bitcoin crime

At the FinTech Canada conference this August, leading cryptocurrency trial attorney Brian Klein gave an excellent overview of how cryptocurrencies have been used for illegal purposes and what law enforcement officials are doing to crack down on it.

Known for representing high-profile clients like Bitcoin early-adopter Erik Voorhees, Brian Klein is the founder and chair of the non-profit Digital Currency and Ledger Defense Coalition (DCLDC) and the chair of the American Bar Association’s blockchain technology, digital currency, and ICO national institute.

In his talk, Klein points to the law enforcement efforts and litigation around the Silk Road as an early example of crime with a cryptocurrency element. At the time, the closure of the online black market and related arrests made headlines worldwide.

But how have things moved on in 2018?

Cash (not Crypto) is Still King in Criminal Activity

In criminal law, cash is still king.

While cases like the Silk Road made sensational headlines, cryptocurrency rarely plays a truly innovative role when it comes to more traditional criminal activity. 

Cryptocurrency may offer advantages for long-distance transactions and online shoppers, but most criminal acts today are still paid for in cash. 

The crypto element may add a modern flair and conjure images of shadowy figures in Guy Fawkes’ masks but, for the most part, digital currencies remain a payment method rather than a new frontier in criminal acts.

bitcoin silk road
The now-defunct black market Silk Road website used to buy drugs with bitcoin

Cryptocurrencies Are the New Swiss Bank Account: Money Laundering and Tax Evasion

You might still see movies where bank robbers demand that funds be wired to a Swiss bank account, but when it comes to money laundering and hiding assets, cryptocurrency has increasingly replaced the wiring of funds to jurisdictions that favor banking secrecy. 

A key advantage of cryptocurrency is that it’s not tied to a single jurisdiction or set of laws – unlike Switzerland, which tightened its banking regulations after a large tax evasion investigation in 2008.

With cryptocurrency, there’s also no need to rely on intermediaries to handle transfers. And while a bank can be forced to turn over someone’s account information, there is no central authority for the Bitcoin system.

However, as noted in Klein’s talk, most current digital currencies operate on a public, permanent ledger. Bitcoin, for example, isn’t fully anonymous as many believe. Each transaction can be tracked, analyzed and de-anonymized — if the authorities can link a wallet address to a particular criminal – now or in the future.

The Emergence of Privacy Coins

Privacy coins circumvent some of the potential risks of making cryptocurrency transactions available on a public ledger. 

Indeed, Bloomberg noted that criminals are increasingly ditching bitcoin for privacy coins like monero and zcash. 

Monero logo

While there are different types of privacy coins, they typically obscure their ledger through a variety of methods including single-use wallets and transaction keys, as well as “coin mixing”, which involves pooling different transactions together to obscure the amount and parties involved in any given transaction. 

In his talk, Klein notes that privacy coins are a key source of concern for law enforcement and regulatory agencies.

Fraud and Initial Coin Offerings (ICOs)

Reports suggest that as many as 80% of ICOs offered in 2017 were fraudulent. 

Perhaps the largest was Pincoin, an ICO that raised $660 million during the ICO fever of 2017. Shortly after raising the money, Pincoin vanished, taking investor money with it. This is what’s known as an “exit scam.”

As a result of these scams, investors have asked securities regulators to intervene.  The problem? In the US, there’s no set answer on whether ICOs are “securities.” 

What’s a security? A security is a financial instrument, like a stock, bond or investment contract, that you are able to trade or transfer to someone else. If something is a security, it is often subject to regulation and must be registered with the regulators.

Until ICOs are classified as a security, we don’t know if they are something the Securities Exchange Commission (SEC) can regulate.

So long as they remain unregulated, ICOs fall outside the oversight and authority of securities regulators, potentially leaving investors more exposed to fraudulent activity

Although the SEC’s Chairman has previously claimed that ICOs are securities, the issue is still relatively untested in the courts. This leaves many ICOs operating in a grey area. 

How Are Law Enforcement Officers Cracking Down on Illegal Crypto Activity?

This is still relatively new territory for law enforcement agencies and governments. However, they are increasingly capable of de-anonymizing transactions and tracking criminal activity. Below are just a few of the ongoing themes of law enforcement activity in the crypto space:

  • Governments and law enforcement are collaborating on an international scale. This includes sharing information, joint investigations, and global agreements around extradition.
  • Law enforcement is increasingly capable of tracking cryptocurrency transactions, especially where the ledger is public. AI and machine learning are also making it easier to analyze the blockchain and pierce anonymity.
  • On the blockchain, transaction history is not just public – it’s permanent. This can create a permanent chain of evidence for law enforcement to review and rely on, especially over time, as new data is gathered and different wallets and accounts are identified.

Conclusion

Bitcoin has been linked to illegal activity ever since the infamous Silk Road black market emerged. The cryptocurrency ecosystem has also played host to its fair share of scams, hacks, and frauds. 

However, we should also remember that every bitcoin transaction, by design, is recorded in a permanent, transparent log. If bitcoin is used for nefarious purposes, that transaction is preserved forever.

Learned something new in this article? Subscribe to the Block Explorer newsletter.

nouriel roubini

Welcome to the weekend, folks. Grab a coffee and let’s recap the biggest news stories of the week in cryptocurrency and blockchain.

“The Mother and Father of All Bubbles”

“Dr. Doom” Nouriel Roubini is a New York economist who famously predicted the 2008 financial crisis.

Now he’s turning his attention to cryptocurrency, calling it the “mother and father of all scams and bubbles” in a statement made to US Congress.

His meandering statement also takes on blockchain, referring to it as a “glorified spreadsheet.”

Nouriel Roubini’s soundbites are damning and headline-grabbing. But they often ring hollow when we investigate it further. Here are some of the things he got wrong:

1. “Paying $55 dollars of transaction costs to buy a $2 coffee cup is obviously never going to lead Bitcoin to become a transaction currency.”

Roubini is referring to December 22nd, 2017 when the bitcoin transaction cost briefly hit $55. However, this was the peak of bitcoin mania. To use this as a broad statement on transaction fees is misleading.

In the last three months, the bitcoin transaction price has barely peaked above a dollar. And we recently saw one investor move 29,999 bitcoins (worth $194 million) with a transaction fee of just $0.1.

bitcoin transaction fees

Congestion and scalability is, undoubtedly, bitcoin’s largest challenge, but Roubini is sensationalizing the facts based on one day in bitcoin’s ten-year history.

2. Blockchain is “no better than a spreadsheet or database”

Actually, it’s significantly, objectively better.

A spreadsheet or database is almost always controlled by one person or entity. It can be manipulated and falsified. It can be easily hacked or stolen because there is usually one point of failure.

A blockchain is a spreadsheet that lives on thousands of computers all at once. It’s updated in real-time. It’s not owned or controlled by any one person, which means it can’t be hacked or manipulated (because the entire community would see it happen and refuse to accept it).

I say it’s objectively better because the bitcoin blockchain has never been hacked. (Only things built to interact with it, like exchanges, have been compromised).

3. Bitcoin has “now gone bust”

Actually, bitcoin has suffered much larger percentage drops in price and survived.

The first bitcoin crash in 2011 wiped out 93% of value. The second took 70% off the price. The third took 83%.

bitcoin-selloff-crashes

2018’s 65% decline might have involved a much higher market capitalization, but big percentage falls in bitcoin is nothing we haven’t seen before. 

Bitcoin recovered from every previous crash without “going bust.” To say bitcoin has gone bust this time around is to underestimate the strength of the community, not to mention all the institutional support slowly building around it.

4. Bitcoin’s “only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering”

What about the people in Venezuela using bitcoin to free themselves from 1,000,000% inflation in fiat currency?

How about the Cypriots that used bitcoin when the government confiscated the money in their bank accounts?

Of course, bitcoin has been used for drugs and money laundering. But bitcoin has also empowered people, which is perhaps its most important use-case so far.

Bitcoin’s Spike, Tether’s Decline

Bitcoin recorded a rapid 10% spike on Monday. At the same time, the world’s largest stablecoin, Tether, fell from its $1 peg to as low as $0.85.

Tether is under renewed criticism that its tokens are not fully backed by real dollar reserves. The skepticism intensified on Monday after crypto exchange Bitfinex was rumored to be on thin ice financially.

Both Tether and Bitfinex are run by the same CEO, so concerns about Bitfinex lead to worries over Tether’s solvency.

Read more: What is Tether? The Controversial Stablecoin?

0x Listed on Coinbase, Price Soars 70%

0x (ZRX) became the first ERC-20 token to be listed on Coinbase this week. 0x is a promising decentralized exchange platform that powers the exchange of tokens, loans, gaming items, and just about anything else.

0x coinbase

ZRX is available to those using Coinbase’s premium service, Coinbase Pro.

The price of ZRX soared 70% on the news but fell back 15% later in the week. The project’s founder and CEO urged caution on the price, saying: “This is probably a good time to remind everyone that 0x is a highly experimental technology that is built on top of another piece of highly experimental technology.”

0x founder tweet

Weekend Reading

Ethereum eBook – We released our second deep-dive eBook this week: Absolutely Everything You Need To Know About Ethereum. It’s completely free to download (no email address required).

8 Cryptocurrency Best Practices – From safe storage to backups, this guide teaches you how to keep your crypto safe.

Do You Need Cryptocurrency Insurance? – If you own crypto, it’s probably not insured. Crypto exchange Gemini is trying to change that, but what else can you do to stay safe?

That’s all for this weekend. We’ll see you back here bright and early on Monday morning.

Learned something new in this article? Subscribe to the Block Explorer newsletter.

Five million bitcoins.

That’s how many have been lost or stolen since bitcoin was created. 

Unless you take the right precautions, cryptocurrency theft and hacking is still a very real threat. 

And then there’s the risk of losing your cryptocurrency by failing to back it up. (Just ask the man who threw away a hard-drive with $75 million of bitcoin on it).

Luckily, there’s plenty you can do to protect yourself. In this article, we’ll go over eight best-practices you should follow when using cryptocurrency.

Stay safe.

1. Don’t Tell People How Much Cryptocurrency You Own

Or better yet, don’t tell anyone that you own cryptocurrency at all. If pressed about this, a good answer is that you own “some” or any other non-answer.

The reasoning behind this is pretty simple. Telling people how much cryptocurrency you own is a great way to turn you into a target, even to people you trust. There’s a reason one of the first things lottery winners are always told is to contact a lawyer before telling those around them. 

bitcoin best practices

Unfortunately, money makes some people greedy, and those people will stop at nothing to get what they want.

Unlike a bank account or other fiat cash storage, cryptocurrency is almost always stored close to you (on a computer or hard-drive in your home). It can be stolen relatively easily. And while your password may be strong, rubber-hose cryptanalysis or social engineering means that a strong password may not be enough when thieves are in close proximity to you.

2. Cold Wallets Are an Awesome Idea

Keeping all your currency in a hot wallet is asking for trouble. A hot wallet (one connected to the internet) is great for day-to-day transactions, but they are easier to steal from. A “cold wallet” means storing your crypto offline. Keeping most of your cryptocurrency safe in cold storage is just plain good practice.

Read more: What is cold storage for cryptocurrency?

Additionally, for an extra step of protection, you can use a hardware wallet. Hardware wallets are like an external hard-drive but designed specifically to store cryptocurrency. 

ledger nano cold storage bitcoin wallet plugged into a laptop
Pictured: a Ledger Nano hardware wallet

Most hardware wallets are tamper resistant. Meaning they will erase themselves if someone tries to break into them, either physically or by attempting many passwords. This is much better than a laptop or other general-purpose device because if the laptop is stolen, any wallets on there can be attacked forever.

The most popular cold storage hardware wallets are Ledger and Trezor. 

3. Never Use Exchange Wallets for Longer Than You Need To

In other words, don’t keep your bitcoin on Coinbase, Bitpanda, Binance, or any other exchange.

This one doesn’t make sense on the surface. Why wouldn’t you want all your currency ready to trade at a moment’s notice?

First off, online wallets, in general, are dangerous. You are not the only person with access to your funds. In fact, you don’t even have total control over the wallet. Not having full control over your wallet is a pretty glaring security issue, and should be avoided if possible.

Secondly, cryptocurrency exchanges can fail incredibly quickly. There is no fallback for crypto exchanges other than the ones they make. If the exchange fails, you may never get your cryptocurrency back. Your money may have even been used without your knowledge in an attempt to prop up the failing exchange.

And lastly, due to their extremely large turnover, exchanges are a much bigger target for hackers and other malicious people than a single wallet.

4. Always Encrypt Your Wallets

Now that your crypto is safely in a private wallet, your next challenge is keeping your wallet secure should the files themselves be stolen by someone across the internet.

The first line of defense for the wallet is a strong password. As with most passwords, length trumps complexity, and the combination of both is best.

how to make strong passwords
Credit: 360 Total Security

That said, if you believe your wallet has been compromised, move all the cryptocurrency from the compromised addresses to new (hopefully secure) addresses. The fees you will pay to move them to the new address is worth the peace of mind. 

Some wallets have one-click options to do this, often referred to as “sweeping”.

5. Use Separate Addresses Where Possible

Staying private in the cryptocurrency world is, in general, a good idea. Bitcoin has a reputation for being anonymous, but that’s not actually true.

When you transact with someone, they can see your “public address.” It looks something like this:

1GsOmhLr0FbBpNco1NDar6sSV8tsHaKF6kd.

It doesn’t tell anyone your name, but if they search for this address (on a block explorer), they’ll see every transaction you’ve ever made using that address.

It means you’re effectively sharing your transaction history with someone else. You’re also showing that person who else you have transacted with and how much was transferred. That last one falls under the first rule we have, as sharing how much cryptocurrency you have makes you a target.

When transacting with non-private cryptocurrencies like bitcoin or litecoin, be sure to use separate addresses for each transaction.

An alternative is using a truly anonymous cryptocurrency like monero.

6. Double Check Everything

One easy way to lose currency is to send it to the wrong place or to use the wrong wallet. 

Cryptocurrency transactions are “immutable” – they can’t be reversed. So if you send money to the wrong wallet, it’s gone forever.

For this reason, you should always verify that you know what you’re doing, and everything is correct.

For addresses, this is pretty simple. Check that the first few and last few characters are the same as your intended target. If the first and last characters are correct the rest probably are. 

Though, there is some malware out there that will switch out addresses for lookalikes in your clipboard. For this reason, you may want to verify that the entire address is correct before sending large amounts. 

If you’re still worried, try sending a test transaction first.

7. Always Make Backups (Use the 3-2-1 Rule)

Keeping backups of everything is a good idea in general, but it’s an especially good idea when it comes to cryptocurrency.

For most use-cases, the 3-2-1 rule for backups should be followed; three copies, two different media, one off-site. 

321-Backup
Credit: ISG Tech

That could mean keeping your private keys on:

  1. Hardware wallet.
  2. CD or flash drive.
  3. Paper wallet.

That’s three versions stored on at least two different devices or media.

Next, you should keep one off-site. In other words, nowhere near the other two. 

A nice off-site location is a safety deposit box at a bank. Either hardware or paper wallets are good here, though paper wallets are (in this case) the safer bet. Note that this requires you to trust that the bank will not open your box for any reason.

For large amounts of cryptocurrency, you can even utilize a former military bunker in the Swiss Alps.

The two separate media means that if one is damaged in some way, the other is likely not. And one off-site means that in the event of a house fire or otherwise, you still have a backup.

Remember that you should always encrypt your backups. If you back up a wallet file and someone malicious gets a hold of it, your currency is theirs to steal.

8. Never Spend Money You Can’t Afford to Lose

Finally, cryptocurrencies are incredibly volatile. This means the price can swing up very high, and fall very low. 40% swings of value in a single day are not unheard of, especially for smaller coins.

Much like with regular investments, storing value in cryptocurrencies is a calculated risk, and, there is always the chance that cryptocurrencies “go to zero”. And if you’ve put in every cent you have, you could end up in trouble.

Conclusion

The best-practices outlined here require a little extra work, but it’s well worth the effort. Keeping your crypto safe and secure is the most important thing you’ll do.

what is ethereum?

Ethereum is the second-biggest cryptocurrency after bitcoin.

But ethererum is nothing like bitcoin.

While bitcoin aims to revolutionize money, ethereum aims to revolutionize… everything else!

The first thing we suggest in this ebook is to stop thinking of ethereum as a money system.

Instead, think of it like Lego. Ethereum is a place for building things with blockchain technology.

We know that blockchain is revolutionary, but Ethereum actually gives us an easy way to use it.

That’s why huge companies like J.P. Morgan, BP, and Intel are experimenting with the Ethereum blockchain to create new apps and services.

The potential for Ethereum is phenomenal. But there are lots of hurdles to overcome. A few hundred words are not enough to cover the topic, especially if you’re looking to invest in the cryptocurrency.

That’s why we created this eBook:

Ethereum: Absolutely Everything You Need To Know (In Simple Terms) 

It’s completely free (no email address required, either).

The book will answer all your questions about ethereum:

What is Ethereum

  • Who created it?
  • How does Ethereum work?
  • Where does the cryptocurrency come in?
  • Why are major banks and companies using Ethereum?
  • How do I buy ethereum?
  • How do I store it safely, away from hackers?
  • What’s next for Ethereum?

Download Now.

Who is Block Explorer?

We are home to the longest-running bitcoin block explorer, a tool for tracking bitcoin transactions.

We are cryptocurrency pioneers.

We are also the world’s most trusted cryptocurrency education website.
Block Explorer aims to bring bitcoin to the mainstream with simple, easy-to-understand guides.

Absolutely Everything You Need To Know About Ethereum is the second in our flagship series of cryptocurrency ebooks. To learn more, check out our Bitcoin eBook too.

best cryptocurrency debit cards

With a cryptocurrency debit card, you can now walk into a store, cafe or restaurant and pay with bitcoin. It’s yet another step towards wider crypto adoption, but where should you start? Alan Wass looks at the five best crypto cards in 2018.

The rise in cryptocurrency debit cards is a true reflection of how far the crypto industry has traveled in a very short space of time. It seems like only yesterday when we had to jump through hoops just to buy bitcoin. Times have changed!

What’s a Crypto Card?

A cryptocurrency debit card allows you to spend bitcoin (or other digital currencies) as easily as you’d pay with fiat currency.

A bitcoin debit card makes the exchange from crypto to fiat for you. So you can use it at shops, ATMs and online, even if the vendor doesn’t directly accept bitcoin.

Bitcoin debit cards will help attract more mainstream consumers to crypto and bolster confidence in day-to-day blockchain technologies. If we’re to expand crypto adoption, it’s important the industry offers similar features you would find in traditional financial markets.

But before you choose the best cryptocurrency debit cards, you need to figure out which type of card suits your needs and lifestyle in the crypto-sphere.

paying at a store with bitcoin debit card app

Which Type of Cryptocurrency Debit Cards Suits You?

For example, do you want a physical crypto debit card or a virtual card? Or both? You can also opt for a pre-paid or non-pre-paid card.

Physical crypto debit card – A plastic card you keep in your wallet, just like your normal credit card (may come with an up-front fee).

Virtual debit card – Usually cheaper than a physical card and ideal for use online. A virtual card can’t be used to withdraw cash from an ATM, but may utilize an app, so you can still make payments at stores and restaurants.

Pre-paid cards – Allows you to load your cryptocurrency onto it, which will then automatically convert your crypto into fiat currencies and vice versa. Just make sure you fully understand the choices of fiat currencies available on your chosen pre-paid card because they can vary from card to card.

Non-pre-paid debit cards – These are usually linked to your online crypto wallet, which converts your bitcoin into fiat instantaneously when you make a purchase.

Cryptocurrency debit cards don’t come for free as there are usually some startup fees involved when obtaining a physical card. Prices can vary but don’t be surprised if you have to pay $50 (USD) upfront or more in some cases to initially buy the card. There may also be loading fees when you send your crypto to the card. This could be in the form of a percentage or a flat fee, so be sure to check out the type of loading fees for your chosen cryptocurrency debit cards.

Caution: always do your own due diligence when trusting a credit or debit card company. Read reviews, check which wallets are compatible, read the company’s internal policies and check out the team behind the card. The following should not be considered a recommendation, but an introduction to the most popular cards on the market.

Top Five Cryptocurrency Debit Cards

Here is our list of the top cryptocurrency debit cards in 2018 so you can compare the features, costs and loading fees.

Coinbase Shift Card

Physical card cost: $20
Loading fee: zero
Supported countries: Card available in 43 US states, spend anywhere Visa is accepted globally.

a hand holding coinbase shift bitcoin card

As Coinbase has already cemented itself as an industry-leading crypto exchange, it only makes sense that a debit card from the company would be a very trusted and reliable option.

It’s also the only card on this list available to those living in the US, due to financial regulations.

If you’re an existing Coinbase user, it’s easy. You just connect your Coinbase wallet with the Shift card.

The Coinbase ‘Shift Card’ is one of the world’s most backed cryptocurrency debit cards available across 43 states in America. With regulatory approval, this card is extremely trustworthy, allowing you to spend your bitcoin at any establishment that accepts Visa.

Although there are no monthly costs using the Coinbase Shift Card, there is an initial issuance fee of $20. There is also a flat fee of $2.50 when withdrawing at the ATM.

The best part about using this option is that payments made via the card are taken from the crypto wallet that is tethered to the Shift Card, which means you receive no fees when converting from bitcoin to fiat.

SpectroCoin Pre-Paid Card

Physical card cost: $50
Loading fee: 1%
Supported countries: Click to see if virtual and physical cards are available in your country (US not available)

Spectrocoin bitcoin debit card and app

This high quality pre-paid physical credit card is ideal if you are looking to convert your crypto into either USD or euros. If you want the plastic USD card from SpectroCoin, it will cost in the region of $50, although the virtual card for the euro costs only €9.

The card offers affordable loading fees of 1% and further charges on any purchase you make with the card. And although there are some cheaper card options out there, you can use the SpectroCoin card at any ATM around the world, which is a massive positive for the modern crypto user of today.

Wirex Visa Payment Card

Physical card cost: free
Loading fee: none
Supported countries: Not yet available in US. Physical Card available in 31 (mostly European) countries

 

green wirex bitcoin debit card, registered to Satoshi Nakamoto

If you are looking for a company that offers both physical and virtual cryptocurrency debit cards, Wirex is an inspired choice. One plus-factor is that the card is currently available for free delivery for a limited time.

The Wirex Visa Payment Card allows you to spend your crypto just like traditional money. You can instantly convert your crypto such as bitcoin, ripple, ethereum, and litecoin and use it anywhere that Visa is accepted such as in shops, restaurants, online and at ATMs. Wirex also offers a cashback feature called Cryptoback™, which gives you back 0.5% in bitcoin on every purchase you make.

Uquid Crypto Card

Physical card cost: free
Loading fee: none
Supported countries: 130 countries eligible for physical card (excludes US).

uquid bitcoin and altcoin debit card

As most cryptocurrency debit cards only convert bitcoin or just a small handful of other digital currencies, if you are looking for more altcoin conversion options, the Uquid crypto card is a dream come true. Uquid has debit card options for 90 cryptocurrencies, which really is unique and a way to simplify the spending of your altcoin portfolio.

Another massive positive is that Uquid has no loading fees with your crypto. One of the major drawbacks of this card is that you are limited to only four ATM withdrawals and six crypto purchases per day (unless you upgrade by providing more personal information).

CryptoPay Bitcoin Debit Card

Physical card cost: $15 / £15 / €15
Loading fee: 1%
Supported countries: 119 countries eligible for account (excludes US)

cryptopay bitcoin debit card on blue background

CryptoPay is a pre-paid bitcoin debit card that offers low commission fees, free worldwide delivery, and can be used where major credit cards are accepted. Both physical and virtual prepaid cards are available, although you will have to give your full identification to take advantage of all the card’s main features. Failure to provide ID will only give you limited access of the card features.

The card is available to buy at this moment in time for 15 USD/EUR/GBP respectively. There are affordable monthly fees of $1, and a 1% charge when you convert your bitcoin.

Conclusion:

Ultimately we want to spend our digital currencies as easily as we spend our traditional cash. Cryptocurrency debit cards are the first step towards wider adoption, and it’s an exciting time to be part of this monetary revolution.

This article was updated on October 11th to include information about eligible countries.

Learned something new in this article? Subscribe to the Block Explorer newsletter.