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The Rise of Cybercrime

Cybercrime for profit is at an all-time high – damages are predicted to reach US$6 trillion in 2021.[1] Cybercrime is increasingly seen by organised criminals as a low-risk, high-reward alternative to traditional crime. Perpetrators face low barriers to entry and little to no prospect of prosecution. Attacks are becoming faster and cheaper due to intensifying criminal specialisation and collaboration, new offensive tools, and the continued lack of effective global regulation.[2]

The mass adoption of working from home has enhanced prospects for cyber criminals, who have enjoyed more potential vulnerabilities to exploit. McKinsey notes a near-sevenfold increase in spear-phishing attacks since the pandemic began.[3]

Bitcoin and Cyber Risk

Bitcoin and by extension, Bitcoin mining, face cybersecurity challenges from both nation states and cyber criminals. As we will explore in detail in a later blog post, governments derive power from their monopoly on the issuance of money. And as the world’s leading non-sovereign currency, Bitcoin arguably represents a threat to this crucial aspect of state control.

From a cyber perspective, governments have several potential tools at their disposal to arrest Bitcoin’s continued adoption. One possibility is to shutter the data centres of major miners through a state-sanctioned cyberattack (likely through a third party for deniability).

Another option is a sustained ‘51% attack’, which could allow a government to censor new transactions or reverse completed ones, undermining confidence in the Bitcoin network over time. The top four mining pools account for more than 51 percent of Bitcoin’s hash rate – a level of concentration which makes these attacks theoretically possible, even if operationally difficult to execute.

A more credible threat is a government (or coalition of governments) banning all cryptocurrencies on the rationale that they play an essential role in facilitating cybercrime. Bitcoin, particularly, is a practical and cost-effective option for cyber criminals to facilitate darknet transactions, conduct ransomware attacks or launder proceeds of crime, given its

anonymity, ease of use and ability to circumvent national boundaries.[4] Illegally generated Bitcoin wealth may already be allowing criminals to outspend even the best-funded security firms and government agencies, helping perpetuate ever greater incentives for cybercrime.[5]

Like any financial instrument, Bitcoin can be used for legitimate or illegitimate reasons. A compelling counter argument is that Bitcoin’s immutability provides an unmatched opportunity for governments to track criminals as they move around the web. As a result, authorities might be able to come back in five years’ time to prosecute criminals conducting ransomware attacks today.[6]

Finally, Bitcoin’s increasing acceptance as an asset class by Wall Street makes it difficult to see how a democratic government would ever be able to muster the political capital to ban an asset worth US$713 billion (as of 4 August 2021).

Megatrend summary: Cyber Security
  • Cybercrime is at an all-time high post-pandemic, and provides organised criminals with a low-risk, high-reward alternative to traditional crime.
  • A government (or coalition of governments) could conceivably attempt to ban all cryptocurrencies on the pretext that they help facilitate cybercrime, but Bitcoin’s increasing acceptance in traditional finance circles makes this unlikely, at least in democracies.

Footnotes

[1] Morgan, Steve, Cybercrime to Cost the World $10.5 Trillion Annually by 2025, Cyber Security Ventures, 13 November 2020, https://cybersecurityventures.com/hackerpocalypse-cybercrime-report-2016/ 

[2] World Economic Forum, In a World Where Criminals Keep Getting Smarter, How Should we Fight Cyber Crime, 3 November 2017, https://www.weforum.org/agenda/2017/11/cybercrime-how-we-should-fight-criminals/

[3] McKinsey & Company, COVID-19 Crisis Shifts Cybersecurity Priorities and Budgets, 21 July 2020, https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-crisis-shifts-cybersecurity-priorities-and-budgets

[4] Nyman Gibson Miralis (NGM), What is Bitcoin Laundering? https://ngm.com.au/bitcoin-laundering/

[5] Smith, Daniel, How Bitcoin Could Impact the Cyber-threat Landscape, Security Brief, 27 January 2021, https://securitybrief.com.au/story/how-bitcoin-could-impact-the-cyber-threat-landscape 

[6] Boyd, Tony, Why Bitcoin Should be Regulated, AFR, 15 May 2021, https://www.afr.com/chanticleer/why-bitcoin-should-be-regulated-20210514-p57ry6

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