Litecoin Set to Leapfrog Leading Cryptocurrencies

This is Recorded Future, inside threat intelligence for cybersecurity.

Dave Bittner:

Hello everyone, I'm Dave Bittner from the CyberWire. Welcome to episode 43 of the Recorded Future podcast. Thanks for joining us.

You'd have to be living under a virtual rock to not have noticed that virtual currencies like Bitcoin have taken off, attracting investors, speculators, and of course, criminals, all looking to profit from the enthusiasm surrounding these cryptocurrencies. Bitcoin has been the gold standard in online currency exchange for bad guys, but its surging popularity has led to recent slowdowns in transaction processing speed and increased transaction fees, and that has prompted criminals to start looking elsewhere to other virtual currencies like Dash, Monero, and Litecoin.

Andrei Barysevich is Recorded Future’s director of advanced collection, and he's the co-author of a recent blog post titled, "Litecoin Emerges as the Next Dominant Dark Web Currency." He'll take us through the research from Recorded Future’s Insikt Group explaining what factors cause groups of online fraudsters to switch from one cryptocurrency to another. Stay with us.

Andrei Barysevich:

So, beginning of … I would say, maybe November of last year, we began noticing that more and more criminals started to discuss a potential switch to other alternative currencies, the main reason being that Bitcoin became super expensive and it was incredibly slow.

Meaning that — as you're pretty aware — whenever you initiate, or anyone initiates a transaction on the Bitcoin network, whoever pays the biggest commission is first in the cue, and the Bitcoin network can only process so many transactions per second. The number is fairly small, I think it’s less ... Maybe even a thousand times slower than, let's say, the Visa network can process.

So, whoever was increasing transaction processing fees would get their transactions processed quickly, and whoever was taking the standard, recommended fees would have to wait. And at first, the wait would be … I would say, maybe an hour, sometimes two hours. But as we got closer to the New Year, the wait could have been for six, seven, eight, sometimes 12 hours.

Dave Bittner:

Hmm.

Andrei Barysevich:

In one case, we were actually making a transaction on the Bitcoin network and we had to wait almost 24 hours to get our transaction processed and confirmed. Same as us, criminals were also getting incredibly dissatisfied with the quality and the performance of Bitcoin, and I would say that that was the major reason why cybercriminals, hackers, and fraudsters, decided — or at least wanted — to have an option to use other currencies. Not because Bitcoin was transparent, or because Bitcoin was fairly easy to track. No, the main reason was it was not convenient to them.

They would make a payment for any type of service or goods, and then they would have to wait a long time until that transaction got processed. And every vendor, basically, had to wait until several confirmations would be added to the transaction. Once we started to observe, you know, discussions in criminal forums, we noticed that for the most part, people were voicing their opinion and saying, “Well, we should probably switch to Dash, because Dash and Monero offer incredible security. They're not as transparent a payment system as Bitcoin is.”

Dave Bittner:

Hmm.

Andrei Barysevich:

They're not expensive, so it's very easy to make payments on those. And we were fully convinced that, you know, once we started doing research, we'll see Monero being introduced everywhere, and then Dash.

There was no way for us to automatically go to all of the marketplaces, forums, vendors, and dark web e-commerce stores and see which currency has been added as a secondary and alternative currency, so we actually had to go and manually register accounts on all of the marketplaces, and then go to the finance section and see which options are currently available. And it took us, I would say, easily a week to compile the data, and when we analyzed data, right away, it was evident that neither Monero nor Dash is the first currency. Litecoin was, by far, the most popular and the most widely implemented currency.

Dave Bittner:

So, let's talk about Litecoin. Can you describe to me, what is Litecoin and how does it work?

Andrei Barysevich:

So, Litecoin is essentially a carbon copy of Bitcoin. It uses an identical protocol. However, the difference between Litecoin is, for Bitcoin, you can mine 23 million coins, and in general, there can be only 23 million Bitcoins mined over the time. With Litecoin, the number is much bigger, and the complexity levels to mine a single Litecoin is much less than a Bitcoin. Transaction speed is quicker than Bitcoin, so by all means, and by all measures, Litecoin is more convenient than Bitcoin is. I would actually call Litecoin an improved version of Bitcoin.

Dave Bittner:

Can we dig in a little bit to some of the “under the hood” things that make Bitcoin slow down? I see a lot of reports, even in terms of the amount of electricity that it uses, that Bitcoin might be sort of collapsing on itself.

Andrei Barysevich:

Mm-hmm (affirmative). Well, not necessarily the amount of electricity which is needed to generate Bitcoins and to sustain the network, that has nothing to do with the speed of transactions ...

Dave Bittner:

Okay.

Andrei Barysevich:

The only two things which really make a difference in how quickly transactions are processed is the number of transactions and the commission cost. So, as we saw more and more people joining the Bitcoin network last year, this is where the choke point has been created. More people were sending Bitcoins. The network was not prepared to process all these transactions quickly and the commission fees were small, therefore, there was a huge delay in processing those transactions.

Dave Bittner:

I see. So, if we look through your dark web poll results, Monero had 21, almost 22 percent of the poll results, followed by Dash. Ether was in there at around 20 percent. Litecoin was around 15 percent …

Andrei Barysevich:

Mm-hmm (affirmative).

Dave Bittner:

So, what's pointing to the fact that Litecoin is the one that you think is going to dominate soon?

Andrei Barysevich:

I would say adoption rate. The poll results were calculated based on what regular members of the underground were voting for. But in reality, the only people who make any decisions are vendors. Only vendors can decide which currency will be accepted next. So, regular members can come up with any ideas they want, but only vendors will decide which currencies will be accepted as a payment method on their marketplaces.

Dave Bittner:

And you don't see Bitcoin going away anytime soon, either.

Andrei Barysevich:

No, no, that won't go away. Bitcoin is a golden standard of cryptocurrency. A lot of vendors are still keeping their savings in Bitcoin. The problem of huge fees are applicable and really painful. When one tries to send small amounts — let's say, 20 dollars, 50 dollars, even upwards of several hundred dollars — the commission fee is really painful. Sometimes, as we explain in our report, the fee could be upwards of 40 percent. However, once you send more than a thousand dollars, you're still paying the same commission rate, yet in percentages, it's not as bad. So, you might be paying four percent. Let's say, if you send a thousand dollar payment and you have to pay 40 dollars in fees, you are actually only paying four percent, so it's not as bad.

Dave Bittner:

I think it was interesting — in your report, there was a quote that you all included where one active forum member said, "As a rule, whatever is used by the drug dealers will become the mainstream currency, and they've been actively switching to Dash. There are not so many carders as there are junkies."

Andrei Barysevich:

That's actually a great quote, and I would confirm that that's exactly the case. If we look at, let's say, the now-defunct AlphaBay Marketplace, they've had more than one million people registered on AlphaBay. Half of those who are dealing in drugs, either buying or selling. And if we look at the largest carding marketplace, or carding hacking forum, let's say, there are only tens of thousands of active members.

Dave Bittner:

Looking at some of the preferences between, say, English-speaking dark web members and those from Eastern European countries, what differences are you seeing there?

Andrei Barysevich:

Oh, the biggest difference is how cryptocurrency is perceived by both groups. For example, the most critical element for English-speaking users is safety and security.

English-speaking users, obviously, they reside somewhere in North America or in Europe, for the most part, and they've seen how many people got arrested and caught through the analysis of Bitcoin transactions. So, for them, safety and security is foremost. It's the most important thing they need to look out for. They don't really care about usability. They will go the extra mile when they need to obtain, let's say, Monero or Dash.

However, when we speak about Russian-speaking users, or Eastern European criminals, right, they don't really care about safety as much as Western users because they live in Russia. They live in Ukraine. They live in Kazakhstan. They know that there's an ocean which separates them from law enforcement. They know they're not going to get arrested on Russian soil, and then get expedited to the U.S. So, they don't really care about security as much, but they do care about usability and flexibility, and since Litecoin was around almost exactly as long as Bitcoin, the infrastructure is in place right now either to buy through Bitcoin ATM machines, mobile applications, or mobile wallets. And especially, if we look into vendors, one of the reasons vendors are more actively adding Litecoins is because they tend to keep their savings on offline wallets such as Trezor, and some other famous and popular wallets.

So, none of these wallets actually support Monero. They do support Litecoins, but they don't support Monero. And as you probably are aware, law enforcement recently had seized servers of one of the most popular currency exchanger called BTC-e, and a lot of criminals lost upwards of millions of dollars because they kept their savings on the exchanger online. So, no one trusts online exchangers anymore. They could get hacked, or they could get seized by law enforcement, so they prefer to keep savings on offline wallets, and offline wallets rarely support Monero.

Dave Bittner:

Can you explain to us, and sort of contrast, the difference between things like Bitcoin, where the ledger is out in the open, and some of the other ones where it's more private?

Andrei Barysevich:

Right, so, with Monero, for example ... or, let's start with Bitcoin. If I send you money, and then you send it to your friend, and that friend sends it to somebody else, anyone can actually go on the internet and type in my, yours, or your friend's Bitcoin wallet, and I, or he, will be able to see every single transaction which has ever occurred, either in your wallet or in my wallet. Whenever I created my wallet, when was the first transaction I initiated, how much money it was, how much money I currently hold in my account, and basically, he can analyze every bit of information. They can see where you were sending the money, right, and how much money you have in your wallet. This option is not available on Monero.

Monero is, I would say, Bitcoin on steroids. It doesn’t allow anyone to track any payments. So, not only are you unable to see how much money is in the wallet, but nobody is able to actually see where payments were sent, how far it actually went, and what is the status of the transaction. That's one of the reasons why North Korea is getting infected with ransomware. Half of Europe and Russia and China last year, once they moved Bitcoins into Monero, that's it. Their trail was lost. No one knew what had happened to the money.

Dave Bittner:

In terms of the takeaways from this, for people who are keeping an eye on this in terms of threat intelligence, what should they take away from the report?

Andrei Barysevich:

It's not so much that the landscape is changing. Our goal was actually making sure that people are aware that Bitcoin is not the only currency out there that has been used by criminals. We still emphasize that, despite Litecoin being the most actively used and accepted cryptocurrency at the moment after Bitcoin, Dash and Monero are also accepted, and it's going to get harder every day to track transactions like that. Especially for law enforcement, because a lot of tools that have been developed in past years to track Bitcoin transactions are incapable of tracking Monero, Dash, or some other currencies. So, there will be a gap until companies like, for example Chainanalysis, will come up with ideas and methods for how to track other currencies. For a good while, there will be a gap in intelligence. Especially for law enforcement, where they won't be able to attribute account holders, or even to see how much money a certain individual might be dealing in.

Dave Bittner:

Our thanks to Andrei Barysevich for once again joining us. You can read the complete report, "Litecoin Emerges as the Next Dominant Dark Web Currency" on the Recorded Future website. It's in the blog section.

Don't forget to sign up for the Recorded Future Cyber Daily email, where everyday you'll receive the top results for trending technical indicators that are crossing the web, cyber news, targeted industries, threat actors, exploited vulnerabilities, malware, suspicious IP addresses, and much more. You can find that at recordedfuture.com/intel.

We hope you've enjoyed the show and that you'll subscribe and help spread the word among your colleagues and online.The Recorded Future podcast team includes Coordinating Producer Amanda McKeon, Executive Producer Greg Barrette. The show is produced by Pratt Street Media, with Editor John Petrik, Executive Producer Peter Kilpe, and I'm Dave Bittner.

Thanks for listening.