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Problem of “immature” cryptocurrencies wallets in the spotlight

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bitcoin on a blue backgroundCrypto wallets which are “immature” in nature are costing consumers who are falling victim to fraud, according to a leading CEO in the field.

Research from CipherTrace found that the total amount stolen through initial coin offering (ICO) exit scams, crypto exchanges and custodial services in 2018 was $1.7 billion US dollars.

In terms of custodial services and exchanges in particular, the total was $950 million. This represents a 3.6x rise in the amount taken compared to the year before in the same category.

In 2017, the total figure for the category was $266 million and the year before that, it was just $152 million.

In an interview with news website CCN, the CEO of CipherTrace, Dave Jevans, said that it’s down in part to exchanges being young in nature, and failing to set up the sort of adequate defences that protect their investors.

“Many exchanges have only been operational for two years or less. They have not invested in the security technologies and practices needed to safeguard IT systems, employees, and critical data”, he said.

Jevans, who is also co-chair of the Anti-Phishing Working Group (APWG) Cryptocurrency Working Group, added that the profits on offer for hackers who have found simple ways to exploit such systems were immense.

“These cryptocurrency companies are at risk of having a simple file of cryptographic private keys stolen that can give the hackers $30M to $500M in profit. Yet these companies are immature in their security team funding, training and implementation.”

Another significant area of focus for Jevans and his group is the impact that new laws around the world may have on money laundering.

In the third quarter of 2019, new rules kick in which could have a profound effect on crypto fraudsters – and on the exchanges they target.

The Financial Action Task Force, which is located in France, has designed a set of new rules which will cover most of the world’s leading economies – including the whole of the European Union, plus the G20 group of countries such as the US, Australia and Russia.

Exchanges operating in these places will have to become savvier about who they accept. According to Jevans, this could cause issues by creating more of a black market for crypto money laundering.

“Criminals will increasingly be detected and rejected at compliant companies as regulations are enforced. This will force cybercriminals into the darker alleys of the Internet and the cryptocurrency ecosystem… They will be forced to use more advanced and esoteric services to launder their funds”, he said.

Some transactions may not even be covered by the new regulations. “The only transactions that are today tracked by governments are those over $10,000 or those that have ties to sanctioned individuals and governments, terrorists, and known money launderers. New regulations on cryptocurrencies do not change this.”

However, on the whole, he appeared to support the general thrust of the idea. “Regulation is going in the right direction with regards to protecting investors, companies, financial institutions, and governments. With regard to people who deserve privacy with financial transactions, you still have this”, he said.