The existence of bitcoin and the rest benefits nobody except criminals and speculators.
WSJ Opinion
No one is out of reach from ransomware attacks. The Colonial Pipeline hack made that clear, along with the nearly 2,500 cases of ransomware—a form of malware that encrypts computer files and holds them for ransom—reported to the Federal Bureau of Investigation last year, a 66% annual increase. In 2020 ransomware victims paid hackers $350 million in cryptocurrency. Since many victims pay ransom without reporting the incident, these numbers understate the damage.
The solutions floated after the Colonial hack—improved cybersecurity in the private sector and public-private collaboration to protect critical infrastructure—are pro forma and inadequate. There is a simpler and more effective way to stop the ransomware pandemic: Ban cryptocurrency.
Ransomware can’t succeed without cryptocurrency. The pseudonymity that crypto provides has made it the exclusive method of payment for hackers. It makes their job relatively safe and easy. There is even a new business model in which developers sell or lease ransomware, empowering malicious actors who aren’t tech-savvy themselves to receive payment quickly and securely. Before cryptocurrency, attackers had to set up shell companies to receive credit-card payments or request ransom payment in prepaid cash cards, leaving a trail in either case. It is no coincidence that ransomware attacks exploded with the emergence of cryptocurrency.
Banning anything runs counter to the American ethos, but as our experience with social media should teach us, the innovative isn’t always an unalloyed good. A sober assessment of cryptocurrency must conclude that the damage wrought by crypto-fueled ransomware vastly outweighs any benefits from cryptocurrency.
It isn’t obvious that cryptocurrency provides any benefit at all beyond the chance to make a quick buck. I have been studying the crypto market since its inception, and I have yet to identify a single task or process that crypto makes easier, better, cheaper or faster. Don’t take my word for it. Ask any friend why he owns cryptocurrency, and the answer will invariably be “to make money.” In other words, speculation. (The blockchain technology that underpins crypto does have promising applications in supply-chain management and other areas.)
Because I point this out, crypto enthusiasts call me a Luddite, statist, technophobe or worse. Asset bubbles are maintained by a common narrative, and anyone who dares question it must be attacked. But a growing chorus is pointing out the emperor has no clothes.
A day after the Colonial Pipeline shutdown, cryptocurrency champion and self-proclaimed “Dogefather” Elon Musk went on “Saturday Night Live” and admitted the obvious: The dogecoin cryptocurrency is a “hustle.” He then performed an encore by tweeting that Tesla was suspending the use of bitcoin for vehicle purchases due to the coin’s carbon footprint. The computer “mining” and transfer of bitcoin requires a great deal of energy, much of which comes from burning fossil fuels. In response, the narrative has now expanded to include the absurd premise that crypto encourages the development of sustainable energy.
Aside from Libra, Facebook’s initial ill-fated foray into cryptocurrency, the topic has drawn limited interest on Capitol Hill. There is a Congressional Blockchain Caucus with around 30 members, but it says it has “decided on a hands-off regulatory approach, believing that this technology will best evolve the same way the internet did; on its own.” The issue hasn’t been tarred by the brush of partisan politics, but the crypto industry is hurriedly following the well-trod path to K Street lobbying.
Lawmakers should get serious. The Colonial Pipeline incident disrupted the East Coast’s gas supply. The next attack could be deadly. Imagine one that shuts down the power grid during a heat wave or taints a municipal water supply.
Any solution must at least reduce the use of cryptocurrency. Governments and retailers should be encouraged not to accept payment in it. An outright ban could get the job done, but if it would be too difficult to enforce or get through Congress, regulators could crack down on the off-ramps and on-ramps, the points at which crypto is converted into fiat currency and vice versa.
Cryptocurrency firms serving U.S. customers are supposed to be subject to the same anti-money-laundering requirements as traditional financial institutions, but more can be done. Late last year, the Treasury Department’s Financial Crimes Enforcement Network proposed a rule to establish new reporting, verification and record-keeping requirements for certain cryptocurrency transactions. Last week Treasury proposed granting more resources to the Internal Revenue Service to address crypto and called on businesses to report receipts of more than $10,000 in cryptocurrency. Both proposals should be adopted, but they will be effective only if other countries follow suit.
So long as there are crypto exchanges abroad with lax money-laundering controls, cryptocurrency will maintain its appeal to hackers. Bloomberg reported on May 13 that money-laundering and tax officials at the Justice Department and IRS are investigating the world’s biggest cryptocurrency exchange, Binance Holdings, which is incorporated in the Cayman Islands and has an office in Singapore.
Like climate change, cryptocurrency presents a classic collective-action problem. Some policy makers recognize the dangers but are hesitant to act for fear of driving crypto companies overseas without doing much to solve the problem. Diplomacy may bear fruit in the long run, but meanwhile President Biden should sign an executive order requiring the Treasury secretary, in coordination with all federal financial regulatory agencies and the IRS, to develop a more coherent regulatory framework for cryptocurrency and identify steps each agency can take to counteract its use in financing terrorism and facilitating ransomware attacks.
We can live in a world with cryptocurrency or a world without ransomware, but we can’t have both. It is time for the adults to tell the children: Party’s over.
