When Bitcoin burst on stage In 2009, fans announced the cryptocurrency as a secure, decentralized and anonymous way to conduct transactions outside of the traditional financial system.

Criminals, often operating in hidden areas of the internet, flocked to Bitcoin to do illegal business without revealing their name or location. The digital currency quickly became just as popular with drug dealers and tax evaders as it was with contrary libertarians.

But this week’s revelation that Federal officials had recovered most of the Bitcoin ransom The recent Colonial Pipeline ransomware attack exposed a fundamental misconception about cryptocurrencies: they’re not as difficult to track as cybercriminals think they are.

On Monday, the Justice Department announced that it had tracked 63.7 of the 75 bitcoins – about $ 2.3 million of the $ 4.3 million Colonial pipeline had paid the hackers when the ransomware attack paralyzed the company’s computer systems, resulting in fuel shortages and a Rise in gasoline prices. Officials have since refused to provide any further details on how exactly they got the bitcoin back.

For the growing community of cryptocurrency enthusiasts and investors, however, the fact that federal investigators tracked the ransom when it passed through at least 23 different electronic accounts from. went Dark side, the hacking collective, showed that law enforcement grew with the industry before accessing an account.

That’s because the same properties that make cryptocurrencies attractive to cyber criminals – the ability to instantly transfer money without a bank’s permission – can be used by law enforcement agencies to track and seize criminals’ funds at the speed of the internet .

Bitcoin is also traceable. While digital currency can be created, moved, and stored outside of the purview of a government or financial institution, each payment is made in a permanent fixed ledger called. recorded the blockchain.

This means that all Bitcoin transactions are open. The Bitcoin ledger can be viewed by anyone connected to the blockchain.

“It’s digital breadcrumbs,” said Kathryn Haun, former federal prosecutor and investor at the venture capital company Andreessen Horowitz. “There’s a path that law enforcement can follow pretty well.”

Ms. Haun added that the speed with which the Justice Department confiscated most of the ransom was “groundbreaking” precisely because of the use of cryptocurrencies by hackers. In contrast, she said, obtaining records from banks often requires months or years of navigating paperwork and red tape, especially when those banks are overseas based.

Given the public nature of the ledger, cryptocurrency experts said, all law enforcement agencies need to do is figure out how to connect the criminals to a digital wallet that holds the bitcoins. To do this, the authorities have likely focused on what is known as a “public key” and a “private key”.

A public key is the sequence of numbers and letters that Bitcoin holders use to transact with others, while a “private key” is used to keep a wallet secure. Tracking down a user’s transaction history was a matter of determining which public key they controlled, authorities said.

The seizure of the assets then required obtaining the private key, which is more difficult. It is unclear how federal agents got hold of DarkSide’s private key.

Justice Department spokesman Marc Raimondi declined to say more about how the FBI confiscated DarkSide’s private key. According to court records, investigators accessed the password for one of the hackers’ bitcoin wallets, but did not do exactly how.

The FBI didn’t seem to be relying on an underlying flaw in blockchain technology, cryptocurrency experts said. The most likely culprit was good old-fashioned policing.

Federal agents could have confiscated DarkSide’s private keys by infiltrating a human spy into DarkSide’s network, hacking computers that were storing their private keys and passwords, or forcing the service holding their private wallet to do so to surrender them by warrant or other means.

“If you get your hands on the keys, they’re confiscated,” says Jesse Proudman, founder of Makara, a cryptocurrency investment site. “Just relying on a blockchain does not solve this fact.”

The FBI has partnered with several companies that specialize in tracking cryptocurrencies across digital accounts, according to officials, court documents and the companies. Startups with names like TRM Labs, Elliptic, and Chainalysis, tracking cryptocurrency payments and exposing possible criminal activity, have emerged as law enforcement agencies and banks seek to forestall financial crime.

Their technology tracks blockchains in search of patterns that suggest illegal activity. It’s similar to how Google and Microsoft tamed email spam by identifying and then banning accounts that distribute email links to hundreds of accounts.

“Cryptocurrency enables us to use these tools to track funds and financial flows along the blockchain in ways we could never do with cash,” said Ari Redbord, director of legal at TRM Labs, a blockchain intelligence company who sells its analytics software to law enforcement agencies and banks. Previously, he was senior financial information and terrorism advisor at the Treasury Department.

Several longtime cryptocurrency enthusiasts said recovering much of the Bitcoin ransom was a win for the legitimacy of digital currencies. That would help change Bitcoin’s image as a criminal playground, they said.

“The public is slowly being shown on a case-by-case basis that Bitcoin is good for law enforcement and bad for crime – the opposite of what many historically believed,” said Hunter Horsley, CEO of Bit by bit asset management, a cryptocurrency investment company.

In the last few months, cryptocurrencies have become more and more mainstream. Companies like PayPal and Square have expanded their cryptocurrency services. Coinbase, a startup that enables people to buy and sell cryptocurrencies, went public in April and is now valued at $ 47 billion. Over the weekend, a bitcoin conference in Miami drew more than 12,000 visitors including Twitter CEO Jack Dorsey and former boxer Floyd Mayweather Jr.

As more and more people use Bitcoin, most of them access the digital currency in a way that mirrors a traditional bank, through a centralized intermediary such as a crypto exchange. In the United States, anti-money laundering and identity verification laws require such services to know who their customers are, thereby establishing a link between identity and account. Customers must upload an official ID when registering.

Ransomware attacks have taken a close look at unregulated crypto exchanges. Cyber ​​criminals are flocking to thousands of high risk areas in Eastern Europe that do not obey these laws.

After the attack on the Colonial Pipeline, several financial leaders proposed a ban on the cryptocurrency.

“We can live in a world with cryptocurrency or a world without ransomware, but we cannot have both,” said Lee Reiners, executive director of the Global Financial Markets Center at Duke Law School. wrote in The Wall Street Journal.

Cryptocurrency experts said the hackers could have tried to make their Bitcoin accounts even more secure. Some cryptocurrency holders go to great lengths to store their private keys away from everything that is connected to the Internet in a so-called “cold wallet”. Some people remember the sequence of numbers and letters. Others write them down on paper, although they can be obtained through search warrants or police work.

“The only way to get the really intangible properties of the asset class is to memorize the keys and not have them written anywhere,” said Mr Proudman.

Justice Department Mr Raimondi said the ransom seizure by the Colonial Pipeline was the federal prosecutor’s most recent stabbing operation to recover illegally acquired cryptocurrency. He said the department had “many hundreds of millions of dollars of seizures of non-hosted cryptocurrency wallets” used for criminal activity.

In January, the Justice Department disrupted another ransomware group. NetWalkerwho extorted money from municipalities, hospitals, law enforcement agencies and schools using ransomware.

As part of that sting, the department received approximately $ 500,000 of the cryptocurrency from NetWalker that had been collected from victims of their ransomware.

“Although these people believe they are acting anonymously in the digital space, we have the ability and tenacity to identify and prosecute these actors to the full extent of the law and to confiscate their criminal proceeds,” said Maria Chapa Lopez, then US Attorney for the Middle Area District of Florida said when the case broke.

In February, the Justice Department announced that it had arrest warrants for the seizure of nearly $ 2 million in cryptocurrencies that North Korean hackers had stolen and debited from two different cryptocurrency exchanges.

Last August, the department also unsealed a complaint against North Korean hackers who stole $ 28.7 million in cryptocurrencies from a cryptocurrency exchange and then laundered the proceeds through Chinese cryptocurrency laundering services. The FBI traced the funds to 280 cryptocurrency wallets and their owners.

In the end, “cryptocurrencies are actually more transparent than most other forms of value transfer,” said Madeleine Kennedy, a spokeswoman for Chainalysis, the start-up that tracks payments in cryptocurrencies. “Certainly more transparent than cash.”



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