When we mention virtual currency, inherently the topic gravitates to Bitcoin, the most popular of decentralized, P2P network based virtual currency since 2008. As on date, hundreds of thousands of legitimate businesses accept Bitcoins as also virtually all of the transactions using virtual currency is using Bitcoins.

And soon after the geeks and regular people started taking to this currency, it caught the attention of criminals. The complete privacy and high end security of the transactions provided a perfect recipe for them to engage in illicit transaction using this virtual currency. Another place where Bitcoins are widely used is the underground market where stuff like drugs, malicious code, malware, virus, exploits are sold. And the transactions run into huge amounts.

More recently extortion groups like DD4BC and Armada Collective used Bitcoins to collect their money from their targets such as financial institutions. Then there are those who develop and pawn ransomware on computers, tablets and phones and then demand payment to unlock those devices and the payment is usually transacted through virtual currency. With privacy and decentralization as they founding blocks of virtual currency, there is no one person or organization that control these transactions. All transactions go into a “Block Chain” which is a distribute and public data storage.

The transaction data should include, a timestamp, total amount of Bitcoins involved, addresses of the payer(s) and the payee(s). And when we talk about addresses, it is not personal location addresses but wallet addresses which do not have to identify the person or the organization involved. Once the criminal receives the payment in a virtual currency, they can cash out by exchanging the same for traditional currencies through the many virtual currency exchanges that proliferate online.

However, this also means the illicit transactions can be traced back to the criminal as the block chain maintains a history of all their transactions right up to the point the currency was first mined. To avoid this tracing back of their transaction, criminals exchange their Bitcoins with “mixers” who charge a service fee and who do not have any illegal historical trace of transactions.

Then there are other virtual currencies such as Litecoin, LEOcoin, and Dogecoin that are exchanged for Bitcoins to make tracing back transactions all the more difficult. And these other virtual currency platforms have their own mixers where customers need to forfeit exchange fees in addition to the fees charged by mixer services.

The concept of “mixers” the virtual currency market is similar to transferring profits to accounts in the Bahamas or the Bermuda’s through traditional banking. Thus they delete the transactions after a certain period of time to ensure privacy of the deal.

More recently, besides cyber criminals and other criminal gangs, virtual currency has caught the attention of terror organizations such as ISIL who engage in fund raising activities using Bitcoins or other virtual currencies. They post Bitcoin addresses on forums as also point to dark web services that offer to convert traditional currency for Bitcoins without leaving traces though it is not clear if mixers are involved or how exactly this is done.

The virtual currency is then used to buy goods from the underground market such as weapons and other illicit materials. As of now there is no way to stop virtual currencies such as Bitcoins being used by criminals and terrorists as there are more legitimate users than criminals. But efforts are on by Governments, Financial institution in tracing back transactions and creating policies to prevent unlawful use of virtual currencies.

Source: Flickr.com bitcoin coin, physical bitcoin, bitcoin photo | by antanacoins

About The Author

"Founded in July, 2016, WhackHack.com is a cyber security blog that covers important security issues affecting common users, industry and governments. It aims to create awareness among its readers about malware, hacking, encryption, identity theft, privacy, etc and also offer solutions to protect themselves from such attacks"

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