Ransomware: A Curse Worse Than Money | Business

Delgado wonders

The ransomware (a kind of software malicious software that restricts access to a computer system until a ransom is paid) does not bode well for cryptocurrencies. The specifiers of these digital currencies will be able to speak of famous investors like the founder of Tesla, Elon Musk; Dallas Mavericks owner Mark Cuban; American football star Tom Brady or actress Maisie Williams (Arya in Game of Thrones). But the last attacks of ransomware (and the essential enabling role cryptocurrencies play in them) are a public relations disaster.

One of the attacks took the Colonial pipeline out of service last month (causing gasoline prices to rise on the east coast of the United States), until the company paid hackers $ 5 million in bitcoins; closer in time there was an attack on JBS, the world’s largest meat producer. These incidents highlight something that some of us have been warning for a long time: cryptocurrencies, endowed with anonymity and difficulty in tracking transactions, offer possibilities for tax evasion, crime and terrorism that make high-denomination banknotes seem by comparison harmless. While leading crypto advocates have political connections and have democratized their support base, authorities cannot sit idly by forever.

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The idea that cryptocurrencies are nothing more than an innocent store of value instrument is astonishingly naive. It is true that transaction costs can be high enough to discourage its use in most common retail operations. But for someone who wants to avoid strict capital controls (for example, in China or Argentina), launder illicit profits (perhaps derived from drug trafficking) or evade financial sanctions from the United States (to countries, companies, individuals or terrorist groups) , crypto can still be an ideal option.

After all, the US government has long turned a blind eye to the use of $ 100 bills as facilitators of arms purchases and human trafficking (not to mention the difficulties they pose for US governments). poor countries to collect taxes or maintain internal peace). Although bitcoin and other crypto variants have yet to overtake the dollar as tools of the world’s underground economy, they are undoubtedly on the rise.

Today, when even major financial companies in the United States try to offer crypto options to their clients, one wonders what the money is invested in. Although it is said that cryptocurrencies do not have many real applications or an underlying business, there is actually a very prosperous one: in addition to being a bet on dystopia, they offer a way to invest in the global underground economy.

If much stricter regulation of crypto transactions is inevitable, how do you explain the rise of cryptocurrencies in general and bitcoin in particular (leaving aside the daily news about their volatility)? Part of the answer is taught by economic theory: with zero interest rates, huge sustained bubbles can form in markets for assets that have no intrinsic value. Furthermore, some crypto investors argue that the sector has become so large and attracted so many institutional investors that politicians will never dare to regulate it.

They may be right. The longer authorities take to act, the more difficult it will be to control private digital currencies. The governments of China and South Korea have already started imposing heavy restrictions on cryptocurrencies, but it is still unclear how far they will go. In the United States, various financial industry lobbyists have been quite successful in avoiding significant regulation of digital assets; This is borne out by Facebook’s recent decision to repatriate its digital currency project to the United States, in response to the international regulatory crackdown orchestrated by the Swiss authorities.

It is true that the administration of President Joe Biden has taken at least some steps in the direction of forcing the reporting of cryptocurrency transfers of more than $ 10,000 (as part of the fight against tax evasion). But ultimately, tracing difficulties mean that reducing the potential liquidity of cryptocurrencies will require a high degree of international coordination, at least in advanced economies.

Perhaps that is one of the possible reasons for the stratospheric value of bitcoin, which at the end of May was around $ 37,000 (although its price is as variable as the weather). If bitcoin is an investment in the transaction technology on which the global underground economy is based, and if even advanced economies will take a long time to control it, then until that happens the transactions can generate a good volume of income. After all, the current value of a company does not depend on the expectation that it will exist forever: think of fossil fuels.

Of course, there will always be a market for cryptocurrencies in countries at war or pariah states (although their prices would be much lower if it were not possible to launder cryptocurrency holdings into rich countries). And there may be technologies to remove anonymity and with it the main objection to cryptocurrencies, but presumably that would weaken their main appeal as well.

There is nothing to object to the blockchain technology of cryptocurrencies, with its enormous potential to improve our lives; for example, as the basis for a reliable and unadulterated network for tracking carbon dioxide emissions. And although the operation of the bitcoin system requires a huge consumption of energy, there are already more environmentally friendly technological alternatives, for example those based on the “proof of stake”.

Unfortunately for those who invested all their savings in cryptocurrencies, the increasingly frequent attacks of ransomware against companies and individuals can end up being the turning point that decides the authorities to stand up and intervene once and for all. We know of many struggling small business owners who have been decimated by these extortions. Governments may already have hidden tools to track cryptocurrencies, but they are still running an arms race against people who found the ideal way to make crime profitable. The authorities have to wake up before it is too late.

Kenneth Rogoff, A former chief economist at the International Monetary Fund, he is Professor of Economics and Public Policy at Harvard University.

© Project Syndicate, 1995-2021.