As Cash Vanishes from Our Lives, Online Identity Theft Is Skyrocketing

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Have you noticed that cash is rapidly disappearing from your life, whether or not you want it to? Money isn’t just physical anymore – it’s digital. And it’s stored in more and more places every day besides your wallet. Bills and coins account for only 7% of transactions in the U.S. economy, compared to 9% in the Eurozone and 3% in Sweden, according to the Bank for International Settlements, an umbrella organization for the world’s central banks.

Why is it happening?  Because banks exist to make money; and they’re making billions in fees from credit and debit cards.  On the other hand,  banks don’t make a red cent when you pay in cash. But while a cashless society may be lucrative for financial institutions and convenient for consumers, it’s neither private nor secure. Consider this:  The U.S. accounts for a whopping 47% of global credit and debit card fraud.  Yet it’s only responsible for 27% of the total number of credit and debit card purchases, according to a study by The Nilson Report, a newsletter for the global payments industry.

Technology is Fueling Online Identity Theft and Credit Fraud

A modern paradox is that when money is no longer physical, it becomes easier to steal.  As cash dematerializes, identity theft and the consumer fraud associated with it are skyrocketing.  According to Javelin Strategy & Research, identity fraud rose 13% in 2011, making it the fastest growing consumer crime in the U.S.  Not surprisingly, Javelin found that the biggest influences on the increase were driven by technology.  Data breaches rose 67% last year; and 7% of smartphone users – 1 out of every 14 – became victims of identity theft.

Virtual Currencies and Online Security:  The Risks are Real

Another concern of many security experts is that more and more of our money is being converted into virtual currencies. Fed by the growth of Internet games and their imaginary economies, U.S. consumers will spend $3.7 billion dollars this year on virtual money, according to Javelin Strategy & Research. While virtual money is primarily used to play online games and buy goods associated with them, it’s increasingly being used to purchase online and offline products and services.

The problem is that virtual currencies aren’t backed or regulated by any governments.  And they have the same online security issues as any other electronic payment systems – namely a vulnerability to cyberattacks. In 2011, a British hacker got a two-year prison sentence for stealing 12 million dollars’ worth of poker chips from San Francisco-based Zynga’s online poker game.  According to Poker Daily News, the thief unloaded the chips on eBay for almost $86,000 using a long list of Facebook accounts.

In Bitcoins We Trust?

Another virtual currency that’s fallen victim to cybercrime is Bitcoin. It’s a peer-to-peer digital currency that allows users to transfer money and make payments anonymously, without the usual fees.  But Bitcoin has been plagued by a series of highly publicized hacks that have caused its price to fluctuate wildly.  In an official FBI report that was leaked this spring, the agency cited one victim’s account that a hacker had gained access to his unencrypted online wallet and stolen 25,000 Bitcoins worth $500,000.  The FBI concluded that “As long as there is a means of converting Bitcoins to real money, criminal actors will have an incentive to steal them.”

That’s exactly what has happened. In August, four users of Bitcoinia, the well-known, Bitcoin trading platform, sued the company for $460,000 in a San Francisco Court. The plaintiffs allege that Bitcoinia, which has been hacked twice this year, failed to protect the users’ money and cheated them out of their withdrawal requests.  In a press release, Bitcoinia assured its users that all withdrawal requests will continue to be honored.

Then in September, Bitfloor, a New York-based Bitcoin exchange, was temporarily shut down after its servers were compromised. A hacker accessed an unencrypted backup of a wallet and made off with $250,000 in the virtual currency, according to CNET.  The company’s owner  pledged to eventually pay back the victims whose Bitcoins were stolen in what’s believed to be the fifth largest heist of a virtual currency.

Malware Tailor Made for Virtual Currency Heists

How did all of these Bitcoin hacks happen?  No one knows for sure. But last year, Symantec discovered Bitcoin botnet mining and a Trojan called Infostealer.Coinbit which located Bitcoin wallets and emailed them to hackers. This September, SophosLabs reported that the ZeroAccess botnet was currently installed on one million PCs, mostly in the U.S.   ZeroAccess creates two revenue streams – Bitcoin mining and click fraud which can potentially net botnet owners $100,000 a day.

Whatever form of money you use to pay your bills, make sure it’s protected by making online security a priority. Check out virtual world sites carefully before you trust them with your funds.  And never conduct virtual world or real world financial transactions on unsecure wireless networks like Wifi hotspots without using VPN software like PRIVATE WiFi™. Virtual private networks encrypt the data traveling to and from your computer. That makes it invisible to hackers wherever you are.

 

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Jan Legnitto

Jan Legnitto is an investigative journalist and documentary producer who writes about criminal justice and intelligence issues. Jan is also a frequent contributor to the Private I blogs.