Fraud and Scams

Crypto-Hackers can run but can’t hide: Tainted funds being traced

Crypto from wallets linked in the 2016 Bitfinex hack and the 2020 KuCoin hack have been lately in motion

With all the crypto-bots tweeting these transactions and exchanges operating with officials, the anonymous hackers seem to have nowhere to hide.

Hodling Hackers

During Aug 4, Bitfinex, the victim of a 2016 hack that lost them over $1.3 billion of bitcoin (BTC) at today’s rates, offered a $400 million prize for information pointing to the return of their funds. The motion did not require hackers to be brought to justice. It even appeared to absolve the hackers should they return the funds in return for the reward.

They found out that the hackers weren’t interested. On Aug 16, those hackers transmitted 467.67 ($5.7 M) BTC into a new wallet, apparently shrugging off their get out of jail free card.

But as Binance CEO CZ tweeted on Oct 15, these hackers are hodlers. This was in response to an Oct 15 Whale Alert tweet that Bitfinex hackers moved 142.2 BTC ($1.6 million) to a new wallet. Four years after the hack, those perpetrators are not identified, nor have they, at least in a straightforward way, cashing out their winnings.

Crypto-enthusiast Crypto Bull responded that the hackers were apparently relocating the funds to sell them. But splitting up stolen bitcoin into smaller sums only does so much to mask its origin.

Meanwhile, KuCoin is still recovering from a hack that robbed the exchange on Sept 26 of $150 million in crypto.

Digital Mattress Stuffing

The basis for this digital mattress-stuffing is not entirely apparent. Unquestionably, hackers could be looking for a way to sell their stolen crypto.

Part of the problem for bitcoin hackers these days appears to be the amount of attention. Since whale bots are constantly tweeting large movements and have flagged wallets known for mischief, it is harder to move funds unnoticed.

CNWN earlier reported about the difficulty of laundering stolen Bitcoin. Though adept at stealing crypto, North Korean hackers have had some problem converting it into usable fiat. There are some technical tricks of the trade. Still, a powerful tactic in laundering crypto appears to be splitting up purchases into small chunks over thousands of addresses and then moving those funds around thousands of times. With the blockchain’s immutability, the funds are still traceable, only it takes a lot longer and is a giant headache for authorities.

With the 2016 Bitfinex hack and the 2020 KuCoin hack, the culprits appear to face similar problems. Any address that has touched the stolen goods is tainted since authorities have flagged them, and centralized exchanges can blacklist them.

KuCoin CEO Johnny Lyu has claimed to have identified the culprits of his attack. KuCoin claims to be working with authorities to bring the thieves to justice and return the funds, but that did not stop those thieves from moving vast sums of money, according to Whale Alert.

Baby Steps

The hackers continue to shuffle around money, and its route of exit from the blockchain is anyone’s guess. Atomic swaps with a privacy coin such as XMR could also be an escape route.

Monero Labs recently funded an upgrade that should bring Monero into the world of Atomic Swaps. This would allow anonymous cross-chain swaps, and the traceable BTC could transform into a less traceable currency. That still leaves the difficulty of how to sell XMR for fiat without arousing suspicion.

Meanwhile, the KuCoin hackers dumped millions of dollars in ERC-20 tokens on decentralized exchanges. These exchanges, such as Uniswap, are theoretically immune to consensus action and veil the hackers’ identifies as much as possible.

With Europe cracking down on dark-web privacy-coin purchases and Uniswap gaining attention because of bad actors, nobody knows how long these privacy techniques will remain viable. Simultaneously, the crypto industry continues to boom, and new solutions could arise any day.

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