Cryptocurrency is a type of digital currency secured by cryptography and is a decentralised network based on blockchain technology. Decentralised network refers to any network in which programming, operation and decision-making functions are delegated away from any central authority or agency. This feature makes cryptocurrency immune to any interference from the government or financial institutions – but only in theory. A blockchain is the digital record folder containing information and transactions that are duplicated and distributed across the network.
The digital asset has seen paramount growth in the market since the first of its kind, bitcoin, was launched in 2009. Now, over 18.6 million bitcoins are in circulation as of March 2021. Several other cryptocurrencies have been launched after bitcoin was declared a success in the market. Currently, as on 1st July 2021 the aggregate value of all the cryptocurrency around the globe is around $1.45 trillion. But this estimate fluctuates rapidly as the value of cryptocurrency is very susceptible to market change.
Hailed as the most secure way of transaction in the market it has become a common vector for several illegal activities. The perpetrators and the exploiters are motivated by the almost anonymous nature of the transactions which makes it easier for money laundering and tax evasion. One of the illegal activities rampant in the cryptocurrency market is cyber attacks. The blockchain itself is very secure but the surrounding aspects such as e-wallets and exchanges are very prone to cyber attacks.
The frequency of these cyber-attacks has made everyone sceptical about investing in this digital asset. Usually the attacks are launched by gaining control of the whole network system through hacking routers or temperature controllers. Traditional tools such as malware, website defacement, spear phishing is also utilised by cyber criminals while targeting cryptocurrency exchanges. The rice of the bitcoin drastically increased by 400% between October 2020 and May 2021, while cyber-attacks on the same also increased by 192%.
Cryptocurrency has become the favourite currency for criminals due to its anonymity. Several hackers are demanding crytocurrencies as ransom money leading to a trend in cyber warfare. This has led to easier online extortion and impersonation. Several experts have shown concern regarding national security as even high profile organisations have also been targeted. Group –IB, an international company dedicated to preventing cyber attacks has given an estimate that cryptocurrency has suffered a loss of around $882 million in 2017-18. A cyber attack group named Lazarus has been responsible for several of these attacks.
The Japanese crypto exchange Coincheck lost around $534 million due to one such attack. The largest petroleum pipeline in the United States, Colonial Pipeline also succumbed to a cyber attack due to merely a password leak. The pipeline company was hacked and locked out of its own system. The attack drastically affected the supply of gas on the east coast of the country. The price of gas skyrocketed in the market and panic buying and hoarding was witnessed along the coast.
As ransom for the recovery of their system the colonial pipeline paid in cryptocurrency: bitcoin amounting to $4.4 million. Although majority of it has seemed to be recovered by the Federal Bureau of Investigation (FBI) by tracing the blockchain transaction. Criminal group DarkSide has been confirmed to be responsible for the attack.
Lack of awareness and understanding the complex system of cryptocurrency has driven people to seek help from stock brokers and other financial wizards. Several people have entrusted their hard earned money to strangers without authentication and due diligence. Recently, an Indian businessman lost Rs. 3.5 crore to a man who assured him investment in cryptocurrency. The businessman explained to the crook that he had limited knowledge of crypto market and asked for help in the investment. Indian citizens have to resort to foreign platforms to process their investment in cryptocurrency. This invites more tax liabilities on the investors and makes them more vulnerable to these attacks.
The attacks highlight the vulnerability of modern system to cyber warfare. Several such attacks have come to light with devastating consequences. Certain regulation in place and effective compliance can ensure these attacks are minimised. The security and anonymity promised by the blockchain system has seemed to backfire and caused more damage than good. Drastic measures with regards to tackling these threats are required as immediate response.
Originally posted on www.kpalegal.com on 17th July 2021
