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The bitcoin scam worked – almost too well. In 2012, when almost no one had heard of the digital currency, he had started modestly, asking people who found on the dark web a value of $ 200 or $ 300 bitcoin as a method to test his investment scheme. He told them that he could take advantage of the huge price differences between the various bitcoin exchanges and promised huge prizes. But once they sent the funds, he vanished in the ether to find his next puppet.
There was a certain criminal irony on the part of that genius: he would have launched an anonymous, untraceable digital currency, and then he would have been paid.
But something happened in the world of cryptocurrencies, slowly at the beginning, then all at once. The public and investors began to push their money, inflating the value of the bitcoin. The Winkelvi became bitcoin billionaires. ICOs have become warmer than IPOs. Jim Cramer also started talking about bitcoins. After his price peaked at $ 20,000 at the end of last year, the boy's cache would have been worth $ 20 million.
But he had a problem. It is becoming increasingly difficult to transform the most overhyped currency from the tulip into real money.
The boy found himself in the midst of a growing number of dark web vendors – people who use anonymous networks to sell drugs, counterfeit currency and malware – who are struggling to convert their bitcoins into real money. (VICE News listened to his account from a private Swiss banker who reported receiving several messages from scammers and criminals seeking help with cryptocurrency.) These dark web sellers were among the first bitcoin investors and probably driver of its initial value when no one else was interested. Now, those with virtual millions are stuck in limbo.
Such is the madness of the bitcoin market in the last 12 months, with the ordering forces and regulators trying to bring order into a world where the price of a single currency can fluctuate by hundreds of dollars in space a few minutes. At the beginning of this month, for example, the price of bitcoin fell by $ 1,000 after the appearance of rumors that an exchange had been violated and the SEC was planning a crackdown. Companies are increasingly scared of potential losses or lawsuits. Facebook and Google have banned cryptocurrency ads from their platforms in recent weeks, citing the fear that users would be deceived by their money.
It has always been difficult for anyone to trade in bitcoins for a fiat currency like dollars or euros. Until recently, financial institutions had little to do with cryptocurrency because of its volatile price and perceived (and real) connections with criminal activity.
Exchanges like Coinbase, founded in 2011, offer the easiest way for the general public to buy and sell traditional cryptocurrencies like bitcoin, litecoin and ethereum. But users must register with their real identities and prove that their cryptocurrency has been legally acquired. This makes them less attractive to criminals. Collecting small amounts of bitcoins is still possible, but it is becoming more difficult to do so without attracting the attention of the forces of order.
The dark web sellers were among the first bitcoin investors. Now, those with virtual millions are stuck in limbo.
And because of the explosion in the demand for cryptocurrency, anyone who uses bitcoins today has to face rising transaction costs and long waiting times for payments to be processed.
All this means that people like our boyfriend who are very rich in paper (or, more precisely, on the blockchain) must devise extremely complex methods to convert their illicit gains, or risk losing a little bit of value, has said Tom Robinson, co-founder of the blockchain Elliptic analysis company. "Funds from illicit activities are barely dormant, and they are waiting to find effective means to cash in," he said.
However, if we know something about criminals, it is that they are full of resources. While financial institutions and regulators around the world are struggling with the adaptation of bitcoins to traditional usage, some of these criminals have devised ingenious hacks to convert their money; still others are turning to alternative currencies seeking more privacy for their transactions and keeping up with the law.
BITCOIN LAUNCHED in 2008 with the great vision of replacing the traditional banking system. Its immunity from regulation and the relative anonymity of transactions on the network – at least in the beginning – made it attractive to dark web sellers, as well as arms, gunmen and pedophile traders. Six years ago, up to 30 percent of all bitcoin transactions were sent to the dark web. Today, this figure has dropped to 1% as more and more people are using bitcoins for legitimate trade and investment.
Since 2013, law enforcement has captured the use of bitcoins in the dark web markets. That year, the FBI closed the Silk Road – described by an agent at the time as "the most sophisticated and extensive criminal market on the Internet today". The Silk Road takedown came after it got ample attention in the mainstream media to make it easy to buy everything from class A drugs to guns. The FBI seized 144,000 bitcoins in the raid – worth $ 1.2 billion today's valuation – attracting more attention to the cryptocurrency, even though they were still years away from mass appeal.
Last July, a joint police operation between the FBI, the DEA and officials from Canada and Thailand undermined two of the largest hidden drug markets, AlphaBay and Hansa, immediately canceling a & # 39; huge portion of illegal activity conducted on the dark network.
By pooling intelligence among agencies, incognito force agents were able to infiltrate these markets, targeting administrators, and eventually taking them offline. The Dutch police went further and handled Hansa in secret for a month before withdrawing it, recovering huge amounts of data on the people who used the site – as well as millions of bitcoins, ethereum and other cryptocurrencies.
All this has led to a sense of paranoia between sellers and buyers. An obscure malware provider in Eastern Europe, which manages the handle of LeagueMode, told VICE News that it has rigged its computers and smartphones so that everything can be erased with the push of a single button.
The growing security concerns of bitcoin also coincide with a rapid rise in the price of the currency (since then it has fallen to around $ 11,000). Investor speculation has increased the value and the currency has gained a broader consensus between Wall Street and financial institutions. It was the perfect time to sell.
"They are ready to pay a lot of time."
HOW MANY aspiring international criminals before him, our boyfriend eventually turned to a private Swiss banker. In January, he approached Olivier Cohen, an experienced broker based in Geneva who recently created a company called Altcoinomia to help individuals of high net worth to invest in cryptocurrencies. In the beginning, the guy claimed to have built his bitcoin cache with a trading service. Cohen was skeptical about the bitcoin and its origins, as bankers tend to be, so he traced the payments. The journey eventually brought him back to the dark network.
"After digging and digging, I discovered it was not legitimate.The bitcoins were contaminated," Cohen said. He told the scammer: "Look, this is a black market, I can not get on board."
The boy was upfront about how much he was willing to pay to convert his bitcoin into fiat currency. Cohen said he had fielded three or four similar requests following a message he posted on Reddit on Christmas Eve of the difficulties in liquidating bitcoins.
"They are ready to pay a lot of time," he said. "They'll tell you very simply," If you let me out of the situation, you'll get 10%. & # 39; "
This would have meant a $ 2 million gain for Cohen at the current bitcoin rate. But even if Cohen had wanted to do it, it was unlikely he could complete the task. Despite Wall Street and financial institutions that invest heavily in blockchain technology, banks are still very wary of bitcoins, especially large quantities without chronology. As a result, banks will delay such transactions and will require a lot of documentation, and in the end they could refuse anyone who wants to withdraw bitcoins in bulk simply because of their links to the dark web.
"I do not think there's a way to process eight or nine or ten-bit bitcoin transactions," said John Bambenek, a computer security researcher who tracks bitcoin payments. "Coinbase allows you to cash in at up to $ 15,000 a week – it's not bad, but if I'm sitting in nine figures, I want to cash out more, faster."
It is possible to slowly collect small pieces here and there, but doing so involves the risk of attracting unwanted attention, since it seems to be structured, a practice of transferring many small quantities in order to avoid federal regulations.
The Bitcoin hoarders who are willing to become a bit creative and to be a little bit patients can still reap the rewards of the currency. VICE News talked about obscure Internet vendors who use bitcoins daily for their ways to cash out. (None of them wanted to use their real names, for obvious reasons).
How criminals cash in bitcoins before it's too late:
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The descent and the race: LeagueMode operates on the Wall Street Market, one of the most popular dark web markets, and since 2010 has exchanged malware and stolen credentials. He said that most sellers use more bitcoin wallets – he has more than a dozen of himself – combined with automated, custom scripts to "mix" the bitcoins via micro-transactions to avoid detection. He found a person who lives locally who wants to buy bitcoins regularly. So once or twice a week, he transfers bitcoins into this person's account, "and a few hours later he brings a lot of money into my porch," he explained. "One-to-one exchange, no commissions, and we're both happy."
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An old but a pleasure: A seller using the Med3l1n handbag sells credit cards and identity cards stolen from the Wall Street Market. The 24-year-old, who is also a moderator of the WSM forum, said there are several ways to cash out if you know what you're doing. One way is to send your bitcoins to a company that charges a prepaid debit card that can be used in the real world. "The card emitter does not even know that it has been reloaded with bitcoins because there is a company that does this service for you," he said. You can circumvent identification requests simply by purchasing fake documentation on the obscure web, using bitcoins or another cryptocurrency, of course.
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Go to Western Union: Alpha_xxx, a 24-year-old drug dealer based in the United States on the dark market point, said he passes through Western Union to help withdraw bitcoins. First, use one of a number of services that automatically transfer bitcoins to Western Union accounts, so it has a third party, called a collector, which collects cash as an additional layer of protection.
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It's easy, if you know how: The dott. Lysergic, which sells cocaine, LSD and MDMA, has rejected claims that it is no longer possible to withdraw bitcoins. "If anything, it's becoming easier to cash in for me than when I started," he said. He did not disclose the method he uses to dump his bitcoins, but he said he usually charges $ 3,000 at a time, losing about 2% in the process. "If some of these novice sellers were smart and sit and think about it, there are so many ways to do it," he said. "Sometimes it can be boring and a long process, but that's why we signed up for it".
Still, most criminals with large stocks of bitcoins who want to cash out quickly do not have an easy way to do it, and few of them really know the ropes, Cohen said.
"Some people have thought of innovative ways to cash out," he said. "But at most 20 percent of these people – 80 percent have no idea how to do it."
C & # 39; IS ALWAYS the ability to play straight and declare illicit bitcoin to a governmental authority with the hope that they simply will not carry out any scrutiny. Cohen said he knew of cases where this worked, but he also knew about incidents where it did not work.
Another less risky option is to look for a bank in Eastern Europe, where regulations are much more relaxed.
In 2013, the United States paved the way for regulating the use and trading of bitcoins and other cryptocurrencies. That year, the Senate held its first bitcoin hearings, the Treasury Department issued guidelines on virtual currencies, the IRS became the first tax authority in the world to clarify the bitcoin's tax treatment, and the state of New York established BitLicense, a series of regulations for companies dealing in digital currencies.
Robinson Elliptic's company, along with others like Chainalysis, works closely with the US forces, providing tools for agents to track bitcoin payments through the blockchain. "We can distinguish the average bitcoin user from a dark market vendor, for example," Robinson said.
This has made it much more difficult for criminals to recycle money through US-based exchanges, but just like anything, criminals will find the weakest link in the chain. At the moment, this weak link is Europe.
A recent report by Elliptic, in collaboration with the Center for Sanctions and Illicit Finances of the Foundation for the Defense of Democracy, noted that Europe was the "wild west" of cryptocurrency regulation.
A disproportionate amount of illicit bitcoin transactions is channeled into Europe, with criminals exploiting the gambling game of cryptocurrencies and mixing sites to recycle their money. With a complete lack of regulation in this area, these services do not need to perform due diligence on their customers or report suspicious activity.
"European exchanges have a serious problem with the surveillance of illicit activities on their platforms," said Yaya Fanusie, a former CIA counterterrorist analyst who currently works as CSIF's Director of Analysis.
In December, the 28 EU Member States agreed tougher rules to prevent money laundering and terrorist financing on bitcoin exchange platforms and other virtual currencies. The new rules will involve exchanges and companies that will provide portfolio services to identify their customers, just like US companies. But they have another 18 months to implement the new directives, which means that gaps remain to be exploited for criminals. Last month the European Central Bank declared that the cryptocurrency regulation "is not exactly very high on its list of things to do".
Rob Wainwright, head of Europol, EU law enforcement arm, predicts that a forthcoming change from bitcoins to alternative cryptocurrencies will make it even more difficult for agencies to track these transactions.
The head of the Europol team that monitors illegal cryptocurrency transactions said the agency found that more and more people are using alternatives to bitcoins in the dark web. "We saw in 2017 and 2018 a move by some bitcoin criminals and criminal groups to currencies that guarantee higher levels of anonymity," said the expert, who asked for anonymity for concern that criminals they would have targeted him.
DESPITE HER HEADS, bitcoin remains the gold standard on the dark web markets, largely because it is the easiest-to-use digital currency for customers. But it is clear from talking to more than a dozen dark web experts, researchers, academics and sellers that Europol's agents are right: the criminals are starting to favor new cryptocurrencies.
AlphaBay takedown has pushed more people away from the bitcoin. The speed of this turn depends on who you ask, but there are three clear leaders to take the crown of bitcoin as the digital currency of choice for the underworld. All of this works essentially in the same way as bitcoins, with payments transferred to a public blockchain, but each of them has built-in privacy features that make it more difficult for the ordering forces to monitor transactions.
Monero, for example, has received an important follow-up on the obscure web because of its privacy features, with a darknet seller based in Eastern Europe telling VICE News that up to 45% of his transactions are now in Monero. Also Zcash, created by the cryptographers of Johns Hopkins University, is gaining ground; Last year, Shadow Brokers, the Russian hacker group that sold stolen NSA hacking tools, said they now only accept Zcash from customers. Litecoin and Dash are among the other alternatives that are embraced on the dark network.
Neither the FBI nor Europol would have discussed how difficult it is to track the movement of privacy-focused cryptocurrencies like the monero. Doing so "would give people a step-by-step guide to avoid detection," said the Europol expert.
The FBI and the DEA also refused to comment on how they are facing the current use of cryptocurrencies by criminals.
Even in the United States, where there are more stringent regulations, the forces of order are struggling. Jason Kichen, a former CIA intelligence expert, said he thinks agencies will find it hard to win the fight against criminals using cryptocurrencies.
"I do not think it's necessarily because they're technically incapable, I suspect it's just the scale of the problem," he said. "As big and well-equipped, the illegal use of cryptocurrencies is such a big problem that I do not think organizations can scale up to tackle the problem."
Just like many others in the nascent world of cryptocurrencies, the forces of order often wander in the dark. But they have powerful tools to quickly and easily track bitcoin transactions, in particular, through the blockchain.
These are tools that make life so difficult for those who want to quickly convert bitcoins into cash. For now, potential exit routes are limited to looking for a buyer through an East European bank that does not ask too many questions or gets clean and hoping that tax authorities do not really understand how bitcoin works.
These are among the options now explored by the dark web scammer, who continues to look for ways to turn his virtual fortune into a real one.
David Gilbert is a reporter for VICE News.
This article originally appeared on VICE News US.
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