Two people attempted to launder $3.6 billion in bitcoin cryptocurrency with a “laundry list” of obfuscation tactics. Six years later, the alleged criminals were arrested, showing that law enforcement isn’t giving up.
Investing in and using cryptocurrency was once almost taboo. It was too risky, most would say. The technology was not well understood except by those creating it, so many people watched from a distance to see what would happen. Today, investing in and using crypto is much more common, which is why global governments are catching up and figuring out how to trace this virtual currency. Ilya Lichtenstein and Heather Morgan were arrested in New York earlier this month, accused of laundering $4.5 billion in stolen bitcoin.
In August of 2016, nearly 120,000 Bitcoin was stolen from crypto exchange platform Bitfinex, a Hong Kong-based firm. The company announced the security breach when it happened, but not before around 2,000 transactions were approved to go to a single wallet from user’s segregated wallets. Bitcoin value subsequently dropped around 20% and Bitfinex took steps to mitigate user’s losses as well as remediate the security issue.
As with many security breaches in technology, the authorities take a much longer time to find the culprit if they can. The red tape surrounding global government’s abilities to work together made things difficult for everyone involved, not to mention keeping pace with the actual technology that is designed to keep identities private – one of cryptocurrency’s biggest draws is the ability to remain anonymous.
However, the US government at least is catching up with some help. Lichtenstein allegedly stored private keys that controlled funds in a cloud-storage wallet, making them easy to seize. Depsite, Morgan making rap videos on YouTube about her “self-made” wealth multi-layered technical measures were allegedly used by the couple in an attempt to dead-end the trail. This ultimately failed, allowing the IRS to recoup a portion of the stolen funds. The IRS Criminal Investigations showed the potential for cryptocurrency to be traced, even coins previously believed to be untraceable.
“What was amazing about this case is the laundry list of obfuscation techniques [Lichtenstein and Morgan allegedly] used,” says Ari Redbord, the head of legal and government affairs for TRM Labs, a cryptocurrency tracing and forensics firm. “It just shows that law enforcement is not going to give up on these cases, and they’ll investigate funds for four or five years until they can follow them to a destination they can get information on.”
Redbord also noted the couple’s alleged use of “chain-hopping” as a way to cover their trail. Chain-hopping involves transferring funds from one cryptocurrency to another to make it more difficult to trace. This can include exchanging bitcoins for privacy coins like monero and dash, both of which are designed to complicate and/or prevent blockchain analysis. Yet the government managed to get through all of those obstacles.
Cryptocurrency is an ever-evolving technology and an ever-evolving market. It can be volatile, which is why a full understanding of how the technology works is so important, and why business owners and decision-makers must learn all they can about it. Crypto isn’t going anywhere, and as more people start to use it, businesses need to understand how it works. They need to determine if crypto is a form of currency they want to accept, and if it is, how are they going to do that? Or is the business going to invest in and use crypto for another purpose?
Every business should be watching the crypto market and blockchain technology. Much of the world has already gone digital and cashless/contactless payments are in high demand. Like all technology, there’s going to be a learning curve, so it’s really important to start that process as soon as possible. Understanding the technology and what it can offer you and your business is the first step in determining if you want to go that route or not. But, like digital transformation or cloud migration or any other technological process, it has to make sense for the business and it has to be properly implemented. Consult an expert when you’re ready, someone with extensive knowledge of cryptocurrency who can tell you the right way to get acclimated to the technology and can show you how to properly employ it.