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Cyber Security Implications of Cryptocurrencies

If you are not familiar with the term cryptocurrency don’t feel bad, you are not alone! A random sampling of business professionals found about 40 per cent of them have not heard of the term, and another 20 per cent have heard the term, but are really unaware of where this technological innovation stands today. A most interesting part of that sampling found a certified public accountant (CPA) unaware of this most interesting development. Cryptocurrencies are now part of the rapidly evolving technology driven digital economy that appears to be growing. In the last few years, cryptocurrencies have come out of the technology shadows and into the global reality of modern finance and commerce.   Now they are beginning to be recognized as having serious national security implications. That said, a growing number of opinions state that public use of cryptocurrencies is fueled by a backlash “to reclaim our privacy and security.” That is expected to further increase the growth of cryptocurrency activities.

INSIGHT: Bitcoin became the first decentralized cryptocurrency in 2009 and many more have followed.

Cryptocurrency is a form of value transfer that is also referred to as virtual currency, digital currency, eCash or digital money. It uses encryption techniques to generate and regulate the units of monetary/value transfer and for security purposes. It should be noted that cryptocurrencies are independent of any central bank and are not under the control of any nation – at least at this point. While Ecuador became the first country to roll out its own digital cash, to date, no government or central bank has issued a cryptocurrency. Although, currently a few countries have disclosed their intention to issue their own cryptocurrency. Today cryptocurrencies are issued electronically by corporate entities or even individuals. Their value comes from the fact that the amount of any one currency issued is strictly limited, thereby limiting dilution from additional issuance (dilution), which is controlled by a transparent block-chain process and totally anonymous as to ownership. Yet, for purposes of exchange the value of a single unit of a cryptocurrency is usually quoted in a fiat currency issued by a central bank (for example, a USD) to another cryptocurrency unit. Some users of cryptocurrencies are attracted to the fact that the decentralized nature of cryptocurrencies provide a mechanism of spending/savings wealth that is beyond control, monitoring, restriction and confiscation of any nation state or organization. To illustrate this point, consider the money laundering charges (Case F14-2923) that was dropped by a judge in Florida. A motion to drop charges was made because two federal organizations had made decisions and they were public that the cryptocurrency involved in this case was NOT money/currency as defined by the country’s laws. Clearly technology, in this case cryptocurrencies, are developing much faster that the regulatory system can respond and many professionals realize. For additional details please check out this link to the court’s decision.

INSIGHT: Did you realize that there are ATMs specifically designed for Bitcoin (currently the largest cryptocurrency in operation today) as well as devices similar to credit card slide terminals that support Bitcoin.

When you contrast cryptocurrencies with traditional currencies you find that they are beginning to function as traditional money. Just look at TRAVELEX.COM that site provides information for the estimated 180 different currencies in operation worldwide. The web site CoinMarketCap currently lists and provides information for the 741 different cryptocurrencies and tracks their value just like some stock market monitoring companies’ online programs that have been around for years. It should be noted that multiple countries are currently considering the issuance of their own cryptocurrency. To put the current state of cryptocurrencies in context, consider at the time of writing this the sum value of ALL cryptocurrencies is slightly over $98 billion USD (figure as of 6/15/2017). That is more than the recent estimates for the latest annual GDP of about 146 of the individual countries in the world based on the CIA World Fact Book figures. One has to wonder what those numbers would be when you included the cryptocurrencies specifically designed and being used on the dark web/black market. To put those figures in perspective, at the time of writing this piece a single Bitcoin was worth $2374.36 USD and an ounce of gold was worth $1,320 USD. (At the time of authorship!) That’s right, at that time a Bitcoin was worth more than 1 ounce of gold! Basically the price of a cryptocurrency is established by the market (supply and demand). As demand goes up with a set supply the price rises just like the well-established commodity marketplace.

INSIGHT: Caution is urged as many warn that there will be a shake-out among hundreds of cryptocurrencies in circulation today and many of them will not make it! Some have already failed and have dropped from use.

Stop for a moment and consider how significant cryptocurrencies can be used in support of sinister activities – both physical and cyber! Clearly the anonymity and security that cryptocurrencies provide will make one or more of them the payment method(s) of choice for human trafficking, smuggling, sale of illegal drugs, terrorist funding as well as the sale of weapons – both traditional arms and cyber weapons as well as other criminal activities. Perhaps the most widespread criminal application of cryptocurrencies at this time is its use in ransomware attacks. Recently released metrics seem to indicate that last year there were between 25,000 and 35,000 ransomware attacks per month! Similar metrics indicate that last year ransomware payments demands more than doubled in price and seem to have topped $800 million. We should also consider the black market for cyberattack services. Questions have been raised as to just how large that market actually is and what percentage is paid for via cryptocurrency. Some have gone as far as to project the availability of cryptocurrencies could spur cyber extortion. To be sure, those markets are not trivial.   Now for a much more troubling aspect of the cryptocurrency movement – according to foreign government sources, the Islamic State of Iraq and Syria, or ISIS, sent Bitcoin to fellow members in one specific country to avoid transferring money through the traditional financial system. The untraceable cryptocurrency use makes dealing with global terrorism much more difficult from the tracking terrorism financing aspect for sure. Stop and think for a moment, if you were involved in cyber espionage, cyber extortion, cyber ransomware or spying would you want payments made to you in traditional forms of money or via a cryptocurrency? There is little doubt that as cryptocurrencies continue to grow in popularity and use, their illicit use will also grow.

INSIGHT: Multiple reports state that ransomware attacks are expected to substantially increase given the increased use of cryptocurrencies for untraceable ransom payments.

Important Considerations

Since most cryptocurrencies are not government-issued currencies (some are supported and others are in process of being government issued) these new forms of value transfer are created by businesses/organizations and in some cases individuals. That has many concerned and some governments moving to regulates them. The value of each cryptocurrency is market driven – priced based on demand/usage. This is a highly dynamic subject matter and requires a fair amount of research before ANYONE or ANY ORGANIZATION decides to get involved. Keeping up-to-date is a challenge to say the least!

It is also important to remember cryptocurrencies are not accepted everywhere. There is a growing web community that accepts them directly while other require a third-party intermediary for processing and the transaction looks like regular currency to the vendor. Online intermediaries and exchanges are growing in number and services. This is necessary to keep pace with the continuously growing usage. Many of these exchanges allow one cryptocurrency to be exchanged for another or for traditional currencies including US and Canadian currencies. Of course there are fees involved for this and a growing number of other services similar to those in traditional financial transactions. I am sure, given a number of recent reports and analytics that cryptocurrencies are used in the sale of illegal drugs, human trafficking, sale of fire arms, gambling and a number of other activities that occur on the shady side of the Internet. Each day it seems more and more can be done with this new form of value transfer.

Conclusion

All things considered the acceptance of cryptocurrencies is substantial and still in its early stages. We have even see the development, sale and use of mobile cryptocurrency payment apps. All of this is now part of the rapidly evolving digital economy.  Clearly cryptocurrencies have their (growing) share of supporters and are growing in number and overall economic value. Cyber professionals and other subject matter experts (SMEs) are cautiously optimistic and at the same time very concerned about the continued advancement of this concept. With all of the nefarious activities that will likely accompany the normal use of cryptocurrencies, close monitoring of this subject matter is required. There are a number of free cryptocurrency courses available online, as well as programs to further your understanding of blockchain – a critical component used in support of cryptocurrency transactions. After closely following the continued progression of cryptocurrencies worldwide since 2012, there is little question this technological advancement will continue to significantly intersect cyber security for the foreseeable future.

INSIGHT: One recent report brought up a timely and interesting possibility for illegal use. Could cryptocurrencies be used to clandestinely and illegally fund election campaigns? The answer is obviously yes!

In the next few years you can bet that cryptocurrencies will experience increasing scrutiny. However, it is almost assured that they are here to stay and we all must adapt and learn to deal with them. One has to wonder if federal authorities and law enforcement are properly prepared to counter the rise of cyber threats and the illicit activities that will likely be supported with cryptocurrencies. Concerns are being voiced that any government efforts to regulate, monitor or control cryptocurrencies will be met with strong resistance and could even accelerate their illegal use. All things considered, the growing use of cryptocurrencies create numerous national security and intelligence gathering challenges for everyone! One question remains – are you ready?

The world is certainly changing. It is changing so rapidly that as a professional it is hard to keep-up with all that is happening. Cryptocurrencies are gaining a lot of attention as an alternative method of value transfer and payment. There is little doubt that businesses, governments and the dark side are all aggressively exploring their use – their growing potential to become a globally accepted payment solution grows with each and every day.   As with any relatively new or emerging technology, they also offer a fair amount of issues and opportunities for those that choose to accept the risks and carefully experiment with it. As they grow in number and use, the security implications will grow with them. With all that is going on in the cryptocurrency domain today, professionals in national security, intelligence, the military, law enforcement and business must continuously monitor their development and be prepared and adapt to their ongoing adoption and use.

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Kevin Coleman
Kevin Coleman brings over 25 years of experience in the technology industry to Independent Software. Kevin is a dynamic speaker, author, advisor, and visionary and he regularly hosts public forums on the power of innovation and how to apply technology to solve the federal government and commercial sector specific technology needs. Currently he is the Chief Strategist at Independent Software Chief Strategist at Independent Software a U.S. Department of Defense Contractor. During his career, Mr. Coleman has presented in more than 40 countries and he has briefed 15 executives from the Global 100 companies. He has helped management teams create break-through technology strategies in order to generate a competitive advantage. Mr. Coleman is a frequent contributor to the Internet of Things (IoT) Evolution, specializes in C4ISR and Cybersecurity, and has been published in over two dozen publications that include USA Today, CNN, Information Week, Strategy & Business, Inc., The Washington Times, and many more. He has spoken to business and technology leaders around the world, including the U.S. Strategic Command, the United Nations, and the U.S. Congress and Congressional commissions. Mr. Coleman was the Chief Strategist at Netscape during their astonishing 65,000 per cent growth explosion which was achieved in under five years. Prior to that, he was Vice President and Chief Strategist at Claremont Technology Group which was named Business Week’s 44 fastest growing companies. Early on in his career he worked as a Principal at Computer Sciences Corporation (CSC) and a manager at Deloitte.