Entries Tagged "cryptocurrency"

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FBI Seizes Stolen Cryptocurrencies

The Wall Street Journal is reporting that the FBI has recovered over $30 million in cryptocurrency stolen by North Korean hackers earlier this year. It’s only a fraction of the $540 million stolen, but it’s something.

The Axie Infinity recovery represents a shift in law enforcement’s ability to trace funds through a web of so-called crypto addresses, the virtual accounts where cryptocurrencies are stored. These addresses can be created quickly without them being linked to a cryptocurrency company that could freeze the funds.

In its effort to mask the stolen crypto, Lazarus Group used more than 12,000 different addresses, according to Chainalysis. Unlike bank transactions that happen through private networks, movement between crypto accounts is visible to the world on the blockchain.

Advanced blockchain-monitoring tools and cooperation from centralized crypto exchanges enabled the FBI to trace the crypto to where Lazarus Group tried to cash out, investigators said.

The money was laundered through the Tornado Cash mixer.

Posted on September 13, 2022 at 6:51 AMView Comments

New Linux Cryptomining Malware

It’s pretty nasty:

The malware was dubbed “Shikitega” for its extensive use of the popular Shikata Ga Nai polymorphic encoder, which allows the malware to “mutate” its code to avoid detection. Shikitega alters its code each time it runs through one of several decoding loops that AT&T said each deliver multiple attacks, beginning with an ELF file that’s just 370 bytes.

Shikitega also downloads Mettle, a Metasploit interpreter that gives the attacker the ability to control attached webcams and includes a sniffer, multiple reverse shells, process control, shell command execution and additional abilities to control the affected system.

[…]

The final stage also establishes persistence, which Shikitega does by downloading and executing five shell scripts that configure a pair of cron jobs for the current user and a pair for the root user using crontab, which it can also install if not available.

Shikitega also uses cloud hosting solutions to store parts of its payload, which it further uses to obfuscate itself by contacting via IP address instead of domain name. “Without [a] domain name, it’s difficult to provide a complete list of indicators for detections since they are volatile and they will be used for legitimate purposes in a short period of time,” AT&T said.

Bottom line: Shikitega is a nasty piece of code. AT&T recommends Linux endpoint and IoT device managers keep security patches installed, keep EDR software up to date and make regular backups of essential systems.

Another article.

Slashdot thread.

Posted on September 12, 2022 at 9:41 AMView Comments

Responsible Disclosure for Cryptocurrency Security

Stewart Baker discusses why the industry-norm responsible disclosure for software vulnerabilities fails for cryptocurrency software.

Why can’t the cryptocurrency industry solve the problem the way the software and hardware industries do, by patching and updating security as flaws are found? Two reasons: First, many customers don’t have an ongoing relationship with the hardware and software providers that protect their funds­—nor do they have an incentive to update security on a regular basis. Turning to a new security provider or using updated software creates risks; leaving everything the way it was feels safer. So users won’t be rushing to pay for and install new security patches.

Second, cryptocurrency is famously and deliberately decentralized, anonymized, and low friction. That means that the company responsible for hardware or software security may have no way to identify who used its product, or to get the patch to those users. It also means that many wallets with security flaws will be publicly accessible, protected only by an elaborate password. Once word of the flaw leaks, the password can be reverse engineered by anyone, and the legitimate owners are likely to find themselves in a race to move their assets before the thieves do. Even in the software industry, hackers routinely reverse engineer Microsoft’s patches to find the security flaws they fix and then try to exploit them before the patches have been fully installed.

He doesn’t have any good ideas to fix this. I don’t either. Just add it to the pile of blockchain’s many problems.

Posted on September 9, 2022 at 8:33 AMView Comments

A Taxonomy of Access Control

My personal definition of a brilliant idea is one that is immediately obvious once it’s explained, but no one has thought of it before. I can’t believe that no one has described this taxonomy of access control before Ittay Eyal laid it out in this paper. The paper is about cryptocurrency wallet design, but the ideas are more general. Ittay points out that a key—or an account, or anything similar—can be in one of four states:

safe Only the user has access,
loss No one has access,
leak Both the user and the adversary have access, or
theft Only the adversary has access.

Once you know these states, you can assign probabilities of transitioning from one state to another (someone hacks your account and locks you out, you forgot your own password, etc.) and then build optimal security and reliability to deal with it. It’s a truly elegant way of conceptualizing the problem.

Posted on August 12, 2022 at 6:38 AMView Comments

On the Dangers of Cryptocurrencies and the Uselessness of Blockchain

Earlier this month, I and others wrote a letter to Congress, basically saying that cryptocurrencies are an complete and total disaster, and urging them to regulate the space. Nothing in that letter is out of the ordinary, and is in line with what I wrote about blockchain in 2019. In response, Matthew Green has written—not really a rebuttal—but a “a general response to some of the more common spurious objections…people make to public blockchain systems.” In it, he makes several broad points:

  1. Yes, current proof-of-work blockchains like bitcoin are terrible for the environment. But there are other modes like proof-of-stake that are not.
  2. Yes, a blockchain is an immutable ledger making it impossible to undo specific transactions. But that doesn’t mean there can’t be some governance system on top of the blockchain that enables reversals.
  3. Yes, bitcoin doesn’t scale and the fees are too high. But that’s nothing inherent in blockchain technology—that’s just a bunch of bad design choices bitcoin made.
  4. Blockchain systems can have a little or a lot of privacy, depending on how they are designed and implemented.

There’s nothing on that list that I disagree with. (We can argue about whether proof-of-stake is actually an improvement. I am skeptical of systems that enshrine a “they who have the gold make the rules” system of governance. And to the extent any of those scaling solutions work, they undo the decentralization blockchain claims to have.) But I also think that these defenses largely miss the point. To me, the problem isn’t that blockchain systems can be made slightly less awful than they are today. The problem is that they don’t do anything their proponents claim they do. In some very important ways, they’re not secure. They don’t replace trust with code; in fact, in many ways they are far less trustworthy than non-blockchain systems. They’re not decentralized, and their inevitable centralization is harmful because it’s largely emergent and ill-defined. They still have trusted intermediaries, often with more power and less oversight than non-blockchain systems. They still require governance. They still require regulation. (These things are what I wrote about here.) The problem with blockchain is that it’s not an improvement to any system—and often makes things worse.

In our letter, we write: “By its very design, blockchain technology is poorly suited for just about every purpose currently touted as a present or potential source of public benefit. From its inception, this technology has been a solution in search of a problem and has now latched onto concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions to these issues already in use. Despite more than thirteen years of development, it has severe limitations and design flaws that preclude almost all applications that deal with public customer data and regulated financial transactions and are not an improvement on existing non-blockchain solutions.”

Green responds: “‘Public blockchain’ technology enables many stupid things: today’s cryptocurrency schemes can be venal, corrupt, overpromised. But the core technology is absolutely not useless. In fact, I think there are some pretty exciting things happening in the field, even if most of them are further away from reality than their boosters would admit.” I have yet to see one. More specifically, I can’t find a blockchain application whose value has anything to do with the blockchain part, that wouldn’t be made safer, more secure, more reliable, and just plain better by removing the blockchain part. I postulate that no one has ever said “Here is a problem that I have. Oh look, blockchain is a good solution.” In every case, the order has been: “I have a blockchain. Oh look, there is a problem I can apply it to.” And in no cases does it actually help.

Someone, please show me an application where blockchain is essential. That is, a problem that could not have been solved without blockchain that can now be solved with it. (And “ransomware couldn’t exist because criminals are blocked from using the conventional financial networks, and cash payments aren’t feasible” does not count.)

For example, Green complains that “credit card merchant fees are similar, or have actually risen in the United States since the 1990s.” This is true, but has little to do with technological inefficiencies or existing trust relationships in the industry. It’s because pretty much everyone who can and is paying attention gets 1% back on their purchases: in cash, frequent flier miles, or other affinity points. Green is right about how unfair this is. It’s a regressive subsidy, “since these fees are baked into the cost of most retail goods and thus fall heavily on the working poor (who pay them even if they use cash).” But that has nothing to do with the lack of blockchain, and solving it isn’t helped by adding a blockchain. It’s a regulatory problem; with a few exceptions, credit card companies have successfully pressured merchants into charging the same prices, whether someone pays in cash or with a credit card. Peer-to-peer payment systems like PayPal, Venmo, MPesa, and AliPay all get around those high transaction fees, and none of them use blockchain.

This is my basic argument: blockchain does nothing to solve any existing problem with financial (or other) systems. Those problems are inherently economic and political, and have nothing to do with technology. And, more importantly, technology can’t solve economic and political problems. Which is good, because adding blockchain causes a whole slew of new problems and makes all of these systems much, much worse.

Green writes: “I have no problem with the idea of legislators (intelligently) passing laws to regulate cryptocurrency. Indeed, given the level of insanity and the number of outright scams that are happening in this area, it’s pretty obvious that our current regulatory framework is not up to the task.” But when you remove the insanity and the scams, what’s left?

EDITED TO ADD: Nicholas Weaver is also adamant about this. David Rosenthal is good, too.

EDITED TO ADD (7/8/2022): This post has been translated into German.

Posted on June 24, 2022 at 6:13 AMView Comments

15.3 Million Request-Per-Second DDoS Attack

Cloudflare is reporting a large DDoS attack against an unnamed company “operating a crypto launchpad.”

While this isn’t the largest application-layer attack we’ve seen, it is the largest we’ve seen over HTTPS. HTTPS DDoS attacks are more expensive in terms of required computational resources because of the higher cost of establishing a secure TLS encrypted connection. Therefore it costs the attacker more to launch the attack, and for the victim to mitigate it. We’ve seen very large attacks in the past over (unencrypted) HTTP, but this attack stands out because of the resources it required at its scale.

The attack only lasted 15 seconds. No word on motive. Was this a test? Or was that 15-second delay critical for some other fraud?

News article.

Posted on May 5, 2022 at 6:02 AMView Comments

Clever Cryptocurrency Theft

Beanstalk Farms is a decentralized finance project that has a majority stake governance system: basically people have proportional votes based on the amount of currency they own. A clever hacker used a “flash loan” feature of another decentralized finance project to borrow enough of the currency to give himself a controlling stake, and then approved a $182 million transfer to his own wallet.

It is insane to me that cryptocurrencies are still a thing.

Posted on April 20, 2022 at 8:57 AMView Comments

De-anonymizing Bitcoin

Andy Greenberg wrote a long article—an excerpt from his new book—on how law enforcement de-anonymized bitcoin transactions to take down a global child porn ring.

Within a few years of Bitcoin’s arrival, academic security researchers—and then companies like Chainalysis—began to tear gaping holes in the masks separating Bitcoin users’ addresses and their real-world identities. They could follow bitcoins on the blockchain as they moved from address to address until they reached one that could be tied to a known identity. In some cases, an investigator could learn someone’s Bitcoin addresses by transacting with them, the way an undercover narcotics agent might conduct a buy-and-bust. In other cases, they could trace a target’s coins to an account at a cryptocurrency exchange where financial regulations required users to prove their identity. A quick subpoena to the exchange from one of Chainalysis’ customers in law enforcement was then enough to strip away any illusion of Bitcoin’s anonymity.

Chainalysis had combined these techniques for de-anonymizing Bitcoin users with methods that allowed it to “cluster” addresses, showing that anywhere from dozens to millions of addresses sometimes belonged to a single person or organization. When coins from two or more addresses were spent in a single transaction, for instance, it revealed that whoever created that “multi-input” transaction must have control of both spender addresses, allowing Chainalysis to lump them into a single identity. In other cases, Chainalysis and its users could follow a “peel chain”—a process analogous to tracking a single wad of cash as a user repeatedly pulled it out, peeled off a few bills, and put it back in a different pocket. In those peel chains, bitcoins would be moved out of one address as a fraction was paid to a recipient and then the remainder returned to the spender at a “change” address. Distinguishing those change addresses could allow an investigator to follow a sum of money as it hopped from one address to the next, charting its path through the noise of Bitcoin’s blockchain.

Thanks to tricks like these, Bitcoin had turned out to be practically the opposite of untraceable: a kind of honeypot for crypto criminals that had, for years, dutifully and unerasably recorded evidence of their dirty deals. By 2017, agencies like the FBI, the Drug Enforcement Agency, and the IRS’s Criminal Investigation division (or IRS-CI) had traced Bitcoin transactions to carry out one investigative coup after another, very often with the help of Chainalysis.

Posted on April 11, 2022 at 6:04 AMView Comments

Stolen Bitcoins Returned

The US has returned $154 million in bitcoins stolen by a Sony employee.

However, on December 1, following an investigation in collaboration with Japanese law enforcement authorities, the FBI seized the 3879.16242937 BTC in Ishii’s wallet after obtaining the private key, which made it possible to transfer all the bitcoins to the FBI’s bitcoin wallet.

Posted on December 22, 2021 at 10:20 AMView Comments

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Sidebar photo of Bruce Schneier by Joe MacInnis.