NEWS

Bitcoin ransomware demand shows criminal links are hard to shake

Jon Swartz

USA TODAY

SAN FRANCISCO — When hackers behind a worldwide ransomware scheme insisted on bitcoin as payment, they showed this high-flying digital currency just can't shake its connections with the digital underworld.

Perpetrators of the WannaCry cyberattack that swept the globe and more than 200,000 victims in 150 countries over the weekend demanded $300 per user to unlock the frozen devices. They wanted ransom in bitcoin, reinforcing the notion among some that the digital currency is synonymous with shady corners of the Dark Web.

"Any time there is a ransomware attack for the next year, bitcoin will be blamed — fairly or not — because of this," says Melanie Shapiro, CEO of Case, a bitcoin hardware wallet.

Those links have held back some of the commercial endeavors of bitcoin's advocates, who are trying to bring this currency into the mainstream. But reflective of a global boom in demand for the alternative currency, the criminal connections have done little to slow a recent rally in prices.

"This won't help, but whether it will taint the (record value of bitcoin) is hard to say," says Bram Cohen, the inventor of BitTorrent, a communications protocol of peer-to-peer file sharing used to distribute data and electronic files over the Internet. "This example was crude and the transaction path is very traceable."

Criminals are thought to favor bitcoin as a preferred form of money transfer because it is harder to track than conventional payments and easily transferable between countries because it bypasses banking systems.

“Instead of using cash or check they are want to be paid in bitcoin because they believe it’s anonymous and it’s quick,” says Luke Wilson, vice president for business development and investigations at Elliptic Enterprises, a consulting firm that works with law enforcement to assist in tracking of bitcoin.

Cryptocurrency experts doubt the episode will badly tarnish bitcoin's reputation. According to CoinDesk, prices fell 6% Monday to $1,666.44. But these prices have been on a tear — a year ago, they were worth less than $500.

The currency, the digital equivalent of gold for some speculators, has been boosted by interest in alternative currencies, changes in Japanese payment regulations and a recent boom market in Korea.

"We're in a strong bull cryptomarket," says Brock Pierce, managing partner at Blockchain Capital and chairman of the Bitcoin Foundation, a nonprofit aiming to standardize use of bitcoin. "I wouldn't be surprised if we see a run-up to $3,000."

Links to criminal activity have hammered prices in the past. For example, the hacking of Mt. Gox, the largest bitcoin exchange in the world, in 2014 and the related theft of consumers' bitcoin drove down the currency's value by more than 80%.

Meanwhile, Bitcoin's stigma as a favored currency of cybercriminals has undermined the ability of its advocates to introduce it to more established markets. In March, the Securities and Exchange Commission rejected a proposal for the first exchange-traded fund that would track bitcoin's price. The SEC noted significant markets were unregulated and said it was worried the proposed ETF's exchange operator would not be able to address concerns "about the potential for fraudulent or manipulative acts and practices."

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Unlike after the Mt. Gox crash, bitcoin prices have proved largely resilient to its links with criminal acts.

"Bitcoin makes some nefarious things easier, but it ultimately makes a lot of positive things possible," through micro-transactions to those in need in oppressed regimes such as Venezuela and North Korea or getting funds to people without bank accounts, says Kathleen Breitman, co-creator of Tezos blockchain platform, a form of cryptocurrency.