SAN FRANCISCO — The currency they were after was virtual, but the guns they carried were anything but.
In
the beach resort of Phuket, Thailand, last month, the assailants pushed
their victim, a young Russian man, into his apartment and kept him
there, blindfolded, until he logged onto his computer and transferred
about $100,000 worth of Bitcoin to an online wallet they controlled.
A
few weeks before that, the head of a Bitcoin exchange in Ukraine was
taken hostage and only released after the company paid a ransom of $1
million in Bitcoin.
In
New York City, a man was held captive by a friend until he transferred
over $1.8 million worth of Ether, a virtual currency second in value
only to Bitcoin.
The
rich have always feared robbery and extortion. Now, big holders of
Bitcoin and its brethren have become alluring marks for criminals,
especially since the prices of virtual currencies entered the
stratosphere last year.
Virtual
currencies can be easily transferred to an anonymous address set up by a
criminal. While banks can stop or reverse large electronic transactions
made under duress, there is no Bitcoin bank to halt or take back a
transfer, making the chances of a successful armed holdup frighteningly
enticing.
Thieves
have taken advantage of this system in a startling number of recent
cases, from Russia, Ukraine and Turkey to Canada, the United States and
Britain.
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“This
is now becoming more pervasive and touching more law enforcement
divisions that deal with organized crime and violent crime on a local
level,” said Jonathan Levin, the founder of Chainalysis, which has
worked with several law enforcement agencies on virtual currency crimes.
Mr.
Levin’s company specializes in tracking criminal transactions on the
blockchain, the computerized ledger where every Bitcoin transaction is
publicly recorded.
Chainalysis
has helped police attempt to track down criminals in several recent
cases, including some that have not been made public, according to Mr.
Levin.
But
even when a transaction can be tracked, the design of Bitcoin means
that criminals do not have to associate their identity with their
Bitcoin address — as is necessary with most traditional bank accounts.
That has stymied police in several cases.
“For
this, the advantage of Bitcoin is that it’s hard to verify,” said
Chanut Hongsitthichaikul, an investigator with the Chalong Police
Station, which investigated the case in Phuket. “We asked the victim how
to track it since they know Bitcoin better than us. We asked them how
to check the receiver. They said there is no way. It is hard to do.”
The Thai police tracked the victim’s laptop, which was also stolen, to Kuala Lumpur. That’s where the trail went cold.
While
the recent crime wave has brought a new level of violence, virtual
currency holders have been targets for several years. Criminals have
been staging a long-running campaign
to remotely hijack the cellphone numbers of prominent virtual currency
holders in order to gain control of their digital wallets.
A few years ago, some of Bitcoin’s earliest proponents had SWAT teams called to their homes by people who demanded big Bitcoin payments to stop the harassment — a tactic called “SWATing” in some online communities.
There have also been many documented holdups around the world at in-person meetings where people were looking to convert cash into virtual currency, including one last year in Palm Beach, Fla., where the thief made off with $28,000 before being arrested.
But criminals have grown much more brazen as the price of Bitcoin has spiked.
The
most audacious attack hit Exmo, the virtual currency exchange in
Ukraine. The chief executive of the exchange, Pavel Lerner, was abducted
the day after Christmas and freed a few days later after the company made a ransom payment of Bitcoin worth around $1 million.
A
spokeswoman for Exmo said the money came from Mr. Lerner’s personal
funds. Mr. Lerner was on leave from the company but would return.
A
month earlier, a Turkish businessman was forced to hand over the
passwords to his virtual currency wallets — containing nearly $3 million
worth of Bitcoin — after having his car stopped by an armed gang in
Istanbul that appeared to know about his Bitcoin holdings, according to local news reports.
Many
big virtual currency holders privately say that they will no longer
travel to Russia, Turkey or other countries where they assume that
attacks may be easier to pull off because of organized crime.
But armed attackers have also hit a Canadian Bitcoin exchange in Ottawa, the Ether investor in New York City and a prominent virtual currency trader living near Oxford, England.
In
a number of cases, the assailants have been caught — and forced to
return money — because of video footage. In other cases, the criminals
are still at large.
The
unsolved crimes have sown fear among the ranks of the so-called crypto
rich, which have grown considerably over the past year.
At
a conference for about 170 leaders in the virtual currency industry
this month, there was a panel discussion about how to deal with the
threat of robbery, extortion and kidnappings in which the criminals seek
Bitcoin or other virtual currencies.
Organizers
of the conference, known as the Satoshi Roundtable and held near
Cancun, Mexico, brought in a security force and instituted significant
privacy measures for guests to protect them from criminals while they
were in attendance.
During
the group discussion at the conference, attendees talked about having a
“duress wallet” at home that can be handed over to throw an assailant
off the trail of a bigger fortune, as well as several other security
measures that can be used to deal with the threat.
Most of the crypto rich are loath to speak publicly about the risk of physical attacks, for fear of making themselves targets.
But
Jameson Lopp, a longtime Bitcoin engineer and virtual currency holder,
said the community should be proactive in confronting the threat, to let
criminals know that people are taking steps to protect themselves.
Last
summer, someone called a SWAT team to Mr. Lopp’s house to harass him.
Since then, Mr. Lopp has installed closed-circuit cameras around his
property and posted photos on Twitter of the automatic weapon he has at
home.
In
a more technical defensive measure, Mr. Lopp has long kept his virtual
currency in so-called multisignature wallets created by the company he
works for, BitGo. These wallets require multiple people to sign off on a
transaction before the money can move.
Mr.
Lopp will go even further later this year when he, his girlfriend and
his dog move to a new home. He plans to “go dark” — not providing the
address to anyone and using a post office box for deliveries. But he
said even that will not fully banish his concerns.
“If
you are rich and you own real estate, or stocks or a sports team,
somebody can’t mug you and take your sports team away,” he said. “Having
liquid crypto assets makes you much more attractive for that type of
criminal attack.”
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Mr.
Levin said programmers are working to develop methods of signing
virtual currency transactions that can quietly alert the authorities
that a transaction is being made under duress — something like the
hidden button under the bank teller’s desk.
But
he said the most obvious way to thwart attackers is with wallets that
require multiple signatures, and with less public discussion about
owning virtual currencies.
Mr.
Lopp said it is important to publicize the many ways in which virtual
currency holders can fend off assailants so that criminals reconsider
the likelihood of a successful attack.
“We’re
in the very early days of this becoming a problem,” Mr. Lopp said. “The
attackers are still trying to figure out what the risk-reward really
is.”
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