US Secret Service Agent Critical of Digital Currency

With every passing day it seems another firm has shown interest in making an investment into some type of digital currency. What started on the outskirts of the financial world, it has crept closer to the mainstream.

In an editor's letter by Buy-Side Technology's Tim Bourgaize Murray earlier this year, he highlighted how since the start of the new year Bitcoin has had more positive news than the Swiss franc, a concept which would have seemed almost implausible three years ago.

Yet, even as Bitcoin gains traction among those in the industry, there are still many who see it mainly functioning as a major asset to criminals.

"If digital currency did not exist, cyber crime would be much more difficult," said Tate Jarrow, a special agent with the US Secret Service (USSS).

Funding the Attacks

If digital currency did not exist, cyber crime would be much more difficult. - Tate Jarrow, special agent with the US Secret Service.

Jarrow did not hold back when sharing his opinion on digital currency at the CyberRisk North America conference in Manhattan during his discussion of cyber security from the USSS perspective. The majority of activity in digital currency, according to Jarrow, is by criminals looking to fund illegal activities.

For years, many have known that digital currency is used amongst criminals to buy drugs or illegal products due to the appeal of the anonymity of it, but Jarrow was quick to point out services are also being purchased via Bitcoin.

Cyber criminals are using the digital currencies to pay their programmers or hackers who take part in their cyber attacks.

"It's extremely valuable for criminals because when they're doing illegal transactions they don't want to use a credit card that has their name on it. They don't want to use PayPal where they do identity verification and there is a bank account linked," Jarrow said. "They want to use anonymous currency that allows them to do transactions, move large amounts of money, without ever being traced. That's why digital currency is very important. It's used for all this bad stuff."

Illegal Playground

Jarrow cited examples of the how digital currency has spawned illegal activity. Liberty Reserve, a centralized digital currency service, had $8 billion move through its system in its six years of operation before it was shut down in May 2013, according to Jarrow.

Silk Road was another example of digital currency gone wrong. The underground marketplace sold illegal items through Bitcoin before being closed.

"(Silk Road) could not exist if digital currency didn't exist," Jarrow said. "You're not going to buy five grams of pure cocaine with PayPal or a credit card."

Jarrow's stance is hardly an outlier. Since its inception, many have voiced concerns about the anonymity and legitimacy of digital currencies. Still, that has not stopped large firms from becoming increasingly interested in Bitcoin.

In January, the New York Stock Exchange invested in Coinbase, a Bitcoin wallet platform. Earlier this month, IBM announced it was interested in adopting the ledger technology behind Bitcoin in order to create a digital cash and payment system for major currencies. The aforementioned Murray wrote a piece a few weeks ago about Atlas ATS and Perseus partnering together on a Bitcoin offering. 

There seems to be a shift, albeit slowly, in acceptance of digital currency. Last fall at Sibos in Boston, the topic of Bitcoin took center stage as well.

Jarrow maintains institutions need to be on guard since banks and money transferring businesses are an integral part of allowing people to gain access to digital currencies. Firms need to be aware of criminals potentially setting up accounts of fake organizations just to transfer their money into digital currency.

"Digital currency exists because people want to be outside that system," Jarrow said. "But they have to go in and out of the traditional finance system to buy digital currency."

The Bottom Line

· Despite growing support of Bitcoin amongst those in the industry, a digital currency is often times being used to fund illegal activity, according to Jarrow.

· Banks and money transferring institutions need to be aware of criminals setting up accounts for fake companies in order to buy digital currency.