Crims fear bitcoin will lead cops to door
Privacy-focused digital currency such as monero seen as safer bet to avoid tracing
Bitcoin is losing its lustre with some of its earliest and most avid fans — criminals — giving rise to a new breed of virtual currency. The value of certain privacyfocused digital currency such as monero, designed to avoid tracking, have climbed faster in the past two months as law enforcers adopted software tools to monitor people using bitcoin.
A slew of analytic firms such as Chainalysis are getting better at flagging digital hoards linked to crime or money laundering, alerting exchanges and preventing conversion into traditional cash, the South China Morning Post says.
The European Union's lawenforcement agency, Europol, raised alarms three months ago when it reported that “other cryptocurrencies such as monero, ethereum and Zcash are gaining popularity within the digital underground”.
Online extortionists, who use ransomware to lock victims' computers until they fork over a payment, have begun demanding those currencies instead.
On December 18, hackers attacked up to 190,000 WordPress websites per hour to get them to produce monero, according to security company Wordfence.
For ransomware attacks, monero is now “one of the favourites, if not the favourite”, said Matt Suiche, the founder of Dubaibased security firm Comae Technologies.
Monero quadrupled in value to US$349 ($493) in the final two months of 2017, according to coinmarketcap.com, placing it among a number of upstart coins that rose faster than bitcoin, the world's most valuable digital currency.
Bitcoin roughly doubled in the same period, according compiled by Bloomberg.
In monero's case, criminals are snapping it up because blockchain, the underlying technology in bitcoin, can work against them.
As a digital ledger technology, to data blockchain meticulously records which addresses send and receive transactions, including the exact time and amount – great data to use as evidence.
Match an address to a crime and then watch the bitcoin universe carefully, and you can see the funds disappear and reappear in other locations.
Sleuths have developed databases and techniques for digesting such information to eventually capture wrongdoers.
Started in 2014, monero is very different. It encrypts the recipient's address on its blockchain and generates fake addresses to obscure the real sender. It also obscures the amount of the transaction.
The techniques are so potent that software used to flag coins suspected of being obtained through crime now tags just about anything converted into or out of monero as high risk, according to Pawel Kuskowski, the chief executive at Coinfirm, which helps exchanges and other companies avoid tainted money.
Kuskowski said that compares with only about 10 per cent of bitcoin.
“What we treat ‘high risk' is something that's anonymising funds. How are you going to prove that these funds are not coming from illegal sources?” he said.
Monero is one of many privacyfocused coins, each offering different security features.
A competitor, Zcash, not known to have a big criminal following, offers even better privacy protection. Instead of creating fake addresses to hide senders, Zcash encrypts true addresses. That makes it impossible to identify senders by looking for correlations in addresses used in multiple transactions to pinpoint the real one — a monero vulnerability.
Still, Princeton University researchers recently developed a tool to help analyse Zcash transactions at least to some extent – but they have not been able to crack monero.
Zcash high-security features, however, cannot be used on the disposable “burner” cellphones crooks use to stay anonymous.
Developers behind monero said they simply created a coin that protected privacy. Most used it legitimately, said Riccardo Spagni, a core developer at monero.
Criminals were probably only a fraction of monero's users, said Lucas Nuzzi, of Digital Asset Research, which provides research to institutional investors.