FBI: we’re investigating 130 cryptocurrency-related cases

On Wednesday at the Coin Evolved conference, FBI Supervisory Agent Kyle Armstrong said the FBI has 130 open cases tied to cryptocurrencies, including crimes like human trafficking, drugs, kidnapping, and ransomware. Armstrong heads the bureau’s virtual-currency initiative, which is about three years old.

Cryptocurrencies like Bitcoin offer a different set of pros and cons to criminals, when compared with traditional fiat currencies. Incoming and outgoing payments are tied to an ‘address’, which is really just a string of characters and not necessarily to a specific person’s identity, so transactions are more anonymous than a traditional ACH bank transfer. However, compared to physical cash, bitcoin transactions are easily traceable—this is due to the transparency of the distributed ledger the transactions are stored on. This means that while it’s relatively easy to create a map of bitcoin transactions to various addresses, and see how the addresses are interacting with each other, it’s difficult to link up a specific address with a real person or organization.

In January of this year, Elliptic and the Foundation for Defense of Democracies’ Center on Sanctions & Illicit Finance released a memorandum titled “Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services.” 

“While legal opinions differ on whether bitcoins technically constitute money, we assume in this study that when an individual moves bitcoins from an address associated with illicit activity to a new address, in a way that obscures the original source of funds, or cashes out to fiat currency, it indicates the intent to ‘cleanse’ the bitcoins from their illegal origins,” the memo’s authors, Yaya J. Fanusie and Tom Robinson, wrote. 

“Illicit activity originated overwhelmingly from darknet marketplaces… examples of darknet marketplaces, which became popular sites to buy and sell illegal drugs and a multitude of other illicit items and services, are Silk Road, shut down in 2013, and AlphaBay, shut down in July 2017,” wrote Fanusie and Robinson.

Services like cryptocurrency tumblers, or mixers, layer illicit bitcoin transactions with others to obscure the trail back to the funds’ original source. The cryptocurrency Monero actually trades transparency for extreme privacy, seeking to comply with two principles outlined in its white paper: “untraceability: for each incoming transaction all possible senders are equiprobable” and “unlinkability: for any two outgoing transactions it is impossible to prove they were sent to the same person.”

Increasingly, criminals are turning to Monero because of the crypto’s unique properties enabling extreme privacy. Bloomberg reported that “the criminal underworld is dropping Bitcoin for another cryptocurrency,” citing a Dec. 18 hack where hundreds of thousands of WordPress sites were hacked and held hostage until the hackers were paid off in Monero. According to the Crypto Pro app, today Monero is the twelfth largest cryptocurrency by market capitalization ($2.128B) and traders moved $34.39M worth of the currency during the past 24 hours.

Monero also makes “crypto-jacking” more viable, which is a form of theft of computing power. Hackers can use malware to surreptitiously seize control of a computer or group of computers and use them to mine cryptocurrencies without the owner’s permission. Earlier this year, hackers discovered that a particular console controlling access to Tesla’s Amazon Web Services-based cloud was not password protected; they installed scripts based on a popular bitcoin mining protocol, and soon enough Tesla was inadvertently paying to mine bitcoin for hackers. The popular web development application Jenkins had its servers crypto-jacked, and the attackers netted about $3M worth of Monero.

Although it might appear that the FBI is beginning a large crackdown on cryptocurrency-related crime, the bureau’s 130 open cases are only a tiny sliver of the investigations currently being pursued. The most popular currency among criminals is still the U.S. dollar, and it’s still hard to compete with cash in terms of untraceability and anonymity. 

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