$1.7B was Stolen from Cryptocurrency Exchanges Last Year
In 2018, $1.7 billion was stolen from cryptocurrency exchanges, custodial services, and in ICO scams. That’s a drastic increase from 2017, despite the shrinking market. What’s more, as per the Q4 CipherTrace Cryptocurrency Anti-Money Laundering Report, that stolen money needs to be laundered.
However, due to a global wave of regulations coming into effect in 2019, laundering cryptocurrency will become much harder to do.
CCN interviewed Dave Jevans, the CEO of CipherTrace and co-chair of the Cryptocurrency Working Group at the APWG.org to find out what that means.
The majority of stolen funds in 2018 came from exchanges and custodial services. This amounted to over $950 million. That was 3.6x more than in 2017.
Jevans explained that this is the case because many exchanges have only been functional since 2016 less. They have not invested in the security technologies and practices required to safeguard IT systems, employees, and critical data. Furthermore, there is a risk for these cryptocurrency companies of getting their simple file of cryptographic private keys stolen. This can put more than $30M to $500M in the pocket of hackers. But these companies are lacking in their security team funding, training, and implementation.
Jevans feels that the cryptocurrency space requires an enormous amount of infrastructure investment and education to stop these attacks. This means cold storage of private keys, strong anti-phishing measures like email authentication, and behavioural analytics and data sharing.
He stated that The Anti-Phishing Working Group (APWG) could help.
Moreover, two-factor authentication of employees and customers will also be useful in preventing these attacks and so will the use of transient instances to reduce attackers’ chances of getting into more machines outside the exchange.
Jevens is not only the founder and CEO of CipherTrace, a company that develops cryptocurrency AML, forensics, and blockchain threat intelligence solutions. He also holds 17 patents in computer security and cryptography. Jevens has been tracking criminal activity and correlating it with the price fluctuations of Bitcoin since 2011.
By quarter three of 2019, new anti-money laundering and counter financing terrorism (AML/CFT) regulations will come into effect. Unregulated exchanges and custodians in all significant jurisdictions will be forced to become compliant.
These regulations are in the form of international standards that were set up by the Financial Action Task Force (FATF), a Paris-based international organization to fight against money laundering.
38 member countries including the US, EU, and G20 will implement the new rules.
With these new regulations onboarding, customers will involve strict KYC. If not, the business will be fined or shut down. Exchanges will also need to monitor their services and report any suspicious account activity.
Jevens believes these new regulations will have a significant impact in the industry. He stated that criminals would be easily detected and rejected at compliant companies as regulations are enforced. This will force cyber-criminals into the darker alleys of the Internet and the cryptocurrency ecosystem, forcing them to use more advanced and esoteric services to launder stolen funds.
According to another report, about 60% of hacks may be carried out by just two groups.
Thus, Jevens said that regulation is going in the right direction regarding protecting investors, companies, financial institutions, and governments.
Currently, the only transactions being watched by governments are those over $10,000 or those that are connected to sanctioned individuals and governments, terrorists, and known money launderers. But new regulations on cryptocurrencies will not change this.
As of now, money-launderers have an easier time laundering cryptocurrencies on an international scale than small-to-mid sized amounts of USD. This is because laundering smaller amounts of crypto internationally can be done through many different services, such as exchanges, digital walla networks, currency shifting services, decentralized exchanges, and more.
Thus, it is easier to launder small amounts through cryptocurrencies, whereas large amounts (tens or hundreds of billions of dollars or euros) must use sophisticated schemes involving the use of existing fiat banking systems.
Regulations make for a more orderly and safe market for everyone, which means cryptocurrency markets will grow, get more secure, and become an attractive place to invest in 2019. Many of the scams, frauds, and technically poor operations and ICOs have been weeded out or will be soon, so these regulations are actually a good thing, as per Jevens.
In addition to international AML/CFT regulations that will make it harder for criminals Jevans expects that nation states will launch their own cryptocurrencies in 2018. Nation states will also exploit cryptocurrencies to evade sanctions. And privacy-oriented coins will need to consider AML/KYC requirements and get them implemented into their protocols.
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