Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity – FBI – April 2012
Bitcoin – A decentralized,1 peer-to-peer (P2P) network-based virtual currency – provides a venue for individuals to generate, transfer, launder, and steal illicit funds with some anonymity. Bitcoin offers many of the same challenges associated with other virtual currencies,such as WebMoney, and adds unique complexities for investigators because of its decentralized nature.
The FBI assesses with medium confidence that, in the near term, cyber criminals will treat Bitcoin as another payment option alongside more traditional and established virtual currencies which they have little reason to abandon. This assessment is based on fluctuations in the Bitcoin exchange rate in 2011 and limited reporting indicating bitcoins are being accepted as payment by some cyber criminals.
The FBI assesses with low confidence, based on current user and vendor acceptance, that malicious actors will exploit Bitcoin to launder money. This assessment is based on observed criminal activities, investigations, and prosecutions of individuals exploiting other virtual currencies, such as e-Gold and WebMoney. A lack of current reporting specific to Bitcoin restricts the confidence level.
Even though there is no central Bitcoin server to compromise, the FBI assesses with high confidence, based on reliable industry and FBI reporting, that criminals intending to steal bitcoins can target and exploit third-party bitcoin services and an individual’s Bitcoin wallet. Malicious actors can compromise personal computers and accounts using malware and hacking techniques to steal users’ bitcoins and use botnets to generate bitcoins.
Bitcoin will likely continue to attract cyber criminals who view it as a means to move or steal funds as well as a means of making donations to illicit groups. If Bitcoin stabilizes and grows in popularity, it will become an increasingly useful tool for various illegal activities beyond the cyber realm. Since Bitcoin does not have a centralized authority, law enforcement faces difficulties detecting suspicious activity, identifying users, and obtaining transaction records – problems that might attract malicious actors to Bitcoin. Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers.
Although Bitcoin does not have a centralized authority, the FBI assesses with medium confidence that law enforcement can identify, or discover more information about malicious actors if the actors convert their bitcoins into a fiat currency. Third-party bitcoin services may require customers to submit valid identification or bank information to complete transactions. Furthermore, any third-party service that qualifies as a money transmitter must register as a money services business with the Financial Crimes Enforcement Network (FinCEN) and implement an anti-money laundering program.