Justice Department Recover Millions Worth in Bitcoin Used to Pay Hackers for Colonial Pipeline Ransom Attack

Last month a Russian group known as “DarkSide” hacked into Colonial Pipeline encrypting its system with ransomware shutting down their pipeline that supplies oil to the eastern United States.  This shutdown caused gasoline shortages at many gas stations and a spike in gas prices contributing to the national average price increase.  It was later learned that $5 million in cryptocurrency was paid to the hackers for the encryption code to put the system back online and resume services. While Joseph Blount, CEO of Colonial Pipeline, was testifying before Congress, it was also discovered that the Federal Government was able to recover $2.3 million in Bitcoin from the ransom payout according NPR.

Although details have not been disclosed as to exactly how the Justice Department’s task force recovered nearly half of the ransom’s cryptocurrency payment, the fact it was recovered at all is a major breakthrough and game changer for investors and those who use cryptocurrency.  Bitcoin has lost nearly half its value in the past month and tumbling again on Wednesday as much as 12% after traders learned the news of the successful recovery of around 63 Bitcoin according to NASDAQ.

Bitcoin was prized among investors and users of the cryptocurrency because it is decentralized and transactions were believed to be completely anonymous and impossible to trace; that theory is quashed with this news which may be the first sign the cryptocurrency bubble is beginning to burst.  Prior to many mainstream financial services accepting Bitcoin transactions, people would exclusively use digital wallets which users could obtain anonymously with no proof of identity required.  In addition to making transactions through the Dark Net, accessed through a VPN which adds an additional layer of anonymity, transactions are moved through a Mixer which collects and holds cryptocurrency in an escrow.  Mixers would receive cryptocurrencies from multiple sources and then distributes the funds out to multiple sources; again, making it nearly impossible to trace.

 The value of Bitcoin seemed to be speculative as it has no real use and is neither real property nor consumable like commodities.  Cryptocurrency is a median of exchange, like coins and paper currency, with no government backing.  Although Bitcoin is not real property, there is a finite supply and it cannot be copied or mass-produced like government backed currencies.  Its finite supply and difficulty to “mine” add to its value.  What has also added to its value is that it is not affected by government monetary policies and also the belief that transactions were completely anonymous. Bitcoin, along with other cryptocurrencies, may have lost a major valuable component now that the government has learned a way to trace and garnish those funds.

Author: Edmund J. Martinez, MBA, MPH, PMP