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IMF Chief Lagarde On ‘Dark Side’ Of Crypto: Blockchain is ‘Exciting’ But Needs Regulations

International Monetary Fund (IMF) Chief Christine Lagarde said that crypto markets must be regulated by the same laws that apply to the traditional markets in an IMF blog post published today, March 13.

The post, “Addressing the Dark Side of the Crypto World,” begins by praising the virtues of Blockchain technology, which she refers to as an “exciting advancement that could help revolutionize fields beyond finance.” However, Lagarde adds that regulators must “understand the peril that comes along with the promise.”

In terms of specific ways to enact regulations that will protect consumers in the crypto markets, Lagade writes that one must “fight fire with fire.” She brings up two examples: using digital ledger technology (DLT) to “create registries of standard, verified, customer information along with digital signatures,” and using biometrics, artificial intelligence, and cryptography to more quickly find suspicious transactions.

As cryptocurrencies are decentralized, anonymous, and have no inherent need for a central bank, Lagarde sees a potential for their use in money laundering and financing terrorism. She mentions the example of darknet marketplace Alphabay, which had more than $1 bln exchanged through crypto on its platform by the time it was shut down in July 2017.

Lagarde writes that cryptocurrencies could threaten the stability of traditional financial markets, and that regulations must be developed on a global scale with help from the IMF:

“No country can handle this challenge alone […] Since crypto-assets know no borders, the framework to regulate them must be global as well.”

Lagarde’s goal is to give crypto consumers the same protection that they have in traditional markets, and references several agencies which she sees as good exemplars of regulatory diligence; the Financial Stability Board (FSB), which observes fintech innovation, and the Financial Action Task Force (FATF), which fights money laundering and terrorism financing. The FATF is currently preparing a report on ways to prevent crypto use in money laundering for the upcoming G20 summit.

She also mentions the US Securities and Exchange Commission (SEC) and other regulators internationally beginning to apply securities laws to Initial Coin Offerings (ICO).

Lagarde’s takeaway is that crypto is “somewhere in between” a fad and a revolution, and that only global cooperation, along with the IMF, can “harness the potential of crypto-assets while ensuring that they never become a haven for illegal activity or a source of financial vulnerability.”

Lagarde has previously said that she believes crypto regulation is both inevitable and necessary. However, she has also spoken positively of the potential role for cryptocurrencies to play in countries with weak currencies.

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Jeff Sessions Says Dark Web Use with Bitcoin is ‘Big Problem’

US president Donald Trump’s Attorney General Jeff Sessions has called the Dark Web a “big problem” and hinted at potential future regulatory moves.

As part of a testimony at the Senate Judiciary Committee on Justice Department oversight, Sessions responded to a query from California senior senator Dianne Feinstein, who raised the issue of Dark Web crime.

“It seems to me that the problem of the Dark Web being used by criminals is going to grow in the coming years,” Feinstein stated.

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Sessions responded that the phenomenon was “worrying” law enforcement.

“We’re very concerned about that, the FBI is very concerned about that,” he said.

Discussing AlphaBay, the Dark Web portal the US took down in July, Sessions added that users were “using Bitcoins and other untraceable financial capabilities.”

“It is a big problem,” he concluded.

The two politicians’ mutual headache over the Dark Web hints at a possible focus for future maneuvers on digital privacy.

While the testimony was somewhat erroneously reported by other media resources as anti-Bitcoin, Sessions nonetheless only suggested by association that Bitcoin’s anonymity served criminals’ objectives.

Such a perspective is outdated, however, as trends suggest Dark Web users have abandoned Bitcoin in favor of privacy-centric altcoins such as Monero long ago.

A broader understanding of Bitcoin is still the topic of debate for US lawmakers more generally, with the situation on the ground for users meanwhile remaining shaky.

This week, popular exchange Bitfinex announced it would withdraw from the US market completely by Nov. 9 due to regulatory barriers

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Attorney General Jeff Sessions: Bitcoin on Dark Web 'Is a Big Problem'

U.S. Attorney General Jeffrey Sessions is concerned about the use of bitcoin and other cryptocurrencies in illicit transactions.

During his testimony to the Senate Judiciary Committee on Wednesday, Sessions – a former U.S. senator himself – highlighted the use of bitcoin in response to a question by Senator Dianne Feinstein (D-CA) about dark markets, or online marketplaces

Sessions told the committee:

“[Dark web users] use bitcoins and other untraceable financial capabilities and it is a big problem.”

In his remarks, Sessions referred to the closure of two dark markets, including previous ecosystem leader AlphaBay, following a crackdown by US authorities. Sessions claimed that AlphaBay’s client base constituted “240,000 accounts where individuals were selling for the most part illegal substances and guns, including fentanyl.”

Law enforcement officials have long expressed concern about the use of cryptocurrencies by dark markets, arguing that they obscure the paper trail that investigators might follow. Agencies like the Federal Bureau of Investigation have targeted this use case when seeking funds to bolster their cybercrime efforts, a trend that arguably began in the wake of the closure of the Silk Road, once the world’s top dark market.

Sessions’ appearance yesterday also led to indications that Congress may take up specific measures related to dark markets.

In her remarks, Sen. Feinstein stated that she would like to work with Sessions and the Justice Department on issues surrounding the dark web, potentially through legislation or alternative actions.

Image via mark reinstein / Shutterstock.com.

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Europol: Zcash, Monero and Ethereum Follow Bitcoin in Cybercrime

Europol, the law enforcement agency of the European Union (EU), has warned that the virtual currencies Zcash, Monero, and Ethereum are increasingly being used in the digital underground market. The agency, however, reiterated that the leading cryptocurrency Bitcoin is still the preferred currency in cybercrime.

In its 2017 Internet Organised Crime Threat Assessment (IOCTA) report, Europol stated that the darknet landscape is rapidly evolving. The agency concluded that Monero is fast gaining darkweb popularity because of its “additional security and privacy features” making it one of the easy cryptocurrency choices for criminals.

Part of the report reads:

“Cryptocurrencies continue to be exploited by cybercriminals, with Bitcoin being the currency of choice in criminal markets, and as payment for cyber-related extor on a empts, such as from ransomware or a DDoS attack. However, other cryptocurrencies such as Monero, Ethereum and Zcash are gaining popularity within the digital underground”.

The report further detailed the main reason why cryptocurrencies are becoming a favorite among criminals:

“Transactions cannot be attributed to any particular user/address, all coins used in a transaction are ‘hidden’ by default, and transaction histories are kept private.”

Other highlights of the IOCTA report

In its report, Interpol focuses on the popularity of digital currencies on darknet marketplaces. As an example, it cites the case of a Monero-focused ransomware called Kirk that was launched in early 2017.

In the case of Ethereum, the report claimed that smart contracts based on the cryptocurrency could be utilized to legalize payments between crime service providers. It also presented a case of a proposed decentralized darknet market that is designed to operate on the Ethereum Blockchain.

Meanwhile, the document clarified that Zcash is yet to be the subject of a law enforcement investigation. However, the virtual currency is reportedly being eyed by darknet marketplaces due to its privacy features, which hide both the transaction recipient and the transaction amount.

The case of AlphaBay

The biggest darknet market AlphaBay was shuttered by Europol in early 2017. The closure was part of a globally coordinated crackdown on underground markets. However, prior to its shutdown,  AlphaBay had already added Ethereum and Monero as payment options, and previously had plans to include Zcash.

While any currency can be associated with any criminal activities, such security issues with cryptocurrencies provide an easy excuse for governing bodies to continually be skeptical about the possible value and security of digital currencies.