not all that glitters is gold
Currency has had its own distinct historical evolution. During the earliest civilisations, a “merchandise currency” circulated (tools, metal shapes, shells, etc.) that later evolved into “representative money”, i.e. currency that had a metal counterpart, usually gold, as a guarantee of its value. Over time, there was a shift to “fiat money” (or money with legal tender/fiduciary value), the current banknotes in circulation. The latest arrival is electronic money, or cryptocurrency. This represents a digital exchange tool that originated on the Internet and is based on the principles of cryptography, which are necessary to create protection for transactions.
In fact, we are talking about a currency that does not exist in physical form, but that is generated and exchanged exclusively online in peer-to-peer mode. In essence, each individual transaction is based on an encrypted and digitally-signed message indicating the transfer of a certain sum, by agreement between two parties and without intermediaries (banks, financial institutions, etc.).
Founded in 2008, e-money was defined in 2012 by the ECB as “a type of unregulated digital money…”.
In fact, cryptocurrencies have no legal tender in almost any corner of the planet and therefore acceptance as a means of payment is on a voluntary basis. Moreover, they are not regulated by central governmental bodies but are generally issued and controlled by the issuing body according to its own rules to which members of the relevant community agree to adhere.
In fact, they fulfil the main functions performed by the monetary instrument, namely as a means of exchange, unit of account and value reserve. They undoubtedly represent a disruptive element at the political and social level because they challenge the tradition on the functioning of money exchanges.
In short, the idea they are pushing is that of a free market, with no controllers, no tolls, no fees and unfettered. An instrument that travels freely on the Internet and is therefore not affected by the bad moods of any politician.
Not all that glitters is gold: the risks of cryptocurrencies
But, needless to say, not all that glitters is gold. Because, along with these prospects of great development, gain and freedom also come many risks, precisely because they are not subject to regulation.
In the absence of information requirements and transparency rules, exchange platforms are exposed to high operational and security risks. Unlike authorised intermediaries, no one guarantees the quality of service or compliance with capital requirements or risk management procedures. A scenario that opens the door to a high probability of fraud and exposure to cybercrime.
Cryptocurrencies are playing a major role in the rapidly rising cost of cybercrime, which is estimated to reach over 10 billion by 2025.
This particular electronic currency has become the preferred instrument for ransom payments related to cybercrimes. Crypto ransomware is a growing industry. During 2016, it increased by more than 50% compared to 2015. In the same year, targeted companies paid ransom amounts equivalent to US Dollars 850 million, compared to US Dollars 25 million paid in 2015.
The news is full of these cases. Since 2017, with the attack called WannaCry, which triggered a computer epidemic, using a virus capable of encrypting files on computers, the attacks have continued unabated. To be able to decrypt one’s data, the only solution is very often to pay the ransom in Bitcoin.
The list of ransomware attacks and ransoms is endless, and cryptocurrencies have become the currencies of exchange par excellence.
Money laundering and hacking
Electronic money has become the main “C2C – criminal-to-criminal” payment method in the trade of illicit tools and services on the dark web. A currency that is also used for cyber money laundering. In fact, the pseudo-anonymity guaranteed by this form of exchange and the possibility of rapid and irreversible transactions on a transnational level, constitute some of the elements of primary interest not only for “legal” investors, but also and above all for those who have an interest in hiding the illicit origin of the proceeds and laundering money by greatly reducing the risk of being traced.
So much so that Europol, in its recent annual report on cybercrime, pointed out that “cryptocurrencies continue to be exploited by cybercriminals, and Bitcoin is the currency most commonly used to trade in illicit product markets and to receive payments from cyber extortions”.
According to a study by Chainanalysis, in the year 2019, criminal entities transferred a total of US Dollars 2.8 billion in Bitcoin on cryptocurrency exchanges. The most frequently used sites were allegedly Binance and Huobi, two of the largest trading platforms in the world, with more than 1.5 billion of illicit capital being passed through their servers.
In addition, cryptocurrency exchanges can be subject to cyber attacks through hacking activities. The hacker’s goal is to acquire the private key, i.e. the password, of a virtual wallet, comparable to a bank account, in which cryptocurrencies are held, in order to steal their contents.
Do you want to invest in cryptocurrencies?
Finally, if you plan to invest in cryptocurrencies, carefully evaluate the various start-ups and exchange platforms available. It is extremely important to look for information about the chosen company. Among the elements to be taken into account, the main one is undoubtedly verifying that detailed transaction data is monitored via blockchain. Secondly, check that there is clear information on business plans, liquidity in digital currency, and last but not least, always check that the company is made up of real people.
Among the most common scams used by cybercriminals are attacks via apps, sites and fake emails. In these cases, always pay close attention to details: from classic spelling mistakes to fraudulent URLs. Again, the rule applies to be wary of incredible offers via social media. Fake accounts can hide anywhere.
It is certain that electronic currencies, like it or not, will increasingly become part of our reality. The world will become increasingly digital and this will also affect money transactions. So be careful because human error, the wrong click, could turn into a considerable loss of money. Only proper and ongoing training on the risks of using digital tools can mitigate these risks.