 20 of the top online brands. These included Alibaba, Amazon, Tesco, Staples, Uber, MacDonalds, Netflix, Airbnb, American Airlines, LVMH, AT&T, CVS Health, Tesla, Apple, FedEx, John Lewis PLC, Spotify, BMW and Red Bull.

Of those companies Airbnb was the first one to take up the offer in July. However, since then two other companies have followed suit: AT&T and American Airlines. Of course, this doesn’t mean the companies will automatically start accepting bitcoin. In fact the financial directors may simply just be taking the free coins on offer. Hopefully, though, in the not-so-distant-future more organisations will jump on board.

As Johnson said:

“I don’t know why a CEO wouldn’t want to make it easier for folks to spend money.”

Still a Long Way to Go

While the crypto market may be making an impact it still has a far distance to travel if it wants to disrupt finance. And yet, steps are clearly being made. The saying ‘Rome wasn’t built in a day,’ is very apt here and can certainly be applied to cryptocurrencies.

The finance world is witnessing a change in how people conduct their day-to-day finances and given time the digital currency market could replace incumbent networks.

Featured image from Shutterstock.