The WannaCry Attack: Another Case Of Compromising Cryptocurrencies’ Reputation

The WannaCry Attack: Another Case Of Compromising Cryptocurrencies’ Reputation

The virus demands ransoms in bitcoins to unlock the files of multiple computers, globally.

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The virus demands ransoms in bitcoins to unlock the files of multiple computers, globally.

The most discussed subject in media in the past days was WannaCrythe biggest cyberattack the world has ever seen. The ransomware attack is triggered by a virus that locks people out of their computer files and demands that they pay a ransom in bitcoins to the hackers. All the important files on the computer are being crypted and can’t be restored or unlocked in any other way. The massive cyber-attack is using tools believed to have been stolen from the US National Security Agency (NSA).

WannaCry is unprecedented in its reach, with more than 200,000 victims in more than 150 countries, as Wainwright said earlier on British TV. The number of the affected victims of the attack is believed to be continuously growing with hospitals, major companies, government offices and random citizens among them.

NHS staff shared screenshots of the WannaCry program, which demanded a payment of $300 (£230) in virtual currency Bitcoin to get their data back for each computer.

So far this is not the first scandal involving bitcoin.

Bitcoin is the original cryptocurrency released back in 2009. As being the first digital currency, an alternative to fiat money, it is also the most popular token of its kind. As such it appeared to have many issues that its successors have tried to reduce. Besides its innovative idea and the benefits that the bitcoin blockchain technology has given to the world, the credibility of bitcoin as a means to transfer funds has been undermined by a series of scandals ranging from theft of assets to concerns it could be used to fund criminal activity.

Some of bitcoin’s biggest flaws are believed to be its anonymity and decentralization – the key features that make it unique and independent of third parties and governments. As Telegraph pointed out, these are exactly the features that make transactions in bitcoin practically impossible to trace. Anonymity and decentralization have been pointed by various regulators as the key problem of cryptocurrencies, giving criminals, such as the people behind WannaCry ransomware, the opportunity to connect their dubious activities with the use of bitcoins. According to Wikipedia, several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods.

In 2014, researchers at the University of Kentucky found robust evidence that computer programming enthusiasts, speculating and illegal activity drive the main interest in bitcoin.

Trapped Transactions

As reported by media, the staggering 120,000 bitcoins worth more than $60M were stolen in August 2016 from Bitfinex – one of the largest digital currency exchanges based in Hong Kong. As a result from the cyberattack the bitcoin price fell with 20% reflecting the uncertainty related to the security of the stored digital coins.  To compensate its clients the exchange issued IOUs called BFX but those promises were subsequently redeemed at the beginning of 2017 with users having their accounts credited with dollar balances. However soon after it became clear that Bitfinex would be unable to process all requested withdrawals by customers. After multiple attempts to process transactions, Bitfinex finally had to announce in April this year that all incoming wires are either blocked or refused by Taiwan banks.

Powering the Black markets

A huge part of the so called Black markets is actually being powered by the use of bitcoins. Shocking as it is, the dark web includes cases such as drugs market, child pornography, murder-for-hire services and weapons, available on black market sites that sell in bitcoin. However, due to the anonymous nature and the lack of central control on these markets, it is hard to know whether the services are real or just trying to take the bitcoins.

Risky investments, frauds and Ponzi schemes

Severe criminal activities aside, there are many reasons why bitcoin is, to put it mildly, a risky field for investment. According to a recent research made by David Balaban, a rough estimate of the losses incurred by the industry over the past four years is on the order of 1.3 million bitcoins, or hundreds of millions of U.S. dollars. His article 5 Biggest Bitcoin Exchange Hacks explains in details the Mt. Gox, Bitfinex, Bitcoinica, BitFloor and Bitstamp – few of the biggest bitcoin fraud cases. Each of them resulted in loses in hundreds of thousands of bitcoins that the investors will never possess again as the cryptocurrency is not backed by any central authority or organization that could take care of the refund.

A research on the subject made January 2015 by The Telegraph showed that the total number of bitcoins lost forever by that time is £625 million. The research adds that there’s no hope of recovering Bitcoins if you lose the password – and it happens a lot more often than you’d imagine.

An article, published in CoinBuzz, paraphrases the statement as “2/3 Of All Bitcoins Have Been Mined, 1/3 May Be Lost”, or said otherwise, this amount is equal to 13 million bitcoins.

Not long ago, in 2013 SEC investigated bitcoin as a Ponzi scheme. A more recent article, published in Financial Times in January 2017, notes that bitcoin has all the attributes of a pyramid scheme and requires a constant influx of converts to push up the price, while promising future converts. The publication states that the ultimate value for bitcoin will be the same as all pyramid schemes – equal to zero.

Numerous warnings by central authorities and governments

Since the release of Bitcoin in 2009, there are numerous alerts by the U.S. Securities and Exchange Commission (SEC) aimed at the risky cryptocurrency, coming each few months for the last 8 years. SEC stated repeatedly that Bitcoin has the potential to give rise both to frauds and high-risk investment opportunities. The Internal Revenue Service (IRS) treats Bitcoin as property. The IRS recently issued guidance stating that it will treat virtual currencies, such as Bitcoin, as property for federal tax purposes. The Financial Industry Regulatory Authority, also known as FINRA, warned about the shady activities behind the bitcoin too and named a few of the bitcoin risks.

Many of the world’s Central Banks also officially stated their warnings against bitcoin. To name a few, among them there are China’s Central Bank, the Reserve Bank of India, German Central Bank, the Central Bank of Nigeria, and many more. The full list of legality of bitcoin by country or territory can be found here and it is regularly updated due to the dynamic changes.

Lets get back to WannaCry Ransom: How much money did its authors make till now?

The article on the subject is published on May 15 on The SSL Store. The study shows that the WannaCry ransomware started spreading worldwide on May 12 and by the Monday afternoon its authors collected about $70,000 in a total of 215 payments in bitcoins. These are only the money they earned during the weekend and as the time goes, the number grows.

All cryptocurrencies are anonymous and impossible to track: Truth or Myth?

The anonymity of the virtual currencies is a commonly spread belief, which comes from the most popular and oldest digital tokens, such as bitcoins. However, it is not valid for all, especially not for the new generation of cryptocurrencies, or said otherwise, the bitcoin successors.

What is more local legislators and regulators began to enforce laws that request procedures aiming at lowering the risk for users trading and moving funds in cryptocurrencies. The latest example from this year were Japan and Russia. For example, the Japanese bill tightened the regulation for trading and dealing bitcoins, forcing digital currency exchanges to comply with KYC (know-your-customer) and AML (anti-money laundering) regulations.

What is KYC feature?

KYC procedures are a feature of traditional payment systems used by banks that are expected to be adopted by cryptocurrencies willing to operate under the changing market conditions. It is expected that as banks clamp down on measures to avoid money laundering, many cryptocurrency users that already built virtual fortunes will be unable to liquidate their funds.

KYC is a short for Know-Your-Customer procedure, which refers to business identifying and verifying the identity of its clients. When Bitcoin was created, the issue of Know Your Customer was never considered, making it impossible to know the identity of the peers making transfers.

KYC as a possible solution

Following the regulatory developments in the US, the EU and selected Asian countries, cryptocurrencies prepare for the future by implementing Compliance procedures using KYC, thus disclaiming the anonymity of its users and limiting the chances for dubious activities and crime support by their tokens. Besides being compliant with regulators, cryptocurrencies adopting KYC is said to become more transparent and traceable. Such cryptocurrencies are Ethereum, OneCoin, Ripple, LiteCoin and SwisCoin.

The ability of financial services companies to cancel fraudulent or incorrect transactions discovered on a customer account because of their KYC procedures is in stark contrast with the way peer-to-peer decentralized blockchains require users to ask permission from the network to be allowed to cancel transactions. To discuss this issue some questions emerge – Can blockchain consensus protocols operate differently? How the industry should react? And what if nothing is done? What future awaits those cryptocurrencies that are incapable to change with the shifting market requirements toward KYC-based processes and market players’ needs for safety and security of funds?

Conclusion

The unregulated market of cryptocutrrencies is said to fuel the growing number of alternative digital currencies, feeding a speculative hype that could lead to sharp spike in their prices like the one of bitcoin. Considering the flaws of the pioneering cryptocurrency and the regular scandals related to its name, industry experts have been discussing the possibility of a Bitcoin bubble as digital currencies pass $50B in value. With its decentralized model Bitcoin faces a huge challenge – on one hand that is the tightened regulations requesting KYC compliance and on the other – the questionable ability of a decentralized cryptocurrency to adopt the necessary measures that would make it compliant. As the future of Bitcoin remains uncertain, Ethereum continuies to gain momentum as Bitcoin users turn to it instead.

COMMENTS

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    TWEKAMBE KABARULI MIGISA 3 months

    Am not happy with the wannacry attack. But the only issue I leave behind is that let all the upcoming CRYPTOCURRENCY adopt KYC so as to adopt hopes of recovering their investments.