US Secret Service recommends regulation of Monero [XMR], Zcash [ZEC], and other cryptocurrencies

Deputy Assistant Director of Office of Investigations at US Secret Service, Robert Noye, recommended that digital currencies like Monero [XMR] and ZCash [ZEC] and other ‘privacy coins’ should be regulated better to prevent illegal activities using the coins, in a prepared testimony on Wednesday.

They stated:

“It is critical that the United States continues to work internationally to improve controls related to digital currency through organizations like the Financial Action Task Force. We should also consider additional legislative or regulatory actions to address potential challenges related to anonymity-enhanced cryptocurrencies, services intended to obscure transactions on blockchains (i.e. cryptocurrency tumblers or mixers) and cryptocurrency mining pools.”

Novy had testified before the House Financial Services subcommittee, on the use of digital currencies for illegal purposes. He had also elaborated on the use of malware and other related technological crimes that occur in the sphere of cryptocurrencies.

“The growing popularity of blockchains has also resulted in the growth of criminal activities closely related to its proprieties. These include: crypto-jacking, thefts of private keys, ransomware, and attacks on blockchain networks themselves. Control of assets on a blockchain is maintained through exclusive control and access to the associated private cryptographic key; however, there have been numerous instances of cryptocurrency heists, involving major exchanges, wallets and individual users resulting from the theft and illicit use of private cryptographic keys. While ransomware, which impairs the operation of a computer as part of an extortion demand, has been around since the late 1980s, its growth over the last four years has substantially been driven by use of cryptocurrencies as the means of paying extortion demands.”

He also goes into what 51% attacks are, and how these will defraud other users of the cryptocurrency, a violation of the Computer Fraud and Abuse Act [18 U.S.C. § 1030].

Thomas Ott, associate director of Financial Crimes Enforcement Network [FinCEN]’s enforcement division, also presented his testimony before the subcommittee on Wednesday. He had said:

“We have seen virtual currency exploited to support billions of dollars in what we would consider suspicious activity. For example, FinCEN analysis indicates that virtual currency transactions include over $1 billion in ransomware extortion funds and over $1.5 billion has been stolen through hacks of virtual currency exchangers.”

On the topic of ‘privacy coins’, like Monero, he said:

“There have also been developments in technology that have enabled the concealment of transaction and identity information involving virtual currency. Anonymity-enhanced cryptocurrencies (AECs)—sometimes referred to as “privacy coins”—are increasingly prevalent across exchange platforms and average around $300 million in daily transaction volume at domestic and foreign-located exchanges.”

Combating this threat requires a multi-pronged approach, Ott said, stressing the regulation of ‘ registered virtual currency money transmitters’, and civil enforcement action like enforcing monetary penalties is FinCEN’s current approach.

It also assists “law enforcement, regulators, and prosecutors trace different types of virtual currency activity, identify suspicious sources of funds, target unregistered MSBs” in pursuit of keeping illegal activities in this crypto space in check.

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