What happens when a Bitcoin fraudster is caught?

  • The case of a fraudster who refused to turn over the password to a £40m Bitcoin wallet has raised concerns that law enforcement can't deal with cryptocurrencies.

    The advent of cryptocurrencies such as Bitcoin has been a boon for investment speculation and made the idea of decentralised banking systems a reality. Bitcoin has no central authority or bank that holds everyone's money, with funds instead held in cryptographically secured digital wallets.

    The crytographic nature of Bitcoin has led to around 20% of the Bitcoin supply being locked away in inaccessible wallets. Programmer Stefan Thomas recently made headlines after revealing that he has around $220m US worth of Bitcoin locked away on an encrypted hard drive, and he has just two password guesses left before it's lost forever.

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    In a similarly crazy story this week, it was revealed that over £40m worth of fraudulently obtained Bitcoin sat locked in a wallet being held by German police for several years. The wallet was confiscated from a fraudster who installed malicious software on people's computers to mine the Bitcoin in the background without their knowledge.

    Police will regularly seize the bank accounts of scammers and fraudsters, but in this case they need the password to access it. The man who owned the wallet was arrested and has already served his two year sentence for the crime, having repeatedly refused to divulge the password for the wallet during his sentence.

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    This incident raises questions about how the law can catch up with existence of cryptocurrencies. Fraudulently obtained currency is normally confiscated, but you can't really confiscate anything that's on a public blockchain ledger. The fraudster could have a backup of the wallet file or be able to re-generate it if he knows the seed passphrase, so he could potentially walk away from this with millions in cash.

    Source: Twitter

    About the author

    Brendan is a Sync NI writer with a special interest in the gaming sector, programming, emerging technology, and physics. To connect with Brendan, feel free to send him an email or follow him on Twitter.

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