Information Technology and Ethics/Cryptocurrency Overview

Introduction

Cryptocurrencies' experience revolutionized financial manufacturing by introducing a new way to conduct transactions without the want for intermediaries, such as banks or financial institutions. The decentralized nature of cryptocurrencies means that they are not controlled by any central authority, which has made them particularly attractive to individuals and businesses seeking a more unafraid, transparent, and really efficient method of conducting transactions. The concept of cryptocurrency is based on blockchain technology, which is a distributed book that records all transactions in a transparent and immutable way. Each deal is verified by a web of computers called nodes, which use complex algorithms to ensure the authenticity and integrity of the transaction. While Bitcoin was the world-class cryptocurrency, there are now thousands of very different cryptocurrencies uncommitted, apiece with its own unique features and use cases. Some cryptocurrencies are intentional for fasting and affordable transactions, others are unintentional to alleviate composite financial transactions, such as smart contracts. Despite their growing popularity, cryptocurrencies remain a controversial topic due to their association with illegal activities, such as money laundering and tax evasion. However, very many proponents argue that cryptocurrencies make the potential to transmute financial manufacture by providing greater accessibility, transparency, and protection

Definition of cryptocurrency:

Cryptocurrency is a digital currency that is secured and verified using encryption techniques and operates without the involvement of any central authority or government. This allows for greater transparency and autonomy in the network. Cryptocurrencies use decentralized ledger technology, such as blockchain, which creates a permanent and unalterable record of all transactions on the web. The creation of really new units of cryptocurrency is controlled by a protocol, which incentivizes participants to validate transactions and ensure the integrity of the network.

While the anonymity and decentralization of cryptocurrencies make them popular among users, these features also lift concerns about their potential use in very illegal activities. The want of regulation in the cryptocurrency industry has made it really difficult to address these concerns. Additionally, the value of cryptocurrencies can be highly volatile, making them risky investments. However, the really possible benefits of cryptocurrency, such as greater financial inclusivity and faster and cheaper transactions, have led to increasing interest and acceptance of these digital assets.

A brief history of cryptocurrencies:

Cryptocurrencies, which prioritize privacy and certificate in digital transactions, were first conceptualized by David Chaum in the early 1980s. This work paved the way for the creation of the real first cryptocurrency, Bitcoin, which was introduced in 2009 by an unknown person or group known as "Satoshi Nakamoto." Bitcoin's groundbreaking innovation was the use of the decentralized blockchain ledger to verify and record transactions.

Since then, numerous other cryptocurrencies like Litecoin, Ethereum, and Ripple have emerged, sharing the same decentralized and digital characteristics that prioritize security. Despite challenges, including regulatory uncertainty, security concerns, and price volatility, proponents believe that cryptocurrencies represent a revolutionary new organization of money that can raise privacy, security, and financial freedom.

Benefits of using cryptocurrencies:

Cryptocurrencies offer several benefits that traditional banking systems do not. For example, cryptocurrencies use cryptographic algorithms to secure transactions and keep user entropy private, providing greater security. They also operate independently of a central authority, making them immune to government interference or manipulation. This decentralization allows for greater transparency, as transactions on the blockchain are publicly visible, providing accountability.

Additionally, cryptocurrency transactions typically have lower fees compared to traditional banking systems, making them a more cost-effective option. Cryptocurrencies are also accessible to anyone with an internet connection, making them particularly useful for people in underbanked or unbanked regions.

Finally, as cryptocurrencies become more mainstream, they have the potential to appreciate in value, making them a potentially lucrative investment opportunity.

Types of cryptocurrency

There are many types of cryptocurrencies. Since the launch of Bitcoin in 2009, many other cryptocurrencies, commonly referred to as "altcoins," have been developed.

1. Bitcoin(BTC): In the crypto industry, Bitcoin is without any questions in the lead. It was the first cryptocurrency, as well. 2009 saw the birth of Bitcoin, which was created by a single person (or potentially a group) using the identity of Satoshi Nakamoto. Compared to a cap of 21 million, there are probably more than 19 million Bitcoin tokens in use as of June 2022. Every day, over 1,000 new bitcoins are created, bringing the total number of bitcoins to a maximum level. A central bank or any other authority had no plans to control Bitcoin. Instead, it makes use of blockchain technology, a public record that is distributed and holds a digital record of each Bitcoin transaction. Peer-to-peer (P2P) verification, the fundamental cryptography and trust framework that Bitcoin built, is the basis for the majority of current cryptocurrencies. The immutability of the Bitcoin blockchain, which means it cannot be changed in any way, makes it an excellent choice for communicating between two or more people.
2. Ethereum(ETH): A blockchain network is part of Ethereum. Ethereum, however, was built as a flexible blockchain, which means it wasn't made to support a particular currency but rather to let users of the network build, publish, trade, and deploy decentralized applications (dApps). The Ethereum platform's native currency, ether (ETH), was created for use as a means of exchange. To understand ETH more clearly, think of it as the fuel that the Ethereum blockchain runs on. Due to the fact that many ICOs depend on the Ethereum blockchain, Ethereum has been useful in the launch of many ICOs. The growing number of non-fungible tokens (NFTs) is also a result of the Ethereum network. The Ethereum network provides an open-sourced digital architecture so that developers may build and execute applications, or "smart contracts," applying many kinds of system-compatible coins. ETH, the Ethereum network's native cryptocurrency, is used to process payments done on the network by applying various applications developed there.
3. Ripple(XRP): In 2012, the Ripple network and its digital currency, XRP, were introduced. Because it is owned by a single business and is not managed by an independent community, XRP differs from other cryptocurrencies. Also, it does not present itself as an option for standard currencies. Instead, XRP aims to function as a form of third-party currency for international trade between any type of unit of value, such as from cryptocurrencies like Bitcoin to the euro or other official currencies. The basic objective of Ripple is to build a network that allows the fastest and most single-word process for as many transactions as possible. Ripple is trying to draw in businesses interested in the technology, such as major banks, exchange services, and payment providers. With this in mind, it's clear that Ripple fights less with other cryptocurrencies like Bitcoin or Ethereum and more with popular financial infrastructure services like SWIFT.
4. Litecoin(LTC): As one of the original altcoins (alternatives to bitcoin), Litecoin (LTC) is a cryptocurrency that was launched in 2011. Although LTC was developed to be better than BTC, particularly in terms of transaction speed, it is based on the original source code of Bitcoin and shares some features with BTC. Litecoin has changed in value over time, much like many cryptocurrencies (or even some securities and stocks), although being an originally well-liked acceptance into the crypto sector. The Bitcoin blockchain, which is the open-source, digital public ledger that most cryptocurrencies use, has been split to create Litecoin, an independent, peer-to-peer cryptocurrency. Litecoin was created to make it possible for anyone, anywhere in the world, to exchange money with quick, nearly cost-free payments.
5. Dogecoin(DOGE): In 2013, Dogecoin, which is called "dohj-coin," was introduced as a method for simulating Bitcoin. It is known as the first prank cryptocurrency. The currency managed to attract interest from the public as well as some investment. Dogecoin's reputation as a safe cryptocurrency increased after Elon Musk expressed support for the cryptocurrency in a tweet in April 2019. Dogecoin is another cryptocurrency that functions on a blockchain network with a PoW method, much like Bitcoin and Ethereum. However, unlike Bitcoin, which has a maximum of 21 million coins, there is no limit to the number of currencies that can be produced.
6. Solana(SOL): Solana(Sol) is the name of the native currency used by the unique blockchain system Solana. In the real world, one of the best-performing cryptocurrencies is called Sol. By 2021, it increased sharply from less than $5 to about 20 times its original value. Solana provides some of the best technologies for smart contracts, providing a variety of platform-based applications. The Degenerate Ape Academy, a well-known NFT that was introduced in 2021, was also designed by the Solana team.

Usage of Cryptocurrency in Illegal Transactions

In recent years, cryptocurrency has grown in popularity as a means of exchange, owing to its decentralized and anonymous character. This feature enables users to transfer payments without requiring a central authority to monitor the transaction. While this same feature has made cryptocurrencies desirable to respectable users, it has also made them enticing to persons engaging in illicit operations. Criminals that participate in money laundering, tax evasion, cybercrime, terrorism financing, drug trafficking, and other illegal activities can use cryptocurrencies' anonymity to execute their transactions without risk of detection. As a result, law enforcement agencies have found it difficult to identify and prosecute those engaging in these acts.

Illegal activity only accounts for 0.34% of all crypto transactions in 2020, or $10B which is down from 2%, or $21.4B, in 2019.

Ransomware, however, has increased believed to be partially caused by covid-19 increasing work from home. While Ransomware only accounted for 7% of crypto received by criminals, this represents a 311% increase over the year.

Because cryptocurrency is pseudonymous, you can only see where funds were sent but not who sent them, making analysis by companies like Chainalysis easier. This also means that it is an enticing way to launder money or finance terrorist organizations.

In 2019, the PlusToken Ponzi Scheme took over $2B from its victims. PlusToken is based in China and acted as a crypto wallet which would reward users with high rates of return if they bought PLUS tokens using Bitcoin and Ethereum. All in all, 6 individuals connected to the scheme were arrested, however, stolen coins still move through wallets presuming one involved individual is still free.

The main issues that stem from the usage of cryptocurrency in illegal transactions are that legitimate investors will be more wary to get involved as well as some governments making some or all cryptocurrency illegal due to this activity. While only 5.9% of Bitcoin users were involved in illegal activities, this accounts for 30% of all bitcoin activity. “The digital currency market is one of the largest unregulated markets in the world, with about 2,000 different currencies worth about $250 billion and a daily turnover of $60 billion”.

One reason researchers believe that there has been a decrease in illegal bitcoin users is the increase in alternative cryptocurrencies with more anonymity, such as Monero and Dash.

Scams make up most of the crypto related crimes, with the darknet market coming in second.

Money Laundering with Cryptocurrency:

Money laundering is the process of concealing the source of unlawfully obtained funds through the use of legitimate channels. Cryptocurrencies can be used for money laundering since they let users to move funds without requiring approval from a central authority. Furthermore, bitcoin transactions are frequently irreversible and difficult to track, making it difficult for law enforcement to identify the persons engaged in a transaction. The usage of "mixers" or "tumblers" is one method through which criminals can use bitcoin for money laundering. These services enable users to mix their cash with others, making it impossible to track the funds' original source. Criminals can also utilize numerous bitcoin wallets to disguise the monies' trail. The usage of shell corporations is another method that cryptocurrency might be utilized for money laundering. Criminals can create bogus corporations and use them to transfer payments via cryptocurrencies, making it harder for authorities to track the funds' origin and destination.

Drug Trafficking with Cryptocurrency:

Drug traffickers have also used cryptocurrency's anonymity to make unlawful transactions. Drug dealers can transfer payments using cryptocurrency without the requirement for a central authority, making it harder for police to follow the transaction. Law enforcement organizations have discovered multiple incidents of drug traffickers using cryptocurrencies to execute transactions in recent years. For example, the US Department of Justice announced the arrest of many individuals in 2020 who were utilizing cryptocurrencies to launder money gained from narcotics trafficking. The Dark Web, a section of the internet not accessible via standard search engines, has also played a role in the usage of cryptocurrency for drug trafficking. The Dark Web has grown in popularity as a marketplace for illegal items, including drugs, with cryptocurrency as the preferred payment mechanism.

Tax Evasion with Cryptocurrency:

Because of the anonymity and lack of transparency inherent in the technology, cryptocurrency transactions may be utilized for tax avoidance. Because cryptocurrencies are decentralized, users can conduct transactions without the involvement of traditional financial institutions, making it harder for tax authorities to identify and track these transactions. Individuals can use this anonymity to obtain payment for services done without having to report the income to tax authorities. A freelancer who receives paid in cryptocurrencies for their services, for example, may be able to avoid paying taxes on that income by failing to notify it to the tax authorities. Individuals may also utilize bitcoin to conceal income from tax authorities by failing to declare gains from cryptocurrency sales.

Ponzi schemes:

Cryptocurrency Ponzi schemes are a form of fraudulent investment opportunity that frequently promises abnormally large returns to investors who acquire a specific coin. These schemes work by attracting people to invest their money with the promise of quick and big earnings, which are obtained by referring new investors to the plan. As new investors join and invest their money, previous investors' gains are paid out, resulting in a cycle of new investment and payout. These schemes, however, are based on deception and lack a real business model or investment strategy to support the promised returns. Rather, the profits offered to early investors are funded by younger investors' money.As the system grows and more individuals invest, finding new investors to pay out the profits becomes increasingly difficult, eventually leading to the scheme's demise. When a Ponzi scheme fails, investors suffer huge losses and are sometimes left with little to no remedy for reclaiming their money. BitConnect and OneCoin are two noteworthy examples of cryptocurrency Ponzi schemes that have duped investors out of millions of dollars. These schemes used false promises and deceptive marketing to trick people into investing significant quantities of money, resulting in widespread financial devastation for many naïve investors.

Ransomware:

Ransomware is a type of virus that encrypts the victim's files and demands money in exchange for the decryption key. Cybercriminals typically demand payment in cryptocurrency due to the anonymity they provide and the difficulties in tracking them down. The WannaCry ransomware attack, which happened in 2017, is one of the most well-known ransomware attacks. Over 200,000 machines in 150 countries were affected by the attack.

Terrorism Financing with Cryptocurrency:

Because of its anonymity and decentralization, cryptocurrency has the potential to be used to fund terrorist actions. Cryptocurrency transactions are frequently difficult to track, allowing individuals to contribute funds to terrorist organizations without being detected. This feature has made it simpler for terrorist organizations to collect money while evading law enforcement. The potential of cryptocurrency to conduct cross-border transactions easily and without the involvement of traditional financial institutions has made it an appealing instrument for terrorist financing. The bitcoin market's lack of regulation and control has exacerbated the situation by making it simpler for terrorists to use the technology to fund their activities. The United States authorities seized almost $2 million in cryptocurrencies meant to finance terrorist activities in 2021. The monies were tracked back to an extremist group that used cryptocurrencies to support its operations. The seizure was an important accomplishment for law enforcement, demonstrating the possible use of cryptocurrencies in terrorist financing.

Security Risks and Precautions

Security in the field of cryptocurrency is important. With decentralization and borderlessness come a range of security threats, including hacking, theft, scams, and fraud. This chapter will guide you through the risks and precautions you need to know to confidently navigate the cryptocurrency landscape. By understanding the dangers and taking appropriate measures, you can safeguard your investments and enjoy the exciting benefits of this rapidly evolving technology with peace of mind.

Hacking and Theft

Cryptocurrencies are at risk of hacking and theft, posing a major security threat. Online criminals are targeting crypto platforms, including exchanges and wallets, with the aim of stealing digital assets. Once these assets are stolen, untraceable blockchain technology makes a recovery nearly impossible.

1. Phishing Attacks: One common method of stealing cryptocurrencies is phishing attacks. Phishing involves the creation of fraudulent websites and emails by hackers who use social engineering tactics to make them seem genuine. Users are often deceived into giving their login information or private keys by these fake websites or emails. Hackers are able to use this data to get control of the user's digital currencies wallet and send the user's funds to their own accounts.
2. Malware: Hackers usually use malware because it has the ability to seriously damage computer systems. It poses a genuine danger to security since it is designed to interfere with regular operations or inflict harm. Once inside, the hackers can access the system and take the victims' secret keys and login information. To covertly mine cryptocurrency, they can even remotely take control of the computer. By becoming knowledgeable about how to protect your computer, you can defend yourself against these harmful threats.
3. Cryptocurrency Exchanges and Wallets: Investing in cryptocurrency requires security measures to protect against hacking and theft. Hence, it is important to use trusted cryptocurrency exchanges and wallets equipped with robust security features. This consists of encrypting data two-factor authorization, and frequent examinations of security. It is also essential to never share your private keys or login credentials with anyone and to keep them stored securely offline.

Scams and Frauds

Scams and fraud in the cryptocurrency industry have increased in frequency as a result of cryptocurrency's increasing acceptance. Fraudsters take advantage of the anonymity and decentralization of cryptocurrencies to scam investors out of their money. It is important to be aware of the most common cryptocurrency scams and frauds to protect yourself from financial loss.

1. Ponzi Schemes: With the money raised from younger investors, a Ponzi scheme, a deceptive investing plan, pays off previous investors. These scams are widely advertised via social media and many internet platforms with exaggerated claims of financial benefit. Before investing their money, investors perform checks on potential investments and verify their reliability.
2. Fake ICOs: Startups frequently use initial coin offerings (ICOs) to generate money by releasing new coins. However, there are many scam ICOs occurring with the goal to trick investors into trading with money for worthless tokens or coins. Those scam ICOs usually mimic real projects by creating fake websites, social media profiles, and whitepapers. This is why Investors should always do enough investigating to check the reliability of any ICO when setting up an investment.
3. Pump and Dump Schemes: A deceptive strategy designed to artificially boost the value of a specific cryptocurrency is known as a "pump-and-dump scheme," in which false or unclear information is used to spread. This strategy, which is usually made possible by social media platforms, is used to trick unaware buyers into buying cryptocurrencies at inflated rates. Before making an investment in any digital currency, investors should always exercise caution when following financial recommendations on social media.

Storing Cryptocurrencies Safely

Securing cryptocurrencies is a main component of the cryptocurrency industry, demanding the utmost attention. Unlike physical assets that can be held in banks or safes, cryptocurrencies require more advanced and secure storage methods to avoid theft or loss.

1. Hardware Wallets: Hardware wallets are actual items developed to secure the private information needed to access and transfer digital currency. This makes them an exceptionally safe way to store cryptocurrencies since they are offline and secure from online hacking attempts.
2. Cold Storage Methods: Securely storing cryptocurrencies offline can be achieved through cold storage methods. This approach refers to the offline storage of cryptocurrencies in order to prevent unauthorized access or hacking attempts. One popular method of cold storage is by creating paper wallets, which involve generating private keys and storing them in a safe physical location.
3. Multi-Factor Authentication (MFA): Securely storing cryptocurrencies demands the use of multi-factor authentication (MFA). MFA fortifies the protection of cryptocurrency wallets by requiring multiple verifications, such as a password and biometric scan, before providing access. This enhances the security of digital assets and significantly deters unauthorized intrusion. Maximize the security of your cryptocurrency storage with MFA.
4. Updated Software Wallets: Ensuring the safety of your digital assets is important. One way to achieve this is by regularly updating software wallets with the latest security patches and updates. Cybercriminals are constantly seeking out vulnerabilities in these wallets, but by staying up-to-date, their attacks can be avoided. Digital wealth can be secured by keeping the software wallets optimized for safety.
5. Password Security: Ensuring optimal password security is imperative when storing cryptocurrencies. Employing robust and elaborate passwords, utilizing password management tools for password generation and storage, and abstaining from using identical passwords for multiple accounts are all effective measures to forestall the threat of unauthorized access to cryptocurrency wallets.