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Cryptocurrency exchanges and wallets were hacked to the tune of $927 million in the first nine months of 2018, marking a surge of nearly 250 percent from 2017, noted independent research published by U.S. cybersecurity firm CipherTrace on Oct.10.
250 Percent Rise
The firm investigated money laundering and criminal cases in the digital currency market since the start of 2018. While high-profile thefts like the infamous $500 million hack on Japanese exchange CoinCheck make a bulk of the stolen figures, several hacks in the $20-$60 million went underreported and were seen to be steadily growing. In fact, small thefts totaled to $173 million in Q3 2018.
A similar report by CipherTrace in 2017 saw only $266 million stolen from crypto-exchanges. The firm believes Bitcoin’s impressive rise and the emergence of 1,600 digital tokens drew attention from bad actors into the cryptocurrency space, which ballooned to over $800 billion at its peak in January 2018. However, the market has taken a beating since, with over $500 billion leaving the cryptocurrency throughout 2018 for a current valuation of $205 billion at the press time.
Dave Jevans, the CEO of CipherTrace told Reuters that regulation in the cryptocurrency markets remains low as only a few countries have applied strong anti-money laundering (AML) legislation. He adds that authorities at “still a couple of years behind.”
Jevans noted the CipherTrace report might have underestimated criminal theft by 50 percent – consisting of crypto-theft that occurred, but was not reported to authorities. The latter confirmed this fallacy, stating they were “aware” of $60 million in a hacking incident that was stolen but not traced for the research.
Research data showed the world’s top cryptocurrency exchanges were used to launder over $2.5 billion worth of bitcoin since 2009, primarily due to weak AML laws and absent internal policies on money laundering. For purposes of the analysis, over 20 crypto-exchanges were analyzed. However, CipherTrace withheld the names due to lack of evidence beyond tracking funds marked as “highly suspect” and “criminal” by its internal research team.
To estimate the mammoth $2.5 billion figure, CipherTrace analyzed 350 million transactions from the top 20 crypto-exchanges and found 100 million transactions conducted with counterparties marked “criminal.”
Exchanges and the Criminal Connect
In a startling revelation, the firm noted over 236,979 bitcoins were purchases directly from exchanges to fund criminal activities, equivalent to $1.5 billion at current prices but likely much lesser if purchased before mid-2017.
Commenting on the above-mentioned point, Jevan believes cryptocurrency exchanges get money-laundered, illicit funds all the time, but no one can “really stop them.”
“We learn about the criminal stuff often times after it actually happened. So there’s no way to know in real time. You can know 80-90 percent of the time, but it’s impossible to know 100 percent.”
The release of such reports validates why institutional investors have largely remained on the sidelines of the high-risk, high-reward cryptocurrency market. Doing business with firms linked to criminal activity is not only bad PR, but could also spur sensationalist media reports of providing liquidity to criminals for the latter’s illicit benefit.