Bitcoin Ransom Recovery May Impact Cryptocurrency Status

Bitcoin is touted as a secure, decentralized and anonymous way to conduct financial transactions, one reason why cybercriminals use it or some other cryptocurrency when conducting illegal business, whether it’s drug trafficking or ransomware. But this week the Justice Department revealed that it traced and recovered 63.7 of the 75 Bitcoins ($2.3 million of the total $4.3 million) that Colonial Pipeline paid in ransom to release its computer systems. The feds declined to detail how they recouped the Bitcoin. Meanwhile, El Salvador has become the first nation to formally adopt Bitcoin as legal tender.

The New York Times reports that, “the same properties that make cryptocurrencies attractive to cybercriminals — the ability to transfer money instantaneously without a bank’s permission — can be leveraged by law enforcement to track and seize criminals’ funds at the speed of the Internet.” Contrary to what many believe, “Bitcoin is also traceable … [because] the Bitcoin ledger can be viewed by anyone who is plugged into the blockchain.”

Former federal prosecutor, Andreessen Horowitz investor Kathryn Haun dubs that “digital breadcrumbs.” “There’s a trail law enforcement can follow rather nicely,” she said, adding that the Justice Department’s speed in recovering the ransom was “groundbreaking” because of the criminals’ use of Bitcoin.

To find the criminals’ digital wallet storing the Bitcoin, “authorities likely focused on what is known as a ‘public key’ and a ‘private key’.” The former is the “string of numbers and letters that Bitcoin holders have for transacting with others, while a ‘private key’ is used to keep a wallet secure.” Finding the private key was the biggest challenge and, “it’s unclear how federal agents were able to get [cybergang] DarkSide’s private key.”

Justice Department spokesman Marc Raimondi declined to give further details, but “the FBI did not appear to rely on any underlying vulnerability in blockchain technology.” NYT posits that, “the likelier culprit was good old-fashioned police work … [possibly] planting a human spy inside DarkSide’s network.”

TRM Labs, Elliptic, Chainalysis and other startups now specialize in tracing cryptocurrency payments and flagging “possible criminal activity,” and the FBI has partnered with several such companies. At Bitwise Asset Management, chief executive Hunter Horsley noted that, “the public is slowly being shown, in case after case, that Bitcoin is good for law enforcement and bad for crime — the opposite of what many historically believed.”

Chainalysis spokeswoman Madeleine Kennedy added that, “cryptocurrencies are actually more transparent than most other forms of value transfer … certainly more transparent than cash.”

The Wall Street Journal reports that, “El Salvador passed a new law on Wednesday that would make the small Central American country the world’s first to deem Bitcoin legal tender, a move that analysts say risks putting its economy at the mercy of the digital currency’s sharp swings.”

The law now allows cryptocurrency to be used for bank loans as well as to pay taxes and buy goods. President Nayib Bukele’s New Ideas party quickly approved the three-page bill that also states that, “converting Bitcoin into other currencies won’t be subject to capital-gains tax.”

Related:
The FBI’s Seizing One Bitcoin Wallet Won’t Stop Ransomware – But It’s a Start, NBC News, 6/11/21
Bitcoin Mining Council Debuts as Energy Backlash Increases, Bloomberg, 6/10/21
El Salvador Plans to Use Electricity Generated From Volcanoes to Mine Bitcoin, NPR, 6/11/21
Warren Buffett’s Latest Big Investment Likes Cryptocurrency, Fortune, 6/10/21