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Cyber-Criminals Abandon Bitcoin; Homeland Admits "It's A Lot More Legitimate Than People Th

• http://www.zerohedge.com

Regulators in the US, Europe and Asia who've sought to crack down on bitcoin – many of these regulators are also proponents of a "cashless society" – have been dealt a stunning setback by an unlikely defender of the pioneering digital currency: The US Department of Homeland Security.

To wit, one anonymous DHS source told CNBC that bitcoin has become "a lot more legitimate" than many believe.

"We're getting a lot better through law enforcement tracking those [criminals] and holding the exchanges more accountable," the Homeland Security official said. "I think [bitcoin]'s a lot more legitimate than people give it credit for."

Another source told CNBC that criminals have backed away from using the digital currency as bitcoin transactions have become much easier for authorities to trace. Earlier this month, the IRS announced that it had developed, with the help of bitcoin security firm Chainalysis, a tool to unmask the owners of bitcoin wallets.

"Although hard numbers on criminal activity in digital currencies are difficult to pin down, Shone Anstey, co-founder and president of Blockchain Intelligence Group, estimates that illegal transactions in bitcoin have fallen from about half of total volume to about 20 percent last year.

"Now it's significantly less than that," he told CNBC earlier this month, noting that overall transaction volume has grown globally."

Bitcoin is vulnerable to law enforcement because each user must display a public ID, a complex cryptographic combination of numbers and letters, in order to tansact in bitcoin. By tracing the movement of coins between accounts, CNBC explains, intelligence and security agencies can follow the money and arrest the criminals when they try to withdraw their ill-gotten games in US dollars, or another fiat currency.

Last month, US authorities partnering with Interpol and local law enforcement shut down AlphaBay and Hansa, two of the largest dark-web marketplaces for drugs and illegal goods. Before that, they took down BTC-E, a shadowy digital-currency exchange, arrested its Russian-born founder and seized the company's website.

Another cybersecurity expert who spoke with CNBC noted that, when a user tries to convert bitcoin into cash, the digital-currency's veneer of anonymity disappears.

"Bitcoin basically introduced a situation where we could bypass the money mules," said Rickey Gevers, cybercrime specialist at RedSocks Security, which detects and fights against malware.

But, Gevers said, "in the beginning [bitcoin] looks very anonymous, and in the end it doesn't look very anonymous."

Paul Triolo, a consultant at Eurasia Group, said bitcoin has "changed quite a bit" since it was first launched in early 2009. It's now primarily used by legitimate investors, not dark-web criminals.

"The whole use issue of digital currencies has become a big industry. Bitcoin isn't this weird, odd currency that's being used on the dark web," said Paul Triolo, practice head of geotechnology at consulting firm Eurasia Group.

"Since the early days of bitcoin on some [levels], the world has changed quite a bit."

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