Governments around the world have started to wake up to the fact that this message isn't just for the "muppets", it is also the message of cryptocurrencies for governments and civil society. Below the fold I look into how governments might respond.
The business model of crypto is to provide a platform for crooks to scam muppets without running the risk of jail time. Few understand this. https://t.co/vFeyosRKPE— Trolly🧻 McTrollface 🌷🥀💩 (@Tr0llyTr0llFace) May 7, 2021
The externalities of cryptocurrencies include:
- Massive carbon emissions.
- Funding "rogue states" such as North Korea and Iran.
- Tax evasion.
- Laundering the proceeds of crime, including the drug trade, theft and fraud, and armed robbery.
- An epidemic of ransomware.
- A wave of securities fraud targeting the greedy and vulnerable.
- Shortages of products including graphics cards, hard disks, and chips in general as limited fab capacity is diverted to mining ASICS.
- Abuse of free tiers of Web services.
- Noise pollution.
"It’s likely that it’s taking a long time because of negotiations going on with the perpetrators, and the prevailing narrative is that they have the contents of the electronic health records system that are being used for 'double extortion,'" said Michael Hamilton, former chief information security officer for the city of Seattle and CISO of healthcare cybersecurity firm CI Security, in an email to Healthcare IT News.In response governments are trying to regulate (US) or ban (China, India) cryptocurrencies. The libertarians who designed the technology believed they had made governments irrelevant. For example, the Decentralized Autonomous Organization (DAO)'s home page said:
If that's true, Scripps certainly wouldn't be alone: The healthcare industry saw a number of high-profile ransomware incidents in the last year, including a cyberattack on Universal Health Services that led to a lengthy network shutdown and a $67 million loss.
More recently, customers of the electronic health record vendor Aprima also reported weeks of security-related outages.
The DAO's Mission: To blaze a new path in business organization for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of unstoppable code.This was before a combination of vulnerabilities in the underlying code was used to steal its entire contents, about 10% of all the Ether in circulation.
If cryptocurrencies are based on the "iron will of unstoppable code" how would regulation or bans work?
Nicholas Weaver explains how his group stopped the plague of Viagra spam in The Ransomware Problem Is a Bitcoin Problem:
Although they drop-shipped products from international locations, they still needed to process credit card payments, and at the time almost all the gangs used just three banks. This revelation, which was highlighted in a New York Times story, resulted in the closure of the gangs’ bank accounts within days of the story. This was the beginning of the end for the spam Viagra industry.Weaver draws the analogy with cryptocurrencies and "big-game" ransomware:
Subsequently, any spammer who dared use the “Viagra” trademark would quickly find their ability to accept credit cards irrevocably compromised as someone would perform a test purchase to find the receiving bank and then Pfizer would send the receiving bank a nastygram.
These operations target companies instead of individuals, in an attempt to extort millions rather than hundreds of dollars at a time. The revenues are large enough that some gangs can even specialize and develop zero-day vulnerabilities for specialized software. Even the cryptocurrency community has noted that ransomware is a Bitcoin problem. Multimillion-dollar ransoms, paid in Bitcoin, now seem to be commonplace.I agree with Weaver that disrupting the ransomware payment channel is an essential part of a solution to the ransomware problem. It would require denying cryptocurrency exchanges access to the banking system, and global agreement to do this would be hard. Given the involvement of major financial institutions and politicians, it would be hard even in the US. So what else could be done?
This strongly suggests that the best way to deal with this new era of big-game ransomware will involve not just securing computer systems (after all, you can’t patch against a zero-day vulnerability) or prosecuting (since Russia clearly doesn’t care to either extradite or prosecute these criminals). It will also require disrupting the one payment channel capable of moving millions at a time outside of money laundering laws: Bitcoin and other cryptocurrencies.
There are only three existing mechanisms capable of transferring a $5 million ransom — a bank-to-bank transfer, cash or cryptocurrencies. No other mechanisms currently exist that can meet the requirements of transferring millions of dollars at a time.
The ransomware gangs can’t use normal banking. Even the most blatantly corrupt bank would consider processing ransomware payments as an existential risk. My group and I noticed this with the Viagra spammers: The spammers’ banks had a choice to either unbank the bad guys or be cut off from the financial system. The same would apply if ransomware tried to use wire transfers.
Cash is similarly a nonstarter. A $5 million ransom is 110 pounds (50 kilograms) in $100 bills, or two full-weight suitcases. Arranging such a transfer, to an extortionist operating outside the U.S., is clearly infeasible just from a physical standpoint. The ransomware purveyors need transfers that don’t require physical presence and a hundred pounds of stuff.
This means that cryptocurrencies are the only tool left for ransomware purveyors. So, if governments take meaningful action against Bitcoin and other cryptocurrencies, they should be able to disrupt this new ransomware plague and then eradicate it, as was seen with the spam Viagra industry.
For in the end, we don’t have a ransomware problem, we have a Bitcoin problem.
Nearly a year ago Joe Kelly wrote a two-part post explaining how governments could take action against Bitcoin (and by extension any Proof-of-Work blockchain). In the first part, How To Kill Bitcoin (Part 1): Is Bitcoin ‘Unstoppable Code’? he summarized the crypto-bro's argument:
They say Bitcoin can’t be stopped. Just like there’s no way you can stop two people sending encrypted messages to each other, so — they say — there’s no way you can stop the Bitcoin network.The problem with this, as with most of the crypto-bros arguments, is that it applies to the Platonic ideal of the decentralized blockchain. In the real world economies of scale mean things aren't quite like the ideal, as Kelly explains:
There’s no CEO to put on trial, no central server to seize, and no organisation to put pressure on. The Bitcoin network is, fundamentally, just people sending messages to each other, peer to peer, and if you knock out 1 node on the network, or even 1,000 nodes, the honey badger don’t give a shit: the other 10,000+ nodes keep going like nothing happened, and more nodes can come online at any time, anywhere in the world.
So there you have it: it’s thousands of people running nodes — running code — and it’s unstoppable… therefore Bitcoin is unstoppable code; Q.E.D.; case closed; no further questions Your Honour. This money is above the law, and governments cannot possibly hope to control it, right?
It’s not just a network, it’s money. The whole system is held together by a core structure of economic incentives which critically depends on Bitcoin’s value and its ability to function for people as money. You can attack this.Kelly explains why the idea of regulating cryptocurrencies is doomed to failure:
It’s not just code, it’s physical. Proof-of-work mining is a real-world process and, thanks to free-market forces and economies of scale, it results in large, easy-to-find operations with significant energy footprints and no defence. You can attack these.
If you can exploit the practical reality of the system and find a way to reduce it to a state of total economic dysfunction, then it doesn’t matter how resilient the underlying peer-to-peer network is, the end result is the same — you have killed Bitcoin.
The entire point of Bitcoin is to neutralise government controls on money, which includes AML and taxes. Notice that there’s no great technological difficulty in allowing for the completely unrestricted anonymous sending of a fixed-supply money — the barrier is legal and societal, because of the practical consequences of doing that.In How To Kill Bitcoin (Part 2): No Can Spend Kelly explains how a group of major governments could seize control of the majority of the mining power and mount a specific kind of 51% attack. The basic idea is that governments ban businesses, including exchanges, from transacting in Bitcoin, and seize 80% of the hash rate to mine empty blocks:
So the cooperation of the crypto world with the law is a temporary arrangement, and it’s not an honest handshake. The right hand (truthfully) expresses “We will do everything we can to comply” while the left hand is hard at work on the technology which makes that compliance impossible. Sure, Bitcoin is pretty traceable now, and sometimes it even helps with finding criminals who don’t have the technical savvy to cover their tracks, but you’ll be fighting a losing battle over time as stronger, more convenient privacy tooling gets added to the Bitcoin protocol and the wider ecosystem around it.
So yeah: half measures like AML and censorship aren’t going to cut it. If you want to kill Bitcoin, that means taking it out wholesale; it means forcing the system into disequilibrium and inducing economic collapse.
As it stands, after seizing 80% of the active hash rate, you can generate proof-of-work hashes at 4x the speed of the remaining miners around the world.Empty blocks wouldn't be hard to detect and ignore, but it would be easy for the government miners to fill their blocks with valid transactions between addresses that they control.
- You control ~80 exahashes/sec, they control ~20 exahashes/sec
- For every valid block that rebel miners, collectively, can produce on the Bitcoin blockchain, you can produce 4
You use your limitless advantage to execute the following strategy:
The result of this is that Bitcoin transactions are no longer being processed, and you’ve created a black hole of expenditure for rebel miners.
- Mine an empty block — i.e. a block which is perfectly valid but contains no transactions
- Keep 5–10 unannounced blocks to yourself — i.e. mine 5–10 ‘extra’ empty blocks ahead of where the chain tip is now, but don’t actually share any of these blocks with the network
- Whenever a rebel miner announces a valid block, orphan it (override it) by announcing a longer chain with more cumulative proof-of-work — i.e. announce 2 of your blocks
- Repeat (go back to 2)
In other words, no-one can spend their bitcoin, no matter who they are or where they are in the world.
- Every time a rebel miner spends $ to mine a block, it’s money down the drain: they don’t earn any block rewards for it
- All transactions just sit in the mempool, being (unstoppably) messaged back and forth between nodes, waiting to be included in a block, but they never make it in
Bitcoin mining in China is confirmed to be shutting down — miners are trying to move containers full of mining rigs out of the country as quickly as possible. It’s still not clear where they can quickly put a medium-sized country’s worth of electricity usage. [Reuters]
Here’s a Twitter thread about the miners getting out of China before the hammer falls. You’ll be pleased to hear that this is actually good news for Bitcoin. [Twitter]
Because Bitcoin users would know the blockchain was under attack, they would need to wait several blocks (the advice is 6) before regarding a transaction as final. The rebels would have to win six times in a row, with probability 0.14%, for a transaction to go through. The Bitcoin network can normally sustain a transaction rate of around 15K/hr. Waiting 6 block times would reduce this to about 20/hr. Even if the requirement was only to wait 3 block times, the rate would be degraded to about 550/hr, so the attack would greatly reduce the supply of transactions and greatly increase their price.
The recent cryptocurrency price crash caused average transaction fees to spike to about $60. In the event of an attack like this HODL-ers would be desperate to sell their Bitcoin, so bidding for the very limited supply of transactions would be intense. Anyone on the buy-side of these transactions would be making a huge bet that the attack would fail, so the "price" of Bitcoin in fiat currencies would collapse. Thus the economics for the rebel miners would look bleak. Their chances of winning a block reward would be greatly reduced, and the value of any reward they did win would be greatly reduced. There would be little incentive for the rebels to continue spending power to mine doomed blocks, so the cost of the attack for the government would drop rapidly once in place.
The cost of the attack is roughly 2/3 of 6.25 BTC/block times 144block/day. Even making the implausible assumption that the price didn't collapse from its current $35K/BTC the cost is $21M/day or $7.6B/yr. A drop in the bucket for a major government. Thus it appears that, until the concentration of mining power in China decreases further, the Chinese government could kill Bitcoin using Kelly's attack. For an analysis of an alternate attack on the Bitcoin blockchain see In The Economic Limits of Bitcoin and the Blockchain by Eric Budish.
Kelly addresses the government attacker:
Normally what keeps the core structure of incentives in balance in the Bitcoin system, and the reason why miners famously can’t dictate changes to the protocol, or collude to double-spend their coins at will, is the fact that for-profit miners have a stake in Bitcoin’s future, so they have a very strong disincentive towards using their power to attack the network.There are two further problems. First, Bitcoin is only one, albeit the most important, of almost 10,000 cryptocurrencies. Second, some of these other cryptocurrencies don't use Proof-of-Work. Ethereum, the second most important cryptocurrency, after nearly seven years work, is promising shortly to transition from Proof-of-Work to Proof-of-Stake. The resources needed to perform a 51% attack on a Proof-of-Stake blockchain are not physical, and thus are not subject to seizure in the way Kelly assumes. I have written before on possible attacks in Economic Limits Of Proof-of-Stake Blockchains, but only in the context of double-spending attacks. I plan to do a follow-up post discussing sabotage attacks on Proof-of-Stake blockchains once I've caught up with the literature
In other words, for-profit miners are heavily invested in and very much care about the future value of bitcoin, because their revenue and the value of their mining equipment critically depends on it. If they attack the network and undermine the integrity of Bitcoin and its fundamental value proposition to end users, they’re shooting themselves in the foot.
You don’t have this problem.
In fact this critical variable is flipped on its head: you have a stake in the destruction of Bitcoin’s future. You are trying to get the price of BTC to $0, and the value of all future block rewards along with it. Attacking the network to undermine the integrity of Bitcoin and its value proposition to end users is precisely your goal.
This fundamentally breaks the game theory and the balance of power in the system, and the result is disequilibrium.
In short, Bitcoin is based on a Mexican Standoff security model which only works as a piece of economic design if you start from the assumption that every actor is rational and has a stake in the system continuing to function.
That is not a safe assumption.
Secondhand graphics-card prices move nearly in lockstep with those of EthereumThe report compares the effect of ETH "price" on GPUs and CPUs:
Since 2015 asking prices for six GPUs tracked by Keepa have moved in lockstep with Ethereum’s value. In late 2017 the currency’s first big rally coincided with a surge in listed GPU prices. Once the crypto bubble burst, GPU costs fell back to earth.
Another boom began last year. As Ethereum’s price rose from $107 in March 2020 to $4,400 last month, the value of mining hardware once again followed suit. In six months, the six GPUs’ listed prices climbed by 150%. Those of CPUs barely budged.
The GPU shortage has hurt data scientists and computer-aided-design users as well as gamers. Some relief may be on the way. Ethereum’s price is now 40% below its record high. GPU prices have yet to fall, but if history is any guide, they probably will soon.
Dan Goodin's Shortages loom as ransomware hamstrings the world’s biggest meat producer reveals the latest cryptocurrency externality:
"A ransomware attack has struck the world’s biggest meat producer, causing it to halt some operations in the US, Canada, and Australia while threatening shortages throughout the world, including up to a fifth of the American supply.
Brazil-based JBS SA said on Monday that it was the target of an organized cyberattack that had affected servers supporting North American and Australian IT operations. A White House spokeswoman later said the meat producer had been hit by a ransomware attack “from a criminal organization likely based in Russia” and that the FBI was investigating."
Today's ransomware attacks:
- Live Streams Go Down Across Cox Radio and TV Stations in Apparent Ransomware Attack.
- Fujifilm becomes the latest victim of a network-crippling ransomware attack.
And, Christopher Bing reports U.S. to give ransomware hacks similar priority as terrorism, official says:
"The U.S. Department of Justice is elevating investigations of ransomware attacks to a similar priority as terrorism in the wake of the Colonial Pipeline hack and mounting damage caused by cyber criminals, a senior department official told Reuters.
Internal guidance sent on Thursday to U.S. attorney’s offices across the country said information about ransomware investigations in the field should be centrally coordinated with a recently created task force in Washington.
“It’s a specialized process to ensure we track all ransomware cases regardless of where it may be referred in this country, so you can make the connections between actors and work your way up to disrupt the whole chain,” said John Carlin, acting deputy attorney general at the Justice Department."
Sure, that'll fix the problem.
I missed one of yesterday's ransomware attacks. Lawrence Abrams reports that UF Health Florida hospitals back to pen and paper after cyberattack. That is yet another major hospital chain crippled.
Heather Kelly manages to write an entire article entitled Ransomware attacks are closing schools, delaying chemotherapy and derailing everyday life without pointing out that ransomware is enabled by cryptocurrencies.
William Turton and Kartikay Mehrotra report that Hackers Breached Colonial Pipeline Using Compromised Password:
"Hackers gained entry into the networks of Colonial Pipeline Co. on April 29 through a virtual private network account, ... The account was no longer in use at the time of the attack but could still be used to access Colonial’s network, ... The account’s password has since been discovered inside a batch of leaked passwords on the dark web. That means a Colonial employee may have used the same password on another account that was previously hacked, ... The VPN account, which has since been deactivated, didn’t use multifactor authentication"
Three strikes and you're out; unrevoked obsolete account, reused password, no 2FA.
I was going to suggest ransomware authors might use precious metals as an alternative, but it turns out $5M in palladium is 1760 XPD (troy oz) at 31g each, or 54kg, basically the same as the suitcase full of $100 notes.
The Feds understand the importance of disrupting the ransomware payment channel. Dan Goodin reports that US seizes $2.3 million Colonial Pipeline paid to ransomware attackers:
"On Monday, the US Justice Department said it had traced 63.7 of the roughly 75 bitcoins Colonial Pipeline paid to DarkSide, which the Biden administration says is likely located in Russia. ... FBI Deputy Director Paul M. Abbate said at a press conference. "For financially motivated cyber criminals, especially those presumably located overseas, cutting off access to revenue is one of the most impactful consequences we can impose."
The law enforcement success intensifies speculation that Colonial Pipeline paid the ransom not to gain access to a decryptor it knew was buggy but rather to help the FBI track DarkSide and its mechanism for obtaining and laundering ransoms.
The speculation is reinforced by the fact that Colonial Pipeline paid in bitcoin, despite that option requiring an additional 10 percent added to the ransom. Bitcoin is pseudo-anonymous, meaning that while names aren't attached to digital wallets, the wallets and the coins they store can still be tracked."
Criming on an immutable public ledger has risks. This is good news for Monero!
Today's ransomware news includes:
- Ransomware hits Capitol Hill contractor by Catalin Cimpanu: "A company that provides a user engagement platform for US politicians has suffered a ransomware attack, leaving many lawmakers unable to email their constituents for days."
- Ransomware Struck Another Pipeline Firm—and 70GB of Data Leaked by Andy Greenberg: "A group identifying itself as Xing Team last month posted to its dark web site a collection of files stolen from LineStar Integrity Services, a Houston-based company that sells auditing, compliance, maintenance, and technology services to pipeline customers. The data, ... includes 73,500 emails, accounting files, contracts, and other business documents, around 19 GB of software code and data, and 10 GB of human resources files that includes scans of employee driver's licenses and Social Security cards."
There is a fairly reasonable discussion of this post on Hacker News.
The New York Times reports that JBS the Meat processor paid $11 million in ransom to hackers.
Reuters reports that More Chinese provinces issue bans on cryptomining:
"Authorities in China's northwestern province of Qinghai and a district in neighbouring Xinjiang ordered cryptocurrency mining projects to close this week, as local governments put into practice Beijing's call to crack down on the industry.
The Qinghai office of China's Ministry of Industry and Information Technology, on Wednesday ordered a ban on new cryptomining projects in the province, and told existing ones to shut down, according to a notice seen by Reuters and confirmed by local officials.
Cryptominers who set up projects claiming to be running big data and super-computing centres will be punished, and companies are barred from providing sites or power supplies to mining activities.
The Development & Reform Commission of Xinjiang's Changji Hui Prefecture also sent out a notice on Wednesday, seen by Reuters and confirmed with officials, ordering a cleanup of the sector."
Wolfie Zhao's Here's what Yunnan is actually doing with bitcoin mining reports that Yunnan, where mining is hydro-powered, isn't banning mining explicitly, but it is requiring miners to pay the grid price for power, which could make it uneconomic:
"The media report said the Yunnan Energy Bureau is requiring subordinate departments to inspect and then either shut down or rectify bitcoin mining farms that are using unauthorized hydroelectricity. This includes power stations that are directly supplying energy to bitcoin mining farms without paying a profit cut to the government."
It turns out that I have time to work on a post about attacking Proof-of-Stake blockchains. Kai Morris reports that Buterin Explains Why Ethereum 2.0 Upgrade Won’t Arrive Until Late 2022:
"To the disappointment of many however, the shipping of shard chains is not expected until sometime in late 2022, according to Ethereum’s latest roadmap. While a transition from PoW to PoS is expected to take place sometime in 2021/2022, the inclusion of shard chains is seen by many as the official completion of the Ethereum 2.0 upgrade. While many have believed the delay was due to the technically-burdensome transition, the actual issue is apparently something different."
Buterin is blaming his co-workers for the delay in shipping the project they've worked on now for seven years.
VentureBeat reports that Cybereason: 80% of orgs that paid the ransom were hit again:
"Cybereason’s study found that the majority of organizations that chose to pay ransom demands in the past were not immune to subsequent ransomware attacks, often by the same threat actors. In fact, 80% of organizations that paid the ransom were hit by a second attack, and almost half were hit by the same threat group."
Danny Palmer asks Have we reached peak ransomware?. Betteridge's Law of Headlines supplies the answer, No!
Hannah Murphy reports that Monero emerges as crypto of choice for cybercriminals:
"For cybercriminals looking to launder illicit gains, bitcoin has long been the payment method of choice. But another cryptocurrency is coming to the fore, promising to help make dirty money disappear without a trace.
While bitcoin leaves a visible trail of transactions on its underlying blockchain, the niche “privacy coin” monero was designed to obscure the sender and receiver, as well as the amount exchanged.
As a result, it has become an increasingly sought-after tool for criminals such as ransomware gangs, posing new problems for law enforcement."
Strong evidence for the #1 business case for cryptocurrencies in Roxanne Henderson and Loni Prinsloo's South African Brothers Vanish, and So Does $3.6 Billion in Bitcoin:
"The first signs of trouble came in April, as Bitcoin was rocketing to a record. Africrypt Chief Operating Officer Ameer Cajee, the elder brother, informed clients that the company was the victim of a hack. He asked them not to report the incident to lawyers and authorities, as it would slow down the recovery process of the missing funds.
Some skeptical investors roped in the law firm, Hanekom Attorneys, and a separate group started liquidation proceedings against Africrypt.
The firm’s investigation found Africrypt’s pooled funds were transferred from its South African accounts and client wallets, and the coins went through tumblers and mixers -- or to other large pools of bitcoin -- to make them essentially untraceable."
Exit scams, they.re what Bitcoin was made for.
The UK government's glacial approach to regulating cryptocurrency creeps forward, as Reuters reports in UK financial watchdog cracks down on cryptocurrency exchange Binance:
"Britain’s financial regulator has ordered Binance, one of the world’s largest cryptocurrency exchanges, to stop all regulated activity and issued a warning to consumers about the platform, which is coming under growing scrutiny globally.
Since January, the FCA has required all firms offering cryptocurrency-related services to register and show they comply with anti-money laundering rules. However, this month it said that just five firms had registered, and that the majority were not yet compliant."
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