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What is being done to catch the Bitcoin Crooks?

Wednesday 19th, March 2014 / 23:17
What is being done to catch the Bitcoin Crooks?

BTC World News has recently shared many reports of Exchange hacking’s, people losing countless amounts of investments and we ask, what is being done to catch the Bitcoin crooks involved?

These are “cut and dry” financial crimes and perhaps not in the complete sense from the Bitcoin side as it is still “unregulated” and not confirmed as any type of currency which provides protection, though it did take physical cash to buy Bitcoins and if the Exchanges are unable to immediately replace the losses with Bitcoin or equal cash value, then it merits the criteria to engage law enforcement to pursue a financial crime to some degree.

hackerWe ask, are we just standing by with our hands in our pockets, hoping for some magical return or is some effort to find these crooks taking place?

The patterns of this style hacking are all nearly the same which implies that it’s likely the same group or circle of hackers. We also ponder, what side is the hacker on? And with that question, discovering who is behind this will shed a lot of light on the big picture.

In case you’re wondering how they’re doing this, it’s actually quite simple and is not the fault of the Bitcoin Network by any means.

In a nutshell, the hacker creates a transaction at an Exchange, then double posts it within the Exchange by causing the Exchange to verify the transaction by a stale or (not live) version of the Block chain as we know this can take upwards of 15 minutes or by numerous verification from the Bitcoin Network.

The Exchange then verifies the transaction with its local copy of the block chain and allows you to carry on with business such as making 10,000 more duplicate transactions. At some point, the Exchange will update the Block chain and purge out those duplicate transactions, but by then, the hacker has already performed “X” number of real and duplicate transactions and is waiting for them to be sent to wallets outside of the Exchange’s network.

Once the block chain catches up and verifies each record, the Bitcoins are as good as gone. The even more savvy hacker takes it a step further by creating a DDOS attack which makes it impossible for the Exchange to communicate with the block chain and enables the hacker a window of opportunity to confuse the Exchange and drain the hot wallet.

Overall, it’s a fairly simple to empty an Exchange in no time with this process. Though the marker here is the added complexity of pulling off a DDOS attack, that by itself is an identifier as these hackers have to push more bandwidth than the Exchange has which is allocated from somewhere such as a Telco, Cable company or similar high bandwidth organization.

How do the Bitcoin Crooks hide their loot?

One area that caught our eye recently was a site, BTCFOG which is a self-proclaimed Bitcoin laundry service designed solely to take Bitcoins and turn them into new untraceable Bitcoins. BTCFOG claims that their service is designed to support anonymity, though they are not regulated, commissioned by any Exchange nor do they maintain any records that can identify a source in the event of theft or similar situations.

The bottom line is there aren’t that many Bitcoin laundry services out there so if you’re looking for your Bitcoins, they’re probably being washed through sites like this fairly quick. BTCFOG boasts that it can wash coins and automatically spread them across any number of accounts making it nearly impossible to identify the original Bitcoin.

This process actually creates a window of opportunity to recover stolen Bitcoins because a crook knows better than to push a large amount of Bitcoin across the block chain. In the event that 100,000 Bitcoins were stolen, they would likely filter them in small increments until they were all washed. Depending on the size of the crime, this could take weeks if not months to successfully transfer and launder all the stolen Bitcoins.

Furthermore, to the current Exchanges, you’re the point person here where Bitcoin’s become some form of cash, what steps are being performed to track significantly changing accounts? It would seem straight forward that an account that was consistently receiving and withdrawing Bitcoins to a bank account, but not purchasing any or showing any matching history, is a suspicious account. If an Exchange isn’t marking these transactions as questionable, this is a significant failure on their part.

From one point of view, in the event of all these thefts, it is believe legitimate account holders would have little or no objection if an Exchange performed more diligence to inquire where sets of new Bitcoins came from and even place holds on accounts while a proof of ownership takes place.

With Bitcoin’s current value in the mid 600’s, for an average account holder to go from a handful of Bitcoins to moving hundreds, if not thousands of Bitcoins, which equals hundreds of thousands of dollars, the ends justify the means to place restriction on obtaining withdrawals of questionable transactions.   

We’d even like to point out with today’s technology, everything is logged and tracked. We ask, why aren’t these logs being used to gather a better profile of the crooks? Hello, they caught the Dread Pirate Roberts, it’s absurd to think we’re unable to catch these second rate hackers.

It’s time to get in front of this and use pro-active methods to crack down, identify and bring these Bitcoin perpetrators to light as well evolve the transaction process to be a safer and more secure approach to distributing funds.

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