Duke's Lee Reiners Calls for US to Ban Cryptocurrency

Former Federal Reserve Official Lee Reiners called on Tuesday for the United States to ban cryptocurrency, saying it had caused a “ransomware pandemic.”

“Ransomware can’t succeed without cryptocurrency,” Reiners wrote in an op-ed for The Wall Street Journal. “The pseudonymity that crypto provides has made it the exclusive method of payment for hackers. It makes their job relatively safe and easy.”

Reiners, who worked as a supervisor for the Federal Reserve Bank of New York (FRBNY) before becoming the executive director of Global Financial Markets Center at Duke Law School, cited this month’s ransomware attack on Colonial Pipeline as evidence of cryptocurrency’s harms. Authorities connected the hack to the Russian “DarkSide” group, which demanded a ransom payment to release control of the company’s systems.

“Before cryptocurrency, attackers had to set up shell companies to receive credit-card payments or request ransom payment in prepaid cash cards, leaving a trail in either case,” Reiners argued. “It is no coincidence that ransomware attacks exploded with the emergence of cryptocurrency.”

He added:

A sober assessment of cryptocurrency must conclude that the damage wrought by crypto-fueled ransomware vastly outweighs any benefits from cryptocurrency,” Reiners said. “It isn’t obvious that cryptocurrency provides any benefit at all beyond the chance to make a quick buck. I have been studying the crypto market since its inception, and I have yet to identify a single task or process that crypto makes easier, better, cheaper or faster.

…

Lawmakers should get serious. The Colonial Pipeline incident disrupted the East Coast’s gas supply. The next attack could be deadly. Imagine one that shuts down the power grid during a heat wave or taints a municipal water supply.

Any solution must at least reduce the use of cryptocurrency. Governments and retailers should be encouraged not to accept payment in it. An outright ban could get the job done, but if it would be too difficult to enforce or get through Congress, regulators could crack down on the off-ramps and on-ramps, the points at which crypto is converted into fiat currency and vice versa.

“Like climate change, cryptocurrency presents a classic collective-action problem,” he added. “President Biden should sign an executive order requiring the Treasury secretary, in coordination with all federal financial regulatory agencies and the IRS, to develop a more coherent regulatory framework for cryptocurrency and identify steps each agency can take to counteract its use in financing terrorism and facilitating ransomware attacks.”

June 8 Update: Colonial Pipeline CEO Joseph Blount Jr. acknowledged Tuesday his company paid DarkSide 75 bitcoin, or about $5 million, to regain control of its systems. However, DarkSide said in a statement on Friday that it was shutting down — the same day that blockchain research firm Elliptic said it had discovered the group’s bitcoin wallet. DarkSide said, in part, that it had lost access to its blog and payment and server for unknown reasons, in addition to losing access to its bitcoin. San Francisco-based TRM Labs confirmed the ransom had been moved to another wallet.

The Justice Department, meanwhile, announced Friday afternoon that it had recovered 63.7 of the tokens, or $2.3 million.