Bitcoins Analysis of Security - Money Laundering and Ethical

Question: Discuss about theBitcoinsfor Analysis of Security, Money Laundering and Ethical. Answer: Introduction Bitcoin is a form of digital currency platform created and held electronically. The currency was designed and created by Satoshi Nakamoto in 2009. Digital currency use encryption technology to verify the transfer and operates independently. The currencies are transferred from one digital wallet to another directly without intermediaries such as banks. Bitcoins can be traded under any username which allows transactions to be anonymous (Meiklejohn, and Orlandi, 2015). Crypto-currencies like Bitcoin are expanding access to financial empowerment to people the around the world. While Bitcoins have become a useful form of payment to many vendors, it has become a haven for fraudulent activities where criminals facilitate money laundering, and other cybercrime activities such as human trafficking, trade in weaponry among other illicit trade. It is against this backdrop that this paper explores the use of Bitcoins and the negative impacts it has had. The paper will also explore the ethical co nsideration in the use of Bitcoins besides considering whether trading in the currency is secure. Discussion Cybercrime Associated with Bitcoins With technological advancements, criminals have appreciated the inevitability to use technology to advance their trade. Criminals have taken advantage of technological revolution to advance their activities while covering their whereabouts. Bitcoins have become one such haven where criminals engage in malicious criminal acts with little chance of being arrested. Virtual currencies such as Bitcoins come with the added benefit of extra layer of protection which provides anonymity to users. As such, criminals are able to trade without leaving any personally identifying information. A 2012 FBI report according to Lindholm, and Realuyo, (2013) regarded Bitcoins as the avenue where individuals generate, launder, steal, and transfer illicit funds while enjoying anonymity. The report noted that law enforcers will find it hard to detect illicit activities because of the centralized nature of Bitcoin transactions. Several instances involving Bitcoin abuse have been well documented. Money laundering is one such case that has increased with the advent of virtual currencies. Bryans, (2014) defines money laundering as the process of concealing illegally gained proceeds from illicit trade to appear legal. The United nation Office on Drugs and Crime 2009 report estimated the amount of proceeds laundered to be about 2.7 per cent of world GDP. The severity of laundering cases brought about by Bitcoins can be seen from the conviction of BitInstant CEO and cofounder for aiding the use of unlicensed money transmitting activities (Bryans, 2014). In 2016, a group of 10 people were arrested and charged in Netherlands for money laundering. The Silk Road case illustrates another example of money laundering. According to Martin, (2014), Ross Ulbricht was arrested by FBI for being behind the online store dark web store known for selling drugs. The site generated over 9.5 million Bitcoins during its 2 year period it was in service according to Martin, (2014). Apart from money laundering, Bitcoins have been widely seen as facilitating black market transactions. A CMU 2012 report estimated about 9% of all transactions to be those of drug trades, child pornography, and sale of arms in the dark web. The UK based charity group, Internet Watch Foundation indicated that Bitcoins is accepted as a form of payment in over 200 websites selling pornography content. While it is not the sole payment method, the report indicated over 30 websites that accept Bitcoins only (Trautman, 2014). Despite legislative measures to curb money laundering, the trade has continued to thrive because of lack of proof of illegal activity with the use of Bitcoins. The 1986 Money Laundering Control legislation if enforced can help in apprehending criminals engaged in money laundering. Under this MLCA act, punishment may be possible if acts of money laundering are proven. Punishment under the MLCA may be possible if the underlying specific underlying activities can be proven. The author states that this may not be the perfect solution as it is difficult to trace a person and prove the specific underlying activities since users can use many different accounts and the funds might be hidden in various Bitcoin addresses to conceal their source (Bryans, D. 2014). Generally, Bitcoin is used as a great alternative for legitimate currency transfer but it can also be used as a platform for illegal activities. Safety Concerns Associated with the Use of Bitcoins While Bitcoins has been considered to be the safest payment method because of the encryption and digital signature technologies, cases breach of and Bitcoins wallet transferred have been numerous. Bhme et al., (2015) observe that any transaction with Bitcoins is irreversible and as such the sender cannot make payments then later reverse. It can also detect typos and thus prevent payment being sent no non-existent addresses. Despite mechanisms in place to guarantee security, Bitcoin mining viruses and Trojans have been developed by hackers keen to infiltrate the Bitcoin currency system. These viruses according to Lim et al., (2014) are intended to achieve unauthorized mining thus compromising the security of the currency. The E-sports was accused in 2013 of hacking over 14,000 computers to mine Bitcoins while German police arrested suspects who were in possession of customize botnet software they intended to use in Bitcoin mining (Lim et al., 2014). Reported cases of Bitcoin mining malware are also many with several incidences if students using research computers in Bitcoin mining reported. It seems hackers get sophisticated day by day. Bohme et al., (2015) observe that hackers use malware to steal private keys and steal Bitcoins from Bitcoins wallet. The most common technique according to Lim et al., (2014) is where hackers search for crypto currency wallets in computers and upload to remote servers to be crack and Bitcoin wallets emptied. Another approach works by detecting Bitcoin addresses copied to computer clipboard and immediately replaces with a fake address. This method is meant to trick users into sending to the wrong addresses (Bohme et al., 2014). An example of this is where a Bitvanity malware posed as a real wallet address generator stealing g private keys and addresses from other Bitcoin client applications in 2013. A year later another Mac Trojan virus was reported to be responsible for numerous cases of Bitcoins theft. Other cases of stolen crypto currencies have been tracked according to Trustwave (Lim et al., 2014). Eyal, and Sirer, (2014 argue that Bitcoin stability was built with the intention that it will depend on majority of honest miners to follow laid down protocol rules. As both indicate, an attacker gaining 51 per cent of the entire Bitcoin network can take hold of the system and rewrite system protocols, or worse still cancel payment. They are however quick to note that this approach is less likely since the cost implication of achieving 51% outweighs the benefits. It is highly unlike for hackers according to recover the infrastructural costs needed to achieve this percentage. Studies have also pointed out the possibility of Bitcoin mining protocol being vulnerable to selfish attacks by dishonest mining pools. A recent study by Cornell showed that colluding minority of miners get more revenue than the combine total ration of mining power. From the study, dishonest miners, selectively reveal their mine blocks in order to negate the efforts of an honest miner. The research describes that this works by creating branches while the honest miners focus on the public branch which is shorter. The selfish miner then reveals the private chains to the public making them switch to these revealed blocks thus rendering their public blocks wasted. These study sums that the Bitcoin currency is indeed vulnerable against attacks from selfish miners controlling over 33 % of computer network thus destroying the decentralized nature of Bitcoins (Kaushal, 2016). Ethical Concerns The use of Bitcoins presents ethical concerns that should be considered. Several scholars have raised various ethical concerns with regard to the use of Bitcoins. Barratt, Ferris, and Winstock, (2016) observe that there is perception among many critics that anonymous currency has become a catalyst for illegal purchases via online platforms. Online marketplaces like Silk Road according to Barratt, Ferris, and Winstock, (2016) take advantage created by the flexibility of the Bitcoin and in the process legitimize the currency. The other ethical issue as indicated by Angel, and McCabe, (2015) is that of knowing how Bitcoins affect the digital divide by creating a socio-economic inequality. Some considers the Bitcoin system to have serious ethical issues. Nobel Laurette Paul Krugman (2013) observed in an article in the New York Times that Bitcoin currency is evil arguing that the currency was part of a well orchestrated political agenda aimed at damaging the financial institution such as Central Bank and the governments ability to collect taxes (Angel, and McCabe, 2015). Krugaman opinion has however been dismissed as failing to highlight any ethical issue in the use of Bitcoins with many observers according to Harvey, (2014) terming it personal views based on the opinion on banking policy and taxation. Angel, and McCabe, (2015) observe that Bitcoins is still unclear to many people and that a lot of confusion still shrouds it. Accordingly, mainstream use of Bitcoins is likely to introduce institutionalized oppression by disenfranchising majority of the population, especially those economically underprivileged. Those without less education to understand Bitcoins will be greatly disadvantaged. Such scenario according to Andrychowicz et al., (2015) increases the need to use technology as a medium for learning and accessing Bitcoins, and in the process make the currency means for survival. Andrychowicz et al., (2015) argue that while Bitcoins may have potential benefits to the society, these benefits cannot outweigh the burden of creating a different financial currency on a large majority of the population that cannot afford it. Although the benefits of Bitcoins can be many, many believe that these benefits are not enough to outweigh negative implication of Bitcoins on the financial system. Angel, and McCabe, (2015 on the other hand believe Bitcoins is technological innovation that has the elements of good business ethics. They observe that the currency represents technological solution that provides honesty without the need for government regulations to guard against dishonesty. According to Lim et al., (2015), Bitcoins relies on mines who act with self-interest without altruism or being compelled to do so. Eyal, and Siyer (2014) argue that it is not possible for a dishonest miner tries to alter the blockchain for undue advantage since majority of the miners exude self honest. It is because of the honest nature of miners that many Bitcoin proponents have preferred as an alternative to lack of trust in the other payment methods which depend on intermediaries. They sum that Bitcoin users put their trust in a pull of honest, profit motivated miners. Conclusion Bitcoins have become important form of currencies having gained increase popularity over the years. Bitcoins are a virtual digital currencies created by Satoshi Nakamoto in 2009. The currency uses encryption techniques to verify transaction transfer currency from one digital wallet to another without the need for intermediaries such as banks. Bitcoins can be traded from one user to another. However, the adoption of Bitcoins has led to increase cybercrime and related activities. Bitcoins have become a safe haven for criminals because of the ability to trade with while remaining anonymous. As such criminals have been able to engage in various criminal activities such as money laundering, child pornography, and other licit trade with little chances of being caught. Although deemed to be secure because of end to end encryption technology, cases of cyber attacks involving Bitcoins have been on the rise. Attackers have found ways to empty the Bitcoins wallets of unsuspecting users. Questio ns of ethical consideration have arisen with the adoption of Bitcoins. While some consider it evil and unregulated currency, Bitcoins remain the only honest payment form that does not need intermediaries. References List Andrychowicz, M., Dziembowski, S., Malinowski, D. and Mazurek, ?., 2015, January. On the malleability of bitcoin transactions. 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