Crypto Currencies and Cybercrime

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Crypto Currencies and Cybercrime

Greeshma K V

Ad-hoc Faculty, Carmel College Mala,

Abstract Crypto currency is a collection of technologies based on Satoshi Nakamotos 2009 invention, Bitcoin, which is counterfeit-proof and decentralized. Several cryptographic technologies (hash sums, asymmetric keys, and proof-of- work) are combined to make this possible via a global, peer- to-peer network. The currency is in use today: It can be traded for other currency, or used to buy goods and services

.Bitcoin is an electronic currency designed to usea public protocol that implements it in a totally decentralized manner, so as not to need the control of any central issuing organization that manages it. Though still in development, it has been proven to be a modern payment system referred to have been used in some procedures commonly associated to money laundering or trafficking of illegal substances of various kinds. Thus, in this article, we analyze those features which transform such a crypto currency in a useful tool to perform any kind of transactions far from the control of any kind of regulatory agency, as well as we pinpoint some of the fields in which their usage can derive in new illicit behaviors.

Keywords Crypto currency, cybercrime, bitcoin, computer crime, virtual currencies, e-commerce, internet payment, Mt. Gox, payment systems, PayPal, Silk Road, tor.


    Cryptocurrencies are a subset of digital currencies that provide a medium of exchange using cryptographic protocol to verify the exchange of funds and regulate the creation of new units of currency. Hundreds of cryptocurrencies now exist however most are similar to and based on the first fully implemented crypto currency, Bitcoin

    . The following are notable for their innovation:

    • Namecoin, introduced April 2011, was created as an attempt at forming a decentralizedDNS making internet censorship extremely difficult.

    • Litecoin, introduced October 2011, was the first successful cryptocurrency to use scrypt as its hash function instead of SHA-256.

    • Peercoin, introduced August 2012, was the first to use a proof-of-work/proof-of-stake hybrid.

    • Nxt, introduced late 2013, exclusively uses a proof-of-stake mechanism.

    The pioneer cryptocurrency Bitcoin will be used as a model cryptocurrency in this paper in light of its continued market dominance.


    Crypto currency is produced by the entire crypto currency system collectively, at a rate which is defined when the system is created and publicly known. In centralized

    banking and economic systems such as the Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. However, companies or governments cannot produce units of cryptocurrency and as such, have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in a decentralized cryptocurrency. The underlying technical system upon which all cryptocurrencies are now based was created by the group or individual known as Satoshi Nakamoto.


    Bitcoin introduced a decentralized currency system based on a peer-to-peer network where currency is not issued per se; instead it is mined with advanced computers by cracking difficult math-based equations. Bitcoin can be called the trendsetter, as its success has spurred the launch of many other cryptocurrencies (there are more than 150 cryptocurrencies). The currencies inspired by Bitcoin are collectively called altcoins and have tried to present themselves as improvised and modified versions of Bitcoin. These currencies are easier to mine, but involve greater risk in terms of lesser liquidity, acceptance and value retention. Here are five digital currencies picked from the lot.

    • Litecoin

    Litecoin, the second largest cryptocurrency in the world was launched in the year 2011. It was created by Charlie Lee, a MIT graduate and former Google engineer and can be described as the second-in-command to Bitcoin. Litecoin is based on an open source global payment network that is not controlled by any central authority and uses "scrypt" as a proof of work, which can be decoded with the help of CPUs of consumer grade. Litecoin has a faster block generation rate and well as more rewards per block as compared to Bitcoins.

    • Darkcoin

    Darkcoin is a more secretive version of Bitcoin. Though Bitcoins are anonymous when compared to traditional money, there is still a record of all transactions ever carried out in a ledger blockchain which can reveal a lot of information. Darkcoin offers more anonymity as it works on a decentralized mastercode network that makes transactions almost untraceably. Launched in January 2014, Darkcoin has an increasing fan following in a short span of time. This cryptocurrency was created and developed by Evan Duffield and can be mined using a CPU or GPU.

    • Peercoin

    Peercoin, also referred to as PPCoin, Peer-to-Peer Coin and P2P Coin, was created by software developers Sunny King (a pseudonym) and Scott Nadal. It was launched in August 2012 and was the first digital currency to use a combination of proof-of-stake and proof-of-work. The coins are initially mined through the commonly-used proof-of-work hashing process but as the hashing difficulty increases over time, users are rewarded with coins by the proof-of-stake algorithm, which requires minimal energy for generating blocks. This means that over time, the network of Peercoin will consume less energy. Peercoin is an inflationary currency since there is no fixed upper limit on the number of coins.

    • Dogecoin

    Dogecoin is another currency from the family of cryptocurrencies that recently turned a year old (launched in December 2013). Dogecoin, which has a ShibuInus (a bread of a Japanese dog) as its logo, was created by Billy Markus and Jackson Palmer. Dogecoin presents itself broadly based on the Bitcoin protocol, but with modifications. It uses scrypt technology as a proof-of-work scheme. It has a block time of 60 seconds (1 minute) and the difficulty retarget time is four hours. There is no limit to how many Dogecoin can be produced i.e. the supply of coins would remain uncapped. Dogecoin deals with large numbers of coin that are lesser in value individually, making the currency more accessible with a low entry barrier and fit for carrying out smaller transactions.

    • Primecoin

    Peercoin), its proof-of-work is based on prime numbers, which is different from the usual system of hashcash used by most cryptocurrencies based on the Bitcoin framework. It involves finding special long chains of prime numbers (known as Cunningham chains and bi-twin chains) and offers greater security and mining ease to the network. These chains of prime numbers are believed to be of great interest in mathematical research.

    The table below shows the market capitalization and price of the digital currencies discussed above. The data is from and accurate at the time of writing.


    Market Cap



    $ 3,548,379,577

    $ 248.47


    $ 118,124,475

    $ 2.96


    $ 19,395,329



    $ 9,075,616



    $ 2,042,925

    $ 1.67


    $ 2,503,015

    $ 0.24

    Bitcoin has a huge lead in terms of its market capitalization, acceptance and usage. However, some of the peer currencies are slowly developing their own fan following, though none is currently in a position to challenge the dominance of Bitcoin. One thing which

    common to the whole virtual currency family is volatility in the prices. Till the time that is solved, none is risk-free. Other than the above five, some other cryptocurrencies which are popular are counterparty, mastercoin, digital coin, novacoin, zetacoin, feathercoin and zetacoin, among others. Going by the belief that virtual currency is the future, it will be interesting to see which ones survive the growing cryptocurrency competition.


    In 2008, Bitcoin was announced and a white paper penned under the pseudonym Satoshi Nakamoto was posted to the Cypherpunks mailing list, followed quickly by the source code of the original reference client. Bitcoins genesis block was mined on or around January 3, 2009. The first use of Bitcoin as a currency is thought to be a transaction in May 2010, where one user ordered pizza delivery for another in exchange for 10,000 bitcoins. Since then, an increasing number of merchants and services have adopted Bitcoin and the price has generally risen, reaching a peak of approximately US$1200 per bitcoin in late 2013.

    Bitcoins history has also been colored by its association with crime. The popular black market website Silk Road operated from Feb. 2011 until Oct. 2013 when it was seized and shut down by the FBI. Botnets have found Bitcoin mining to be a supplemental source of income.A current US federal court case involves a large Bitcoin- based Ponzi scheme. In 2014, a computer virus called CryptoLocker extorted millions of dollars from victims by encrypting their files and demanding a Bitcoin ransom to release the decryption key. Many users Bitcoins have been lost due to theft and collapsed exchanges.


    Bitcoins can be bought and sold both on- and offline. Participants in online exchanges offer bitcoin buy and sell bids. Using an online exchange to obtain bitcoins entails some risk, and, according to a study published in April 2013, 45% of exchanges fail and take client bitcoins with them. Exchanges have since implemented measures to provide proof of reserves in an effort to convey transparency to users. Offline, bitcoins may be purchased directly from an individual or at a bitcoin ATM.


    Bitcoin maintains an association with cybercrime due to internal security issues and its popularitywith the black market. The near anonymity provided by the service, its dubious legal status andtransnational existence make it an obvious, attractive opportunity for money launderers andcriminals alike. However it is important to acknowledge the technology underpinning Bitcoinsoperation is not inherently criminal, nor are persons seeking a level of anonymity in a modernworld of intrusive, universal surveillance.

    Bitcoins security issues became a news item with the bankruptcy of Tokyo based Mt. Gox in February 2014. Mt. Gox was one of the largest digital currency exchangers until its computer system was hacked and approximately

    $477 million worth of Bitcoins were stolen prompting it to declare bankruptcy. Flex coin, a Bitcoin storage company in Canada, also closed down in March 2014 following the theft of approximately $650,000 worth of Bitcoins. Such incidents continue to occur and indicate clear issues with transaction malleability and safe storage of Bitcoins, though this is often attributed to a lack of proper understanding of security requirements.

    Bitcoins popularity with the black market lies partly in the difficulties of locating its pseudonymous users. The now defunct online drugs bazaar Silk Road exclusively operated using Bitcoin for this very purpose. In 2012 it was estimated that 4.5% to 9% of all transactions of all Bitcoin exchanges in the world were for drug trades on Silk Road.7 Following a lengthy, international effort the FBI finally closed down Silk Road on 2 October 2013 proving that cyber criminals are not beyond the reach of law enforcement. Nonetheless, high profile cases such as Charlie Shrem, co-founder of Bit Instant, who pleaded guilty on 4 September 2014 to operating an unlicensed money transmitting business involving Bitcoins to facilitate criminal activity, continue to maintain the association between the black market and Bitcoin.

    Cryptocurrencies, due primarily to their anonymous characteristic, have been linked to numerous types of crimes, including facilitating marketplaces for: assassins; attacks on businesses; child exploitation (including pornography);corporate espionage; counterfeit currencies; drugs; fakeIDs and passports; high yield investment schemes (Ponzi schemes and other financial frauds); sexual exploitation; stolen credit cards and credit card numbers; and weapons.

    Market place for Assassins

    The diversity of illicit content available on underground message boards is truly astonishing. Trend Micro, a member of the Digital Economy Task Force reports privately maintained sites that offer specific types of goods and services. Some are pages with prices and contact information for anonymous orders and others provide a full order and payment management system . . . include[ing] hired assassins.

    A New York Times article regarding the website Silk Road and alleged exploits of Ross WilliamUlbricht, Dread Pirate Roberts points to a Baltimore criminal complaint depicting the solicitation of several killings.

    Attacks on Businesses

    Examples of hacking attacks on businesses are recited daily by virtually every major news source. Pinguelo and Muller observe that Attacks on businesses include such things as the theft of intellectual property, seizing bank accounts, generating and distributing malware, and other disruptive activity. Cyber security experts from the law enforcement community observe that many of these illicit cyber services

    are routinely available and purchased with cryptocurrencies.

    Child Exploitation

    In this November18, 2013 testimony before theU.S. Senate Committee on Homeland Security and Governmental Affairs, ErnieAllen, President &CEO ofthe International Center for Missing and Exploited Children (ICMEC) expresses concern about the apparent migration of commercial child sexual exploitation, including sex abuse images, child exploitation and sex trafficking, along with other criminal enterprises to anew unregulated digital economy, made up of digital currencies; anonymous online payment systems; anonymous internet tools; and file hosting companies.Examples of large scale providers of child pornography are numerous.


    Corporate espionageis rampant. Technology provides sophisticated tools to those who would seek to steal the intellectual property assets that represent future economic stability, jobs for our children, and the promise of a society that moves forward in peace. Assistant Director Richard McFeely states, The FBI will not stand by and watch the hemorrhage of U.S. intellectual property to foreign countries who seek to gain an unfair advantage for their military and their industries.Since2008, our economic espionage arrests have doubled; indictments have increased five-fold; and convictions have riseneight-fold.Testimony reveals that many of the illicit cyber services involved withcorporate espionage are routinely available and purchased with cryptocurrencies.


    Having started as an organized, illicit, cross-border activity, drug trafficking now constitutes a serious threat to nation states because of its close alliance with worldwide terrorist goups. Silk Road, described as the Amazon for Drugs, is perhaps the most significant example of a site reported to have been responsible for major sales, yet barelyone month later the site is back up and is operating again. Liberty Reserve, the other major digital currency service to receive focus inthis paper allegedly laundered more than $6 billion in suspected proceeds of crimes.

    The DOJs announcement of Vladimir Kats guilty plea reports that before operations were stopped during May 2013, Liberty Reserve had more than one million users worldwide, including more than 200,000 users in the United States, who conducted approximately 55 million transactions through its system and allegedly laundered more than $6 billion in suspected proceeds of crimes, including . . . narcotics trafficking.

    Other arrests are reported. For example, in February [2013] Australian police arrested a Cocaine dealer operating on Silk Road and being paid in Bitcoins. In May [2013] Israeli police broke up a drug distribution ring operating in Bitcoins.

    Fake IDs and Passports

    Just one of many cases involving the use of and sale of false identities and counterfeit certificates of title, the U.S. Department of Justice reports that defendants sold non- existent high-value items such as boats, cars, and motorcycles priced generally between $10,000 to

    $45,000 and produced and used high-quality fake passports . . . as identification by co-conspirators in the United States to open bank accounts. In this and similar cases the DOJ reports that the illicit proceeds were then withdrawn from the U.S. bank accounts and sent to the defendants in Europe by wire transfer and other methods [often cryptocurrencies].

    High Yield Investment Schemes

    Ponzi schemes and other forms of financial frauds seem to find virtual currencies attractive. Observing that cyber criminals were among the first illicit groups to take widespread advantage of virtual currency, Acting Assistant Attorney General Raman states that high-yield investment schemes are among the types of crimes conducted with the use of cryptocurrencies.

    Sexual Exploitation

    Recent Congressional hearings produced testimony that while much of the evidence is still anecdotal, there is consensus that . . . sexual exploitation, sex trafficking and other criminal enterprises are increasingly moving to a new unregulated, unbanked digital economy.

    Stolen Credit Cards

    Just one of many examples of the sale of credit card or personally identifiable information (PII) involving hundreds of thousands of Americans accounts is found in the DOJs 15-count indictment of Vietnamese national Hieu Minh Ngo, age 24, charging him with conspiracy to commit wire fraud, substantive wire fraud, conspiracy to commit identity fraud, substantive identity fraud, aggravated identity theft, conspiracy to commit access device fraud, and substantive access device fraud. The DOJ further states that

    Ngo and his co-conspirators created one or more accounts with a digital currency service and used those accounts to receive funds for the stolen payment card data, fullz and other PII that they sold.Trautman, Triche and Wetherbe provide a recent account of credit card fraud and corporate cyber security risk.

    Darknets, Tor & the Deep Web

    Although not the specific cryptographic tool used to produce virtual currencies such as potentially-anonymous Bitcoin, a number of deep web tools exist to ensure privacy and deserve brief mention here. These cryptographic tools may be used for both good and evil acts. For example, many sites dealing in illegal drugs and other illicit goods and services such as Silk Road (discussed at length later) and Black Market Reloaded rely on anonymous proxy network Tor to prevent law enforcement from identifying the sites operator and users.

    Tor in its present form is an outgrowth of the Onion Router (TOR) project, (as in pealing back the layers of an onion), originally funded and nurtured by the U.S. Naval Research Laboratory.45 To mask a users identity disclosed by a senders or receivers header information (traffic analysis), the Tor system distributes a transaction over several places on the internet, so that no single point can link you to your destination.

    Tor hidden services offers an environment where users may instant message or publish materials and keep their locations anonymous by using Tor rendezvous points, other Tor users can connect to these hidden services, each without knowing the others network identity . . . Nobody [is] able to determine who [is] offering the site, and nobody who offered the site would know who [is] posting to it.

    It should come as no surprise that criminals are attracted to the ability to communicate and conduct financial transactions on an anonymous basis. These online black markets capitalize on Tors anonymizing features to offer a wide selection of illicit goods and services

    The term deep web is used to denote a class of content on the Internet which, for different technical reasons, is not indexed by search engines. Among the different strategies in place to bypass search engine crawlers, the most efficient for malicious actors are so-called darknets.Darknets refer to a class of networks that aim to guarantee anonymous and untraceable access to Web content and anonymity for a site.


    The security of cryptocurrencies is two part. The first part comes from the difficulty in finding hash set intersections, a task done by miners. The second and more likely of the two cases is a 51% attack. In this scenario, a miner who has the mining power of more than 51% of the network, can take control of the global block chain ledger and generate an alternative block-chain. Even at this point the attacker is limited to what he can do. The attacker could reverse his own transactions or block other transactions.

    Cryptocurrencies are also less susceptible to seizure by law enforcement or having transaction holds placed on them from acquirers such as Paypal. All cryptocurrencies are pseudo-anonymous, and some coins have added features to create true anonymity.


    There are a host of services offering information and monitoring of cryptocurrencies. Coin Market cap is an excellent way check on the market cap, price, available supply and volume of crypto currencies. Reddit is a great way to stay in touch with the community and follow trends and CryptoCoin Charts is full of information ranging from a list of crytocoins, exchanges, information on arbitrage opportunities and more. Our very own site offers a list of crypto currencies and their change in value in the last 24hrs, week or month.

    Liteshack allows visitors to view the network hash rate of many different coins across six different hashing

    algorithms. They even provided a graph of the networks hash rate so you can detect trends or signs that the general public is either gaining or losing interest in a particular coin.

    A hand website for miner is CoinWarz. This site can help miners determine which coin is most profitable to mine given their hash rate, power consumption, and the going rate of the coins when sold for bitcoins. You can even view each coins current and past difficulty.


    Although Bitcoin as a whole is a very complex system, it is made up of well-established systems like hashing and public key authentication that interact with each other. All of these systems work together to support proof of transfer, and that proof of transfer is backed by proof of work in a majority-rules system.

    Its just as easy to get started with Cryptocurrency as it is to sign up for a bank account. Wallets, be it Bitcoin, Litecoin, Peercoin, or another altcoin, are available for every computing platform, even for mobile phones via their respective app stores. Several exchanges exist that let people trade cryptocurrency for othe forms of cryptocurrency, or for traditional money.

    Cryptocurrency has already had a major impact on the world. When Cyprus suffered an economic crisis, its citizens confided in Bitcoin. There have been downswings as well: media coverage of Bitcoin has focused largely on its use in illegal drug market websites, like the Silk Road. On the bright side, the US government has already managed to shut down the first iteration of the Silk Road, and has nonetheless publicly recognized legitimacy in cryptocurrency along with Germany and others. After all, it is nonassociative by nature. There are accounts of individuals, like Amir Taaki, who subsist using only cryptocurrency. A growing number of shops accept it as payment including NYC restaurants and grocers. As this technology matures, we can hope that it becomes a positive and useful change in the world.


    Crypto currencies have quickly become a reality, gaining significant traction in a very short period of time, and are evolving rapidly. Innovation in the pace of development of new currencies and technologies continue to create ongoing challenges for responsible users of technology and regulators alike. Crypto currencies, due primarily to their anonymous characteristic, have been linked to numerous types of crimes, including facilitating marketplaces for: assassins; attacks on businesses; child exploitation (including pornography); corporate espionage; counterfeit currencies; drugs; fake IDs and passports; high yield investment schemes; sexual exploitation; stolen creditcards and credit card numbers; and weapons. Innovation in the pace of development of new currencies and technologies continue to create ongoing challenges for responsible users of technology and regulators alike. While technological advances create great opportunities to improve the health,

    living conditions, and general wellbeing of mankind;new technologies also create great challenges for nation states.


    I would like to thank the Carmel College Mala from their interest and support to this seminar and, personally, to the person Sr. Smitty V Isidhore, Asst. Professor, Carmel College Mala.


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