Cryptocurrency crash sparks crisis for dark web exchanges

The decline in the value of cryptocurrencies has created a rush for money that is pushing many underground exchanges to their breaking point.

According to research from security firm Cybersixgill, cybercriminals are seeking to protect their stolen funds by moving them from cryptocurrencies to fiat currencies, forcing some prominent underground exchanges into bankruptcy.

Operating on the dark web away from the prying eyes of law enforcement, exchanges allow criminals to transact and potentially launder their ill-gotten gains by transferring stolen funds from fiat currency to various crypto- currencies – while paying exchanges high transaction fees for their discretion.

Ideally, exchanges maintain a healthy mix of cryptocurrency and fiat currency, without asking too much of either. This, however, has changed amid the larger drop in cryptocurrency prices.

“As crypto prices have fallen, players have turned to these exchanges to dump it for fiat,” Dov Lerner, head of security research at Cybersixgill, explained in a blog post on Thursday. “They quickly depleted their dollar reserves (or their operators also feared losses by buying more crypto), and they shut down operations.”

Cybersixgill analyzed 34 players operating dark web exchanges this spring and found that none of them were advertising their platforms. While many players were still active on hacker forums, none of them were promoting their exchanges after early April when many cryptocurrency values ​​plummeted.

Lerner noted that despite operating underground and spreading business by word of mouth in cybercrime forums, launching an underground exchange is not a simple task and requires significant resources to get started. As such, replacing failed exchanges will not be an easy task, especially as cryptocurrency prices continue to fall.

“Players need to build reserves of multiple currencies and devise mechanisms to accept payments across various platforms,” Lerner wrote. “They also need to market themselves to get discovered and build a reputation so they’re trustworthy.”

Forum traffic is also key to confirming that closures are likely to be long-term, or even permanent. Lerner noted that many exchange operators have also fallen silent in cybercrime forums after years of almost daily postings to advertise their services, suggesting that a rebrand or relaunch is not in the cards.

“Typically, actors who run shops in the subway promote them frequently on forums, even daily, to make sure people know about them,” Lerner told SearchSecurity. “So if they don’t post about them anymore, I think it’s safe to say they’re gone.”

With the exchanges going dark, Lerner said it would be harder for cybercriminals to move their stolen money. The researcher noted, however, that defenders should avoid getting too excited, as many of the largest and most prolific cybercrime groups will likely be able to continue their operations unscathed.

“These exchanges are likely primarily used by less sophisticated players, who will now be stuck with no way to exchange funds,” Lerner said in the blog post. “[The] We imagine that more advanced cybercrime groups have more complex ways of exchanging and laundering money and they will no doubt find ways to continue doing so.”

Cybersixgill is not the only provider to notice significant cryptocurrency activity on the dark web in the spring. Blockchain analytics provider Chainalysis released a report Thursday on cryptocurrency mixers, which are designed to hide cryptocurrency transactions from governments and law enforcement. Chainalysis found that usage of the mixer hit an all-time high in mid-April, with a 30-day moving average of $51.8 million in cryptocurrency.

However, that 30-day average quickly dropped to less than $20 million. Chainalysis noted that the spike in activity was largely due to cybercriminals and nation-state threat groups such as North Korea’s Lazarus Group, which used blenders to hide stolen cryptocurrencies from various victim organizations such as than Axie Infinity Sky game developer Mavis.

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