Sriki may be an outlier in using crypto for illicit purposes, as suggested by his own voluntary statement. Equally, cryptocurrencies are not only used for crime, nor are they the only means to run illicit activities.
Yet, at a time when India is debating whether to regulate or ban cryptocurrencies, Sriki’s case throws up important red flags. These include the vulnerability of tech-based assets or currencies and the ability to execute crimes with greater anonymity using cryptocurrencies.
These risks have been flagged off by a number of regulatory bodies. Agencies like the Bank of International Settlements have repeatedly raised concerns about money laundering and terror financing concerns linked to cryptocurrencies.
In a report in April 2021, the BIS said that a number of jurisdictions have performed national risk assessment linked to illicit activities using cryptocurrencies. “These assessments largely conclude that the risks associated with cryptoassets are relatively high or have grown over the last few years…”
The industry argues that lessons have been learnt along the way and safety features are being built in.
“The use of cryptocurrencies on the darknet rose because it was difficult to share legitimate payment details like your credit card number there. But as the crypto ecosystem has developed, we note that there is an increase in compliance standards and a marked drop in the share of illegal transactions,” said Sathvik Vishwanath, chief executive officer and co-founder, Unocoin.
Shivam Thakral, chief executive of BuyUcoin, argued that exchanges have ramped up their security now, compared with 2017-18, when Sriki’s hacks had taken place. “Now exchanges don’t allow access to their core servers unless it is from list of approved IP addresses,” Thakral said. “So for a hacker to access the servers is next to impossible.”
It’s difficult to completely do away with hacks though and losing cryptocurrency through hacks is a very real problem, said Sharat Chandra, blockchain and emerging tech evangelist.
“There are two ways to counter this. Firstly, the exchanges could insure the cryptocurrencies held in the customer’s wallet through a specialised insurance company,” Chandra said. “The other, and maybe more efficient, way is to have decentralised wallets.”
Typically, exchanges hold the customer’s wallet in a central server, making the information vulnerable to hacks. In a decentralised format, the customers self-host their crypto wallets.
Vishwanath of Unocoin argues in today’s tech-driven world, all financial systems can be hacked into. But he acknowledges that with cryptocurrencies, the problem is slightly more complex.
“If someone hacks a bank’s server, they tend to get only financial data and not actual money. For the hacker to use this data and extract money is a time-consuming process. In the case of cryptocurrencies, what they are stealing is an actual asset which has immediate worth,” Vishwanath said.
Thakral doesn’t share that view.
The likelihood of losing money on a crypto exchange, compared with a fiat entity like a bank, are pretty much the same, he said. “Users need to follow basic principles like not sharing password with unauthorised person intentionally or unintentionally.”
“We’re also seeing authorities being more vigilant of any crypto related breaches, even though there is no legislation to regulate cryptocurrencies,” Thakral said. “We have received multiple requests from agencies on certain suspect transactions and we cooperate fully.”