Bitcoin and virtual currencies being undermined by rising criminality, says McAfee

The idealism and convenience behind virtual currencies such as Bitcoin is at risk of being undermined as abuse by professional criminals grows to unacceptable levels, a report by security firm McAfee has argued.

The catalogue of practical and conceptual problems listen in the firm’s Digital Laundry overview is perhaps not particularly original – numerous critics have spotted potential flaws in virtual currency systems – but serves as a timely reminder of their growing importance to cybercriminals.

Only two weeks ago, the FBI closed down the Silk Road website, arresting its operator Ross William Ulbricht and seizing several millions of dollars of Bitcoins alleged to have been connected to drug sales. So far so bad but it got worse; the site also appeared to be offering other criminal services such as a hitman-for-hire service, all made possible by the peer-to-peer anonymity of virtual Bitcoins

“We include it [the hitman example] to demonstrate that confidence in the privacy of virtual currencies has enabled the sale of some frightening services,” said McAfee’s authors.

Elsewhere, as McAfee also points out, Internet users are now under attack from rogue botnets co-opting victim PCs into creating or ‘mining’ the currency.

The problem with this abuse is, as Silk Road demonstrates, that its growing level is eroding the philosophical point of Bitcoin, namely that it offers a network independent of the global financial system or the governments that regulate it.

“The proliferation of digital currencies fuels the proliferation of tools and services necessary for cybercrime. This in turn helps fuel the growth in cybercrime, and other forms of digital disruption,” said McAfee EMEA CTO, Raj Samani.

“Further, the challenges facing such currencies go beyond their propensity for use within money laundering – to targeted attacks on financial exchanges, and malware developed to target digital wallets.”

Evidence that virtual currencies have become a mechanism for online and physical crime risks the possibility of full-scale intervention by governments.

There is plenty of precedent for this, McAfee’s authors note, including the demise of e-gold and, more recently Liberty Reserve, both closed by the US authorities for their connections to crime.

In that it’s a frictionless, open system governed by the mathematics of the rate which new currency is created, Bitcoin can’t technically be closed down but the warning is clear; legitimate users (and there are many of those it should be pointed out) are taking a risk.

“Virtual currencies will not go away. Despite the apparent challenges posed by DDoS attacks, the use of these exchanges for money laundering, and the facilitation of cybercrime, opportunities also abound for legitimate uses. Ignoring this market opportunity is likely to cost potential legitimate investors significant revenue, but failure to address the potential risks may cost a lot more,” the report concludes.