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Recent cyber attack shows the dark side of Bitcoin

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Recent cyber attack shows the dark side of Bitcoin

Most of us probably paid little attention to Bitcoin, and other crypto-currencies, until the recent cyber attack that hit some of the world’s largest companies and government bodies such as Britain’s National Health Service. The attack showed the dark side of Bitcoin, and its nefarious use by criminals.  Clearly, it’s time to take notice.

The cyberattack, which occurred on Friday 12 May 2017, involved malicious ransomware that had been stolen from the National Security Agency. This virulent software swiftly spread globally via email, and constituted one of the largest blackmail attempts ever recorded. Important institutions such as hospitals and government organisations were locked out of their computer systems, with the threat that users’ data would be destroyed if a ransom wasn’t paid. The ransoms were to be paid into a Bitcoin account.

Historically, cash has been king for criminals, given the lack of a paper trail (unlike transferring funds via financial institutions). However, Bitcoin is rapidly becoming a favoured means for criminals to transact. Bitcoin is a secure digital currency that uses blockchain technology, an anonymous digital ledger that records all Bitcoin transactions. Bitcoin eliminates the logistical burden of transporting cash for criminals who traffic large quantities of illegal goods. In the late 1990s the Department of Justice estimated that for every pound of cocaine sold on the street, six pounds of physical cash were generated. Obviously tapping a few keys to transfer large sums of money via Bitcoin, rather than having to physically transport the cash, is a huge advantage in the criminal underworld.


The website called Silk Road is perhaps the best-known online black-market. As part of the dark web, Silk Road was an emporium where anything from illegal drugs, weapons, stolen credit card details, assassination requests, and other sordid goods and services could be purchased using Bitcoin. This website was ultimately shut down by the FBI, although later reincarnations have emerged. Although there are benefits of Bitcoin’s distributed ledger technology, all these need to be considered in light of the ease with which Bitcoin can be used for nefarious purposes.

The distributed ledger technology that enables Bitcoin has important implications for exchanges such as the ASX, banks, and governments that administer their own currencies. However, the regulatory future for Bitcoin remains uncertain, and the recent cyberattack may lead to louder criticisms of the dark side of Bitcoin. What is apparent is that the pace at which crypto-currency technology is developing is outpacing the ability of regulators to comprehend the implications of the changes and react with sensible policies.

George joined Montgomery Global Investment Management in September 2015 as a Research Analyst. Prior to joining Montgomery, George was an investment analyst at Private Portfolio Managers where he covered global equities across various industries, using a value investing framework. George’s prior experiences include equities research and investment banking roles at both Citi and Greenhill & Co.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.


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  1. I’ve been investing in bitcoin since it was $70 and have mined and worked the full spectrum within, buying things, trading etc, all for legitimate purposes.

    As the ecosystem matures it will be natural to get bad actors.

    One of the things people don’t realise is that every transaction in bitcoin that occurs is traceable since it is an open ledger.

    This actually assists law enforcement since the moment you hit an edge (exchange, purchase goods etc) they know exactly who is involved.
    To register with an exchange you have to give a fair bit of identifying information over since the exchanges are under normal financial legislation.

    it serves law enforcement well to keep people thinking it’s anonymous though, as people inevitably become less careful and get caught.

    good explanation:

  2. xiao fang xu

    Black markets are the only thing saving the Venezuelan people today.

    Ever since governments began banning and licensing different parts of the economy, the black market has made sure people still have access to the things they need. Unstable governments always turn on their own citizens by using price controls, heavy taxes, and even the threat of imprisonment to prop up their failing systems. As conditions inevitably deteriorate, as they have in Venezuela and Greece, the underground economy becomes invaluable to those living through the crisis.

    A basic fact of life is that people respond to incentives.

    the honest population is violently enslaved by the State, and the dishonest provided with cash incentives and protection.

    State violence — in its many forms — has been growing in Western societies over the past fifty years, as regulation, tariffs and taxation have risen exponentially. National debts are an obvious form of intergenerational theft.

    The better that crime pays, the more people will become criminals.

    Certain well-known habits — drugs, gambling, prostitution in particular — are non-violent in nature, but highly desired by certain segments of the population. If these non-violent behaviours are criminalized, the profit gained by providing these services rises.

    Illegality destroys all stabilizing social forces (contracts, open activity, knowledge sharing and mediation), and so violence becomes the norm for dispute resolution.

  3. Thanks for the response George – no of course I was not there at the start or I would be posting this comment from a very big boat in a tropical paradise instead of rainy Sydney! I think it is short sighted to focus on the potential misuses of bitcoin when there are so many positive aspects. Whilst the press, and it appears Roger, are focussed on the bitcoin aspects of the recent hack it is a sideshow – the money raised was completely irrelevant compared to the mayhem (which was clearly the primary goal). I agree the hack couldnt have been done with cash instead of bitcoin but then again if we all used bitcoin we wouldnt have people held at gunpoint at banks but no one is starting conversations about restricting cash (actually, wait a minute, they are – see Modi!). The problems with trying to regulate bitcoin or control it in some way (which is actually not possible) is it destroys the whole reason for its existence and would effectively, if it could be done, destroy it. If Governments and central banks had been more respectful/responsible with their stewardship of fiat currencies instead of printing them to fund ever increasing deficits bitcoin would not have the value or role it currently does – the large investors in bitcoin I talk to all hold it for the primary reason that they no longer trust central banks not to deflate the fiat currencies that underpin their wealth.

  4. Roger,

    Whilst you werent paying attention bitcoin delivered the greatest financial return history has ever known! Interesting that the hack was executed via the internet, the same place where Silk Road and its follow-ons live yet you arent calling for the internet to be banned? 99.9% of the worlds drug trade is conducted in US dollars and thats one of the most regulated assets in the world.

    • George Hadjia

      I agree that it would have been very nice to pick the huge appreciation of bitcoin. Did you invest in bitcoin at the beginning?
      Just to clarify, at no point does the article mention that bitcoin should be banned. The point the article draws out is that whilst the vast majority of illicit trade is conducted with cash, there’s potential in the future for a greater proportion of these sordid activities to be transacted with cryptocurrencies such as bitcoin. This is something we should think deeply about.


  5. You guys are on the money about so many things and its a great blog overall.
    Why the whine about bitcoin?
    You guys obviously dont understand blockchain what it is or what it is capable of. I highly suggest you read the whitepapers. And tell me then is it not easier to explain what a bitcoins value is rather than a dollar deposit in a fractional reserve based banking system?
    Also 99.99% of illicit trade is conducted through fiat money primarily the USD so attacking bitcoin doesn’t make much sense to me.
    Also Bitcoin is traceable there are now cryptocurrencies out there that aren’t however bitcoin is not one of them.
    Blockchain takes some work to understand i highly recommend this video that underpins the basics.
    Also have a look at Ethereum and Ripple all backed by household global names.
    These are backed by the biggest banks in the world. What do you know that they dont?

    • George Hadjia

      There are definite benefits to bitcoin, although the point of the article wasn’t to detail these. Rather, it was to point out that this technology can be used for misdeeds (I still don’t see how the cyber-criminals could have pulled off the same attack demanding cash rather than bitcoins), as well as stimulating a broader discussion about the topic (which it certainly seems to be doing).


      • To me the advent of distributed public ledger technology is one of those simple yet game changing technologies i would say it will have a similar impact to double entry bookkeeping “The historical origin of the use of the words “debit” and “credit” in accounting goes back to the days of single-entry bookkeeping, which had as its chief objective keeping track of amounts owed by customers (debtors) and amounts owed to creditors. Debit in Latin means “he owes” and credit in Latin means “he trusts”.[18]
        The earliest extant evidence of full double-entry bookkeeping appears in the Farolfi ledger of 1299-1300.”

        The difference here is that the technology is decentralized and democratic anyone can use it however i disagree that they can use it for anything as bitcoin is highly traceable through the distributed ledger it leaves behind. Leaving aside that this offers the possibility to be a bank account for the 40% of those in the world without a bank account, There are issues of scaling in bitcoin it has outgrown its network somewhat which has made it expensive to use for small transactions however this will be fixed in a safe and forward thinking manner. As the security that can be offered by a decentralized network running 38 million trillion calculations a second to ensure its security and immutability is something that should be treated as a public good even if it does use the electricity of a small nation.
        These are the three bitcoin addresses used int he Wannacry attack you can google each one and see how much money they raised around 50k USD.

        The other big picture people aren’t seeing here is the way that bitcoin will fit into modern portfolios even as a tiny sliver. how to you think it will perform in a crisis. It is a safe haven asset that is correlated to very little that will find its way into hedge fund portfolios due to the diversification and natural hedge that it offers it times of turmoil.
        This is a great talk given by one of the leading experts in blockchain on why bitcoin is driving us to take cyber security more seriously as there is no incentive quite like securing value to make people take security seriously? https://youtu.be/RIKzZRA3qO4.
        If any criticism is due it should be directed at the agencies leaving these exploits open and vulnerable to attack?

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