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'Dark' coins rising

Maria Korolov | March 10, 2015
Cryptocurrency users are stepping up efforts to make payments untraceable and fully anonymous.

Traditional criminal enterprises rely on networks of trust and personal relationships. Existing customers must vouch for new ones.

Criminals work their way up in a gang, or find new partners in prison, to be sure that they're working with people they can trust.

With fully anonymous online marketplaces, the person ordering the drugs could be a cop. The person offering to provide a list of stolen credit card numbers could be providing malware that broadcasts your location to the authorities.

If a seller has a history of successful transactions, or positive reviews -- there is no way to be sure that the counterparties of those transactions, and those reviewers, aren't also cops.

Another weakness of the cryptocurrencies, especially of the Bitcoin alternatives, is their low trading volumes, which makes them susceptible to manipulation.

"You can think of a fraction of the daily volume as a goal post for an attacker," said Tod Beardsley, engineering manager at security firm Rapid7 LLC. "Very roughly, if I can control about half of the value of a given coin, I can cause huge problems for everyone else when it comes to the short-term price and viability of the coin."

According to CoinMarketCap, Darkcoin had the fifth largest market capitalization on March 7, of more than $17 million, but a 24-hour trading volume of just $72,621 -- compared to $25 million for Bitcoin.

It doesn't take much of a bankroll to be able to manipulate Darkcoin -- $35,000 or so would be enough.

"I can engineer wild price swings, at will," said Beardsley. "After the booms and busts of dozens of altcoins from 2013 to 2014, the folks behind Darkcoin have a fairly large trust hurdle to surmount, and they're not making things easier on themselves by using terms like 'launder' that invite negative government interest. Bitcoin already has a money laundering image to shake off, but Darkcoin seems to be embracing it."

Still, Darkcoin is actually doing pretty well compared to some of the alternatives, and interest in it has been going up steadily since the start of the year, possibly because of the Silk Road trial.

CloakCoin's market capitalization has fallen dramatically since its first burst of interest last summer.

"Cloakcoin is laughably low," said Beardsley.

On March 7, its 24-hour trading volume was just $58. Not $58,000 -- just $58. And its market capitalization was $46,000.

So maybe not a threat to law enforcement authorities just yet.


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