- Ransomware attacks have turned an uncomfortable spotlight onto the use of cryptocurrencies in crime.
- Hackers attacking the Colonial Pipeline and Ireland’s health service demanded payment in crypto.
- One analyst said the issue will not go unnoticed by US regulators, which could step up enforcement.
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Recent high-profile cyber attacks in which hackers demanded to be paid in cryptocurrencies have turned an uncomfortable spotlight on digital tokens and their use in crime.
One analyst said the ransomware attack on the Colonial Pipeline was facilitated by cryptocurrencies, which “will not go unnoticed by the US government and other countries.”
Hackers severely disrupted the US energy network earlier in May when they attacked the crucial Colonial Pipeline’s computing systems. To get the system back up and running, Colonial paid a ransom of nearly $5 million in cryptocurrency, Bloomberg reported, citing people familiar with the matter.
Days later, hackers targeted Ireland’s health service and also demanded a ransom be paid in bitcoin.
Bitcoin has crashed in recent days after Elon Musk said Tesla would no longer accept the token as payment, due to its “insane” and environmentally damaging energy use. Cryptocurrencies slid again on Tuesday after Chinese regulators cracked down on the use of digital assets for payments.
But Jeffrey Halley, senior market analyst at currency firm Oanda, said the so-called ransomware attacks had been an underappreciated factor.
“With Elon Musk grabbing all the headlines on his bitcoin/dogecoin pivot, the real issue is the $5 million ransom paid by Colonial Pipeline,” he said.
“Attacks on critical US infrastructure facilitated by cryptocurrencies will not go unnoticed by the US government and other countries. I would argue that the regulatory threat to cryptocurrencies has increased exponentially.”
Critics of bitcoin and other cryptocurrencies have long argued that they facilitate crime thanks to their anonymous and decentralized nature, which means they are very hard to trace and link to individuals.
Treasury Secretary Janet Yellen said in January that she was concerned about cryptocurrencies for this reason. “I think many are used – at least in a transaction sense – mainly for illicit financing,” she told lawmakers during her confirmation hearing.
Gary Gensler, the Chair of the Securities and Exchange Commission markets regulator, has made similar criticisms in the past.
“Beyond use on the darknet, there are those around the globe who seek to use these new technologies to thwart government oversight of money laundering, tax evasion, terrorism financing, or evading sanctions regimes,” he told Congress in 2018.
Although cryptocurrency companies that deal with customers in the US are covered by various financial regulations, the digital asset markets is largely a grey area outside the traditional world of finance. Regulators have consistently warned that investors should only buy in if they’re willing to lose all their money.
In the US, regulators are keeping a close eye on cryptocurrencies but have not yet committed to any major rule changes during the latest digital asset boom.
Fox Business reported in April that Gensler is waiting for the Treasury to review the currency cryptocurrency rules before the SEC lays out its approach. Fox said Gensler is likely to step up enforcement action.
Regulators are likely to increase their focus on crypto as ransomware attacks become more prevalent, said Rahul Bhushan, co-founder of Rize ETF, which runs a cybersecurity fund.
Yet Bhushan said a stronger “regulatory framework around cryptocurrencies… will help legitimize that market.”
Michael Shaulov, chief executive of crypto firm Fireblocks, said: “The true solution is a capability for law enforcement agencies around the world to distribute real-time information about illicit activities allowing wallet and custody providers to block these funds in transit.”
Colonial Pipeline has been contacted for comment.