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Are Increasing Ransomware Attacks A Threat to Bitcoin and Crypto?

At the moment, the biggest thing in crypto isn’t Tesla, El Salvador or rising bitcoin prices. It’s ransomware, which has been grabbing mainstream media headlines more frequently than anything else in the sector right now.

First there was the Colonial Pipeline hacking on May 7, when criminals effectively took down the United States’ biggest fuel pipeline, resulting in $4.4 million in bitcoin being paid out to the perpetrators. And then there was the ransomware attack on the biggest meat producer in the world, JBS, at the end of May, which resulted in the company’s US subsidiary paying out $11 million in bitcoin to get its systems back online.

Bitcoin and cryptocurrency at large are getting targeted by ransomware attacks.

These are only the two most prominent attacks this year, with research from the likes of Sophos and Check Point showing that we’ve witnessed a general upsurge in both the cost and frequency of ransomware exploits in 2021. The trend is obviously worrying, and unsurprisingly governments and regulators throughout the world have begun talking about the need for new regulation in order to crack down on attacks.

The question is: is this bad for Bitcoin and crypto? Well, while certain cryptocurrencies and platforms may suffer as a result of restrictions on anonymity, such restrictions wouldn’t fundamentally hurt the sector. They also wouldn’t hurt Bitcoin, whose primary value proposition — a decentralized (and deflationary) monetary system — would be unaffected by a governmental pushback against the anonymous use of cryptocurrencies.

Ransomware Risks Further Seizures and Regulation for Bitcoin and Crypto

One of the most notable things about the Colonial Pipeline hack is that the US Department of Justice and FBI were able to seize 63.7 bitcoins paid out following the attack (then equal to around $2.3 million). The news of this seizure broke on June 7, causing the bitcoin market to dive from around $36,700 to $31,600 in a day, bringing pretty much all of the cryptocurrency market with it.

Source: CoinGecko

The reason for this slide is that the FBI somehow managed to obtain the private key attached to the bitcoin address in which the hackers were keeping the 63.7 BTC. The fact that it was able to do this potentially undermines Bitcoin’s claims to security and privacy, implying that the US government can get into any wallet at any time.

Source: Twitter

This is something certain ‘mainstream’ commentators claimed, while it was also directly claimed by the FBI in the statement announcing the seizure.

“There is no place beyond the reach of the FBI to conceal illicit funds that will prevent us from imposing risk and consequences upon malicious cyber actors,” said FBI Deputy Director Paul Abbate following the seizure. “We will continue to use all of our available resources and leverage our domestic and international partnerships to disrupt ransomware attacks and protect our private sector partners and the American public

Regardless of how exactly the FBI gained access to the wallet’s private key, the adverse market reaction highlighted another threat posted to crypto by ransomware. That is, if ransomware attacks continue to occur, and the US government or other governments continue to seize stolen funds, it may undermine confidence in Bitcoin and other cryptocurrencies. If so, it would ultimately depress bitcoin’s price and the price of most other cryptocurrencies.

Will Regulations Be Bad for Bitcoin and Crypto?

At the same time, there’s no doubt that regulators and governments are now accelerating in their bid to introduce legislation or regulation that could curb ransomware attacks, in the sense of making it harder to conceal the flow of illicit crypto.

A push for greater regulation was already in the works at the end of April (if not earlier), with the American Ransomware Task Force (comprising representatives from the FBI and US security services, along with tech firms) publishing a report which called for new regulations aimed at decreasing the anonymity afforded by cryptocurrencies. These included such measures as extending KYC laws to currency exchanges, tougher licensing requirements for any business processing crypto, and extending money-laundering rules to Bitcoin ATMs and other kiosks capable of converting crypto into fiat.

However, with the high-profile attacks against the Colonial Pipeline and JBS, the impetus for ransomware-focused legislation/regulation has only increased. Senators have called for stricter regulations, while the White House has recently disclosed it’s exploring options to make ransomware payments easier to trace, as well as working with international partners towards introducing a global framework for stopping ransomware attacks. This follows a December proposal from FinCEN that would make it mandatory to report all transactions worth $10,000 and over, which may now have more weight behind it as it continues to be considered and consulted upon.

Source: Twitter

Needless to say, not many within the crypto community are especially fond of regulation. Bitcoin was largely designed as a means of sidestepping governmental oversight and control, so the idea that governments will now tighten the regulatory noose around crypto may defeat its purpose. In turn, this would depress prices and the market.

However, so far, the extra regulations being proposed by officials aren’t that draconian, and certainly aren’t draconian enough to severely restrict the cryptocurrency market. For instance, the Ransomware Task Force recommendations outlined above would merely extend existing anti-money laundering and know-your-customer rules to all entities transferring cryptocurrency. Most cryptocurrency traders residing in heavily regulated nations (e.g. United States, Europe) already have to identify themselves quite comprehensively when signing up for an exchange, so how can extending this system to several outliers (and to other nations) be so bad for crypto?

The answer is that it can’t. Yes, it may reduce demand for crypto among criminals, which could in the short- and medium-term reduce the prices of cryptocurrencies (assuming that a significant portion of demand comes from actual criminals). But increased regulation won’t remove the main case for a cryptocurrency such as bitcoin, which is that its capped supply will ultimately turn it into a deflationary asset.

Bitcoin’s potential as a hedge against inflation is the main reason it received institutional investment over the past year, and regulation won’t do anything to change this. Much the same goes for major altcoins, insofar as these altcoins (e.g. Ethereum) do offer something of value beyond an opportunity to launder money.

The one risk, however, is that a tightening of regulation doesn’t significantly reduce ransomware. In that case, certain commentators are calling for governments to take the nuclear option and ban cryptocurrency altogether.

Source: Twitter

While some would argue that a cryptocurrency ban would be ineffective, it would nonetheless scare many legitimate investors away from the space, severely depressing cryptocurrency prices.

The thing is, it’s very hard to say how likely such a scenario is. At the moment, it seems very distant, if only because no one in government (at least in the United States and other Western nations) is actually calling for a ban. Of course, if new regulation proves unsuccessful this may, so let’s hope for once that it is successful, making crypto and Bitcoin more respectable in the long run.

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CryptoVantage Author Simon Chandler

About the Author

Simon Chandler

Simon Chandler is a journalist based in London. He writes about technology, markets and politics, and has bylines for Forbes, Digital Trends, CCN, Wired, TechCrunch, the Verge, the Sun, the New Internationalist, and TruthOut, among many others. His Twitter handle is @_simonchandler_

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