In a first-of-its-kind sting operation in the US, law enforcement agents from a clutch of state departments – including the Department of Justice, Homeland Security Investigations (HSI), the US Secret Service, the Postal Inspection Service, and the Drug Enforcement Administration (DEA) – arrested 35 dark web traders across the country, by posing as vendors themselves.
The arrests were made after a year-long investigation of more than 65 targets, involved in over 90 active cases in the US. The seized goods worth over $23.6 million included narcotic drugs, $3.6 million in gold and cash, Bitcoin mining devices, cryptocurrency worth more than $20 million, and more than 100 weapons, with a grenade launcher among them.
The sting is part of US law enforcement agencies’ ongoing struggle against the raging opioid crisis in the country; the DEA is especially concerned with the role that dark web traders play in the nationwide drug addiction epidemic.
In November last year, The Washington Post reported the case of 19-year-old Trevor Harden, who had purchased 40,000 pills of fentanyl off the dark web, and had them shipped over to Chamberlain, South Dakota. He was caught when the postal inspectors tipped off the DEA. Warden was arrested, and he pleaded guilty for attempting to possess, and intending to distribute fentanyl, a highly addictive pain killer that’s usually only available with a prescription.
Discussing the Harden case, a DEA spokesman told The Washington Post that most opioids are sold in small packages from China – ordered over the internet and mailed over to the US.
In the recently concluded sting, the execution of only 70 search warrants in the operation led to the capture of large quantities of illegal narcotics. Among the seized drugs were more than 300 bottles of liquid synthetic opioids, over 100,000 tramadol pills, 100 grams of fentanyl, more than 24 kilograms of Xanax, and additional seizures of Oxycodone, MDMA, cocaine, LSD and marijuana. Psychedelic mushrooms were also found growing at a perpetrator/trader’s residence. “At this crucial time of unprecedented drug related deaths, one of the greatest threats we face is cyber drug trafficking,” said DEA Special Agent in Charge James J. Hunt.
This isn’t the first time an undercover operation has brought down illicit traders on the dark web. Last year, a special unit of Australian police in Brisbane brought down a paedophile forum by founding and running one of the largest child abuse sites for almost a year.
As more sting operations prove successful in thwarting crime on the dark web, criminals are increasingly finding their digital safe haven less hospitable for their illicit activities.
Moonday Mornings: Dark Web Bitcoin transactions doubled in 2018
If you didn’t notice, today is Monday, January 21, which means two things. One, it’s time for another Moonday Mornings; and two, it’s the most depressing day of the year – apparently.
Goodthing we have a wrap-up of the weekend’s top cryptocurrency and blockchain news for you. Check it out:
1. A Swedish cryptocurrency trader owes his country’s authorities over $1 million (10 million SEK) in taxes, after trading Bitcoin over 10,000 times. According to local news , Linus Dunkers traded over $2.5 million since 2014, and claims the tax man is demanding over three times what he made in profit. It seems that there is a lot of ambiguity over the classification of Dunkers’ activity. The authorities see his trading as a business and as such, are imposing a higher level of tax. Perhaps the only way to avoid cases like this is great regulatory clarity over the tax implications of cryptocurrency trading.
2. Saudi Arabia and the United Arab Emirates have joined forces to develop a new cryptocurrency, Arabian Business reports. The new digital currency will initially be tested by banks with a focus on understanding how a blockchain-based cross-border payments system could actually work. The pilot also aims to help the two nations understand the regulatory implications of creating a “central currency.” Let this be a reminder that just because the blockchain was created for decentralized digital currencies, doesn’t mean they always will be.
3. Chilean regulators are giving cryptocurrency profiteers the cold shoulder this year and is demanding cryptocurrency traders pay taxes on their earnings, CCN reports . Last year, the Chilean government deemed that cryptocurrencies shouldn’t be subject to value added tax (VAT) as they are intangible. However, as profits made on trading the digital assets inflate a person’s yearly earnings, the special cryptocurrency taxes will be brought under income tax laws. The Chilean government is asking the nation’s cryptocurrencers to declare their cryptocurrency trading so it can be monitored. I thought Satoshi Nakamoto said Bitcoin could never be regulated…
4. The total number of Bitcoin-based transactions on the Dark Web in 2018 were double that of 2017. Despite this increase, the total value of these transactions fell by over $100 million, most likely because of how Bitcoin’s value also dropped over the same time period. The figures compiled by blockchain analysis group, Chainalysis , show how Dark Web markets are price inelastic – this simply means that the price of Bitcoin doesn’t really impact Dark Web shopping activity. This also shows that shutting down Dark Web marketplaces is a pretty futile endeavor. As soon as one marketplace gets shutdown, another springs up in its place.
5. Parents of students at a private secondary school in Newcastle-upon-Tyne, UK, have been targeted as part of a scam asking them to pay their child’s $16,000 (£13,000) per year tuition fees in Bitcoin, local news reports. The scam promised a 25% reduction in tuition fees in exchange for paying in Bitcoin. But as with any scam, the perpetrators were not affiliated with the school and were just going to make off with the money, giving nothing in return. The Information Commissioner’s Office (ICO) – not that type of ICO – claim this is one of many “phishing scams” that have targeted schools.
Well there you have it, another weekend caught up with. Wasn’t so depressing now was it?
Research: China has the power to destroy Bitcoin
A damning new study has suggested China holds threatening influence over Bitcoin – and perhaps even the ability to attack and ultimately destroy the entire Bitcoin network.
Academics from Princeton and Florida International Universities have explored how China “threatens the security, stability, and viability of Bitcoin” with its “political and economic control over domestic [cryptocurrency] activity […] [and] internet infrastructure.”
According to the paper , China has both “mature capabilities” and “strong motives” to perform a variety of attacks against Bitcoin. Even worse, it is already exerting its power over Bitcoin in a myriad of ways.
“As the value and economic utility of Bitcoin have grown, so has the incentive to attack it,” the researchers explain. “We singled out China for analysis because they are the most powerful potential adversary to Bitcoin, and we found that they have a variety of salient motives for attacking the system and a number of mature capabilities, both regulatory and technical, to carry out those attacks.”
Chinese mining pools control Bitcoin
The paper establishes its thesis by proving the Bitcoin mining ecosystem has become “heavily centralized.” Cryptocurrency miners have banded to such an extent that “over 80 percent of Bitcoin mining is performed by six mining pools,” with five of those managed directly by individuals or companies based in China.
The primary threat to Bitcoin’s infrastructure is the “ 51-percent attack ,” which consists of mining pools teaming up to control a majority of the hash rate (Bitcoin’s overall processing power), allowing them to directly influence much of what happens on the Bitcoin network.
When you consider the combined effort of Chinese mining pools accounts for 74 percent of Bitcoin’s hash power, the situation becomes incredibly unsettling.
“Because managers are responsible for assigning mining jobs and propagating completed blocks, they control the inputs and outputs of their miners, allowing Chinese authorities indirect control over that hash power,” say the researchers. “This is a significant share of the global hash rate – more than controlled by any other single country – but the precise quantity is unknown.”
The fact that Chinese mining pools control so much of the Bitcoin ecosystem has direct consequences. In particular, having such centralized hash power exposes the Bitcoin network to rampant censorship and other potentially damaging attacks.
“Blocks found in China are already proximate to a majority share of hash power, so they can reach consensus more quickly than blocks found elsewhere,” reads the paper. “If the Chinese government assumed control of domestic hash power, this property would grant them an advantage in selecting blocks for the ledger, which is important for some types of attacks.”
China is slowing Bitcoin down
The paper has also revealed a certain unfairness to how mining rewards are being distributed – and how the current setup is making Bitcoin inefficient.
The alleged culprit is China’s Great Firewall . It purportedly distorts the playing field by adding latency for miners operating outside of its borders.
Apparently, Chinese mining pools can have priority for deciding which blocks to mine – especially empty blocks.
Even though they take the same time and power to mine, empty blocks do not contribute anything to the network, as mining them does not process any transactions. Still, they carry all the same rewards as full blocks.
When researchers looked at the combined average rates of empty blocks produced by each mining pool – something strange was occuring. Chinese mining pools produced an unusually high rate of empty blocks – spiking well above 7 percent (over certain periods).
Non-Chinese mining pools produced around 2 percent – a historically consistent rate.
The researchers conclude there must be some factor that applies to Chinese miners – but not other miners – that has incentivized the mining of empty blocks.
Again, when miners mine empty blocks, the entire network becomes less efficient. Not only are no transactions processed, but the overall network consumes costly resources in the process.
There are some advantages to mining empty blocks, but only for the individual who mines it. Mining empty blocks can move the miner up in the queue for receiving new (less empty) blocks to mine, increasing the likelihood of netting more mining rewards than others.
This effectively means China’s social policy has a direct impact on Bitcoin’s integrity.
China has the means to cripple Bitcoin
The research defines four attack classes: censorship, deanonymization, weakening consensus, disruption to competing mining operations. In total, the academics identified 19 different attacks currently available to Chinese mining pools.
Below are the attacks geared towards destablizing the Bitcoin network as a whole.
One of the scariest is a Goldfinger attack – in which mining pools apply their combined hash power to control (and ultimately kill) Bitcoin.
“[…] Bitcoin can only survive such an attack if the remainder of the miners are willing to pay a cost greater than what China is willing to pay to pull off the attack.” the paper explains. “Because other Bitcoin miners are loosely organized and China can bring massive resources to bear, the most likely scenario is a death spiral in which China can credibly threaten a Goldfinger attack and rational miners will be scared off, thus destroying Bitcoin.”
But why would China destroy Bitcoin?
All this doom-and-gloom leads to one question: why would China destroy Bitcoin?
Well, the researchers speculate Bitcoin is in “ideological opposition” to China’s centralized governing philosophy (totalitarian communism).
“[China] may be motivated to weaken or destroy it to make an ideological statement; for example, demonstrating the futility of decentralized control paradigms,” the paper reads. “Virtually any violation of Bitcoin’s security suffices to achieve this goal as long as it is highly visible.”
Even more worrisome, the researchers believe China could actually weaponize its control over Bitcoin in order destabilize foreign economies.
“To exert influence in a foreign country where Bitcoin is in use, China may aim to weaken or even totally destroy Bitcoin. This could be done by targeting specific users or miners for attack or by generally weakening consensus to increase volatility to a breaking point.”
The paper has yet go through proper peer reviews – so take the conclusions with a grain of salt.
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