The recent abduction of UK-based Bitcoin and cryptocurrency exchange Exmo Operator Pavel Lerner has demonstrated the importance of financial privacy for cryptocurrency users.
Earlier this week, BBC initially reported that Lerner kidnapped outside of his office in Kiev, Ukraine, on Dec. 28, by a group of individuals who dragged him at knife point to a black Mercedes and drove off the scene. At the time, Anatoliy Larin, the spokesperson of the exchange, stated:
“Despite the situation, the exchange is working as usual. We also want to stress that nature of Pavel’s job at Exmo doesn’t assume access either to storages or any personal data of users. All users’ funds are absolutely safe.”
Within two days after the disappearance of Lerner, Financial Times revealed that Lerner has paid more than $1 mln to an armed gang as a price for his freedom. The advisor to the Ukrainian interior minister Anton Gerashchenko told FT:
“He was kidnapped by an armed gang for the purpose of extorting Bitcoins. We have operative information that he paid more than $1 mln worth of Bitcoins. [After one and a half days, he was] then released in a state of shock. … He got very lucky that he remained alive.”
The Ukrainian National Police has officially opened a criminal case to investigate into the abduction of Lerner and to disclose the identities behind the attack.
While Exmo is a small Bitcoin exchange with only 94,000 active investors and a $125 mln daily trading volume, less than one percent of leading exchanges like Bithumb, Coinbase’s GDAX and Bitfinex, both the company and Ukrainian authorities believe that Lerner became a target of the armed gang because of his involvement in a Bitcoin venture.
Over the past 12 months, the price of Bitcoin has surged from $900 to $14,000, by nearly 14,000 percent. Thus, an increasing number of hackers and criminals have started to target large-scale cryptocurrency businesses and executives of Bitcoin companies.
Importance of financial privacy
During a presentation given at the Coinbase headquarters, Monero Lead Developer Riccardo Spagni, better known to the cryptocurrency community as FluffyPony, emphasized the importance of financial privacy for users and investors of all types.
He noted financial privacy on public Blockchain networks and cryptocurrencies is crucial in preventing sensitive information of users from being used for criminal activities, such as direct attacks, blackmailing, targeted advertising, and unwanted disclosure of assets, wealth and holdings.
In January 2017, when he gave the talk to Coinbase employees, FluffyPony jokingly stated that investors could become kidnapped for purchasing large amounts of Bitcoin at a local exchange.
“If we don’t have financial privacy, there are bad things that can happen. We might end up with targeted advertising based on spending habits. [Another example is] targeted crime against the wealthy. You go to a local Bitcoin exchange and next minute you’re held up at knife point. Even worse, you go and pay with Bitcoin for an item and now, the owner knows your bank balance,” said FluffyPony.
Dumbfoundingly, FluffyPony’s statement became a reality in Kiev, Ukraine, as Lerner became a direct target of an armed gang with a pre-established plan of extorting ransom in Bitcoin from the exchange operator.
However, the lack of privacy measures in Bitcoin also means that the criminals that have abducted Lerner cannot easily spend the money or sell it for cash because the transaction can be traced using the public Bitcoin Blockchain.