The Dark Side of Bitcoin, by Dr Paul O hAonghusa

As bitcoin and blockchain become ever more topical delighted to bring you another insightful piece by Dr. Paul O hAonghusa UCD CITO – coding value project.

For those of us working with Bitcoin it is not uncommon to be met with a blank face when they tell people what they work on. If there is a flicker of recognition it is quite often because someone is familiar with Silk Road, the infamous darknet forum for buying and selling narcotics. There is no doubting that the rise of the price of Bitcoin was at least helped by its use on Silk Road. It was, after all, one of the few places where people actually used the currency. In many ways these markets are still one of the few places where people are willing to part with larger sums of Bitcoin. The currency tends to be hoarded in the hopes that one day it will see another rise.

Although Silk Road was shut down in 2013 a number of darknet marketplaces have taken its place. Although blighted by endless “exit-scams,” where owners of the sites simply disappeared with the Bitcoins stored on the site, the communities around these markets have remained resilient. Due to this association, Bitcoin has earned a seedy reputation for facilitating online narcotics trafficking. That’s why you’ll often notice that large corporations tend to disassociate their interest in cryptocurrencies from their interest in the blockchain (the technology underlying Bitcoin). However, what precisely is the nature of these darknet markets and what relationship do they have to financial technology today?

For one, different markets have different codes of conduct. Silk Road was known for not allowing products that are explicitly harmful. This meant users were forbidden from selling child pornography, malware (hacking tools), or weapons. Later, the latter was allowed on a sister site called the Armory that was shut down due to low sales. Also disallowed were stolen accounts for popular streaming sites or social media accounts. Identity documents were at a time not allowed, although later they were, with the site’s owner himself caught trying to purchase forged documents (this was prior to his eventual arrest for running Silk Road). After Silk Road fell a number of sites stepped into the breach with one, in particular, having a far less rigid code of conduct, namely Evolution. Evolution emerged from a culture of carding where stolen credit cards were traded and methods of skimming taught. Within this culture malware, stolen accounts, stolen documents, and so on, were openly sold – child pornography, as is common in criminal communities, is considered verboten.

Although Evolution eventually disappeared the sheer range of darknet markets today means you can pretty much purchase any kind of underground criminal toolkit you need. For instance, anyone requiring stolen passport scans, to get around verification checks, will find plenty on offer. Ransomware, where hackers essentially lock your computer and bribe you for the code (in Bitcoin, of course), is common. Stolen accounts are rife and usually rather cheap given that they are not difficult to extract from users with lax security. Much harder to come by are social media accounts where it is much more difficult to log in from a different computer without triggering security measures. For those operating any kind of tech-based entity the darknet is a threat existing in the background where endless amounts of energy are dedicated to finding ways around your security system.

Take the example of peer-to-peer lending based on Bitcoin. For years all a budding scam-artist had to do was pass a relatively simple verification process. They required a passport scan, cheap and easy on the darknet, and also proof of address and income. To this end they could simply buy a household bill (with a fake address) and a paystub. Once these passed the process was simple: take out increasingly large loans, building a reputation, and then when they had reached a large enough loan they simply defaulted. The lenders, faced with this, would then be given the documents related to the borrower, only to discover the name, address, and persona were entirely fictitious. All this could be done over Tor, a means to browse anonymously, such that there was no connection to the hacker at all. In recent years, security on these platforms has increased, users expected to post pictures with themselves and their documents, but for the enterprising hacker they had already done quite well.

It is, therefore, important, not to underestimate how hackers see the emerging Bitcoin ecosystem. That is, where many companies see opportunity so too do hackers, for whom Bitcoin means preying on the slight faults in the system that they can exploit. The darknet as such also features places beyond the markets. The darknet has changed the nature of black hat hacker culture considerably. Whereas in the past these communities were easy to find, it is now a case of trying to locate sites that are always on the move on the darknet, always seeking verification of its users, and always aware that they need to be mobile to escape too much attention. Further, whereas in the past malware or database dumps were shared based on a quasi-barter system, these days there is competition because hackers can now sell their wares for Bitcoin. In the past payment methods were too insecure, too closely tied to real identities, and so best avoided. Bitcoin has changed all that. So when we discuss the future of cryptocurrencies we must keep in mind that Bitcoin has a dark side.

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