Criminals targeting cryptocurrency exchanges and exchange-owned wallets is hardly news. The most recent incident, reported earlier this week by Switzerland-based Trade.io, involved the North Korean hacker group known as Lazarus, which has reportedly been behind at least 4 incidents in the past two years. The group is said to have managed to steal a total $571 million in alt-currency thus far.
With interest in cryptocurrency investing increasing, is security improving? Reports are contradictory. The only thing that's certain right now is that criminal activity surrounding cryptocurrency has damaged the legitimacy of digital cash.
According to the US cybersecurity firm CipherTrace, compared to 2017, there has been a 350% increase in the cryptocurrency theft rate during 2018. Based on the firm's analysis, about $927 million has already been stolen from different exchanges during the first three quarters of this year and could go to $1 billion before year-end.
In contrast, the US Drug Enforcement Administration (DEA) said in August that Bitcoin-related crimes dropped to 10% of transactions, even as transactions themselves have grown tremendously. That's certainly a positive thing for the most popular cryptocurrency by market cap, but the crypto universe of currencies is far broader and still expanding.
Hacking and related, highly publicized criminal activities continue to hinder the adoption of cryptocurrency by the mainstream says Quoc Le, co-founder of QUANTA, a provider of cross-chain technology for decentralized exchanges. This is something that's already been expressed by the SEC. It's also one of the reasons it has been slow to approve cryptocurrency-related ETFs.
Commenting on recent attacks the Lazarus hacker group, Le said:
“ [The] Lazarus group claimed to hack over 14 exchanges; all of them are centralized system holding custody of user’s funds. As centralized exchanges, they are “honeypots” for hackers.”
On the positive side, Le adds, the blockchain gives the authorities the tools to be able to identify people behind the crimes.
“Blacklist databases are now circulated between authorities and institutions to limit further transactions in the system. The good news: decentralized exchanges technology will improve in speed and convenience, which means users can trade securely on the blockchain, without ever giving up custody of their funds. When decentralized exchanges go mainstream, we will see far fewer incidents than we do today.”
“I don’t think crypto is less appealing to criminals than it was 6-12 months ago," says Stefan Neagu, co-founder of Persona BIO. He notes:
"But I think that regulations have made it harder for them. Now you need to do a KYC [Know Your Customer procedure] with most of the exchanges which I think is great, if we, the crypto enthusiasts, the pioneers in blockchain industry want to see blockchain as an alternative to the current currency model.”
“I strongly believe that in the near future it will be harder and harder for crypto criminals to conduct criminal activities, but it depends on us to make it harder, and if we want to make the adoption of blockchain leaner and faster we need to offer the type of service people are used to receiving: as simple as possible, as safe as possible and real life disrupting, innovating solutions.”
Regulation has helped, says Phoenix Choi, CEO & Co-Founder of Infleum. He adds that the Initial Coin Offerings (ICOs) have also been an ongoing concern.
“We all know that only a handful of projects endure over a year, after ending their ICO, which means there is a lot of scam ICOs. Outside of that, there are also a lot of scams on Telegram, targeting companies hosting ICOs. It is a great thing that overall criminality is down, but we should also hope that criminality in the ICO world goes down as well. And until mass adoption of cryptocurrencies becomes part of our daily lives around the world, the legitimacy will still be battled.
As blockchain technology and cryptography become more familiar Jake Choi, CMO of Fantom points out, we're witnessing reduced criminal activity. From online darknet markets like Silk Road, which was shut down twice by the FBI, to money laundering cases, there's been an increase in regulatory attention to cryptocurrency-related misconduct.
“In addition to the current regulatory clampdown, more people are seeing cryptocurrency for its other, positive, use cases like investments, smart contracts, and international payment methods. As for criminals damaging the legitimacy of the industry, privacy has been one of the greatest values of cryptocurrencies. To be able to send transactions and maintain privacy was and will always be one of its greatest values.
In any case, there are people who choose to use its values for criminal activities like ordinary cash — its features have only spurred more users to realize other great features of cryptocurrencies. It's our duty to treasure privacy, but also to create better methods to KYC for the better of the industry, starting with exchanges."
Of course, many point out that securities fraud and economic crimes exist in the more traditional areas of the financial world as well and aren't simply relegated to the cryptosphere. Michael Ou, founder and CEO of CoolBitX and creator of CoolWallet says:
“Every market started as the wild west, but became more mature and healthy as authorities stepped in. The evolution of the stock market with a complete set of regulations is a great example.”
“This is a sign that we are one step closer to mass adoption. The regulatory grey areas led criminals to choose crypto in the early days. They believed the loopholes would help them get away with any wrong doing. Such actions caused negative perceptions of cryptocurrency that have damaged the market cap. Growth potential is also held back because investors lost their funds with no punishment [to the perpetrators]."
"Having the right regulations in place is necessary to bring the cryptocurrency market to the next phase.”
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