It’s been just a week since investors came to realise the innate risks dealing in cryptocurrencies, and now compelling facts have emerged that throw further light on the gravity of this danger.
A few days ago, Colonial Pipeline, a US company that owns the largest pipeline network for oil products, got exposed to digital piracy by Darkside, and which led to the suspension of operations. This subsequently created a major derivatives crisis in some US states, where the cyber pirate demanded a ransom in excess of $4.4 million through 75 Bitcoins.
Following the crisis, Colonial had no choice but to acquiesce and pay just to resume its operations. But it was not long before the company turned the tables on Darkside. The US Assistant Attorney General Lisa Monaco said government agencies managed to recover the ransom paid in Bitcoin, to the hacker. What does all this mean?
Feeding shadow states
This clearly shows cryptocurrencies have become the domain for outlaw organizations, drug dealers, and money launderers. This means these currencies help promote harmful shadow economies. It also proves that there are no ownership guarantees for cryptocurrencies, meaning they can be retrieved by the seller or confiscated by third-parties, which will cause losses to the owners.
Last week, China arrested 1,000 people as part of a massive campaign to curb fraudulent activities using cryptocurrencies. It goes without saying that those behind cryptocurrencies’ wild ride include shadow states and organizations in addition to individuals, which creates resources to be used to sabotage economies by converting part of their wealth into cryptocurrencies and transferring them This is in addition to converting some legal activities into illegal ones to achieve huge profits, as is evident in Lebanon, Afghanistan, Iran and Venezuela.
The weirdest part is that the positions of the great powers vary greatly. At a time when the US and Canada allow dealing in crypto, especially Bitcoin, China is launching campaigns against cryptocurrencies, while the EU takes position that reflect the declining status of Europe in global financial regulations.
This disparity creates opportunities for organized crime through which they can tap loopholes. However, things would be much different if there was a unified international system on this. Over the past few days, 800 people have been arrested in 100 countries as part of an operation conducted by the US Federal Bureau of Investigation and Europol, where large quantities of drugs, weapons and $35 million were seized.
Cryptocurrencies are destructive to national economies, and requires all countries to build up systems to monitor all such transactions. It is worth noting that while cryptos get mixed up with digital currencies, there are fundamental differences. Digital currencies exist in the form of numbers and are used to pay for goods and services. Some central banks intend to issue their own digital currencies. In addition, the identity of the users are known.
However, cryptocurrencies while digital are encrypted and there is no responsible authority that can one can resort to. The identity of the user is not known, and here lies the danger.
The writer is a specialist in energy and Gulf economic affairs.