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Crypto crime spree sees $356m stolen in Q1 2019

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Criminals stole more than $356 million from crypto-currency exchanges and infrastructure during the first quarter of 2019.

This is according to blockchain threat intelligence solutions firm CipherTrace. This as the price of Bitcoin, the world's most popular digital currency, is gaining after taking a battering last year. It's now trading at over $5 600, coming from a low of below $4 000 last year.

CipherTrace notes that among these losses, exit scams - which CipherTrace is considering the implosion of QuadrigaCX to be one - robbed crypto-currency users of nearly $195 million.

QuadrigaCX was believed to be Canada's largest crypto-currency exchange. The company's CEO and founder, Gerald Cotten, died unexpectedly in December 2018, after travelling to India. Up to $190 million owed to 115 000 customers is missing or cannot be accessed because only Cotten held the password to offline cold wallets.

On top of these numbers, CipherTrace says the New York attorney general's office revealed what it alleges is fraud involving the loss of $851 million by major crypto-currency exchange, Bitfinex.

It points out cyber criminals also developed ingenious new techniques to drain millions more from user accounts and wallets.

These thefts only represent the losses that are visible and CipherTrace estimates the true number of crypto asset losses was much higher.

Cross-border payments

CipherTrace research conducted in Q1 revealed a major hole in the current crypto-currency regulatory fabric with respect to cross-border payments.

An analysis of 164 million BTC transactions revealed that cross-border payments from US exchanges to offshore exchanges increased from 45% in the 12 months ending Q1 2017 to 66% in the 12 months ending Q1 2019.

"This is significant because according to the International Consortium of Investigative Journalists, $8.7 trillion, 11.5% of the world's wealth, is hidden offshore," says CipherTrace.

It points out that ultimately, thieves and scam artists will need to launder the crypto-currency stolen or scammed in Q1 2019.

Furthermore, it adds, this will require innovative new ways to cash out, and turn all that tainted virtual money into clean, spendable fiat currencies. "And they will also need to get it done under the much more watchful eyes of government regulators and banks as a tsunami of tough new global anti-money laundering and counter-terror financing regulations will roll over the crypto landscape in the coming year."

As of April, CipherTrace says, 17 countries plus the European Union within the jurisdiction of the Financial Stability Board had at least some regulation or standard-setting bodies dealing with crypto-currencies.

In light of the huge losses suffered by users of QuadrigaCX, regulators in Canada and around the world are rethinking controls on the internal business practices and security operations of exchanges.

In addition, CipherTrace says regulators are beginning to recommend bans on privacy coins, as criminals are coming to prefer these new anonymous altcoins to Bitcoin because they are more difficult to trace. Banks also continue to face problems coping with the coming wave of regulations as they increasingly recognise there are undetected crypto-currency operations that are using their fiat payment networks and customer accounts.

In SA, earlier this year, the central bank proposed tighter regulation of crypto-currencies in the country.

Crime spree

According to CipherTrace, the previous year's crypto crime spree was dominated by major external exchange hacks around the globe, with the biggest occurring in Q1 2018.

However, it says in the first quarter of this year, insiders, extortionists and scammers attempted a more diverse range of crypto crimes.

"As just one example, kidnappers in Norway demanded nine million euro (approximately $10.3 million) ransom in Monero, a privacy coin, for a billionaire's wife, who has not yet been returned.

"There were also two large insider thefts/misappropriations (QuadrigaCX and Bitfinex). This shift suggests security against external hackers at exchanges is maturing under the pressure from regulators and customers to take necessary measures to prevent losses."

In the first quarter of this year, cyber thieves, extortionists and scammers attempted a more diverse range of crypto crimes, it points out.

"While not included in the current theft numbers in this report, on 6 March 2019, the UN Security Council reported North Korean state-backed hackers successfully breached at least five crypto-currency exchanges in Asia between January 2017 and September 2018, causing $571 million in losses. Also of note, but not included in this quarter's theft numbers, was the loss of 1 680 XMR Monero (around $80 000) due to a bug in the Ledger app."

CipherTrace says the geopolitical implications of crypto-currencies also took centre stage in Q1 2019 with countries competing to attract crypto businesses and foster related economic growth.

"Conversely, overt attempts to evade sanctions by hostile nations show that economic adversaries recognise the money laundering and terrorist financing potential of crypto assets," it concludes.

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