What is Ransomware?
Ransomware is are malicious program that is designed to encrypt data in a digital device or computer system and lock the user out, making it unable to access the main gateways and data inside the device. Ransomware operates at the binary level to encrypt files and lock data. It renames files and rewrites the content inside files at the binary level to make it unreadable for the device system. It can only become normal when the decryption key is implemented in the encrypted system. In the ransomware attacks, the cybercriminals know the decryption key to the locked data. To give the decryption key, hackers ask to pay ransom money.
Attackers set ransom notes over the screen and ask for payments via cryptocurrency to erase the traces of the payment address. The ransom note threatens to delete or expose all the data if the victims fail to pay the amount within the prescribed time. But even after paying the ransom amount, it is still not guaranteed that they will free the locked data and device. When the ransom is paid through cryptocurrency, no one can find out to whom the money is paid. Our next topic deals with the issue of why it is a challenge for law enforcement authorities to deal with the cybercriminals behind ransomware attacks who use cryptocurrency to get the ransom amount.
Why is it Hard to Find Ransomware Hackers Using Cryptocurrency?
Cryptocurrencies operate outside traditional banking controls and the financial authorities of the states. There is no central authority that monitors crypto transactions, maintains records, or verifies the identities of the people involved in it. Attackers use anonymous payment methods that include layered obfuscation that involves such as chain‑hopping (switching between blockchains), using mixing services (mixers), peel chains, privacy‑focused coins, and stealth addresses to keep their identities hidden and untrackable from state security authorities.
The layered obfuscation techniques leave an obscure transaction trail and make recovery and tracking more challenging for authorities. Due to this, each year millions of rupees are lost in the hands of fraudsters without leaving any traces. Here are key challenges that make it more difficult for the authorities to trace attackers using cryptocurrency to extort money from victims.
Anonymity and Pseudonymity of Cryptocurrency
Crypto transactions take place between two addresses that use different blockchain networks and wallet addresses. In these transactions, no real identities are attached to each other. No data is provided except the wallet address, and without the external links and identity elements, it is really hard to detect a person. The anonymity and pseudonymity of cryptocurrency make the whole matter confusing for the compliance authorities and financial institutions.
Use of Mixers and Tumblers
Cybercriminals use mixers and tumblers services to obscure crypto transactions. When hackers steal money from ransomware victims using cryptocurrency, they send the stolen coins to a mixing service. These services pool tokens from different sources and then redistribute the tokens to the different addresses. This process erases the direct link between the original cryptocurrency and the final recipient. It makes the process of hunting down the culprit more difficult for the cyber police.
Chain-Hopping Techniques
Chain hopping techniques refer to the process of moving stolen cryptocurrency from one blockchain to another and exchanging it from one currency to another, such as Moero to Solana to Ethereum to Bitcoin. Cybercriminals use centralized and decentralized crypto exchanges to swap crypto coins for the purpose of breaking the traceability of crypto transactions. Due to this, the anti-money laundering authorities become helpless in following all the trails and identifying the main person who stole or extracted the money.
Use of Privacy-Centric Cryptocurrencies
There are some highly privacy-centric cryptocurrencies such as Monero (XMR), Zcash (ZEC), and Dash. These currencies maintain high anonymity features that show no public transaction history. Fraudsters use these types of currency to take the ransom amount from the victims. The high anonymity features of these cryptocurrencies make them difficult to trace by cybersecurity agencies.
Decentralized Exchanges (DEX) and P2P Trading
Ransomware attackers use decentralized exchanges and peer‑to‑peer (P2P) platforms that operate independently. DEX does not require intermediaries and KYC verifications, nor do they adhere to any anti-money laundering protocols. As a result, the online fraudsters exploit DEX to convert and move funds from one blockchain to another and across wallets. In such backdrops, cybercrime cells often fail to locate the crypto transaction trails.
Jurisdictional Challenges
Attackers choose different countries to run their ransomware operations and collect ransom payments via cryptocurrency. They exploit the differences in the legal frameworks of other countries. They choose countries that do not take any legal action or demand no extradition in case of crypto fraud. The global nature of ransomware attacks and ransom payments creates fragmented legal actions against the fraudsters. Due to this, the law enforcement agencies of the affected countries do not apply to the jurisdiction of the country from which the cybercriminals launch their malicious attacks. Due to this, it becomes a challenge for the involved authorities to locate the transactions and hunt down the criminals.
Limited Regulations and Oversight
Ransomware gangs choose countries where cryptocurrency regulations are not strict, and the regulatory bodies use weak surveillance mechanisms. Such situations provide a safe haven for cybercriminals to launch their attacks and collect illegal money from the victims without any fear of getting caught. In such a situation, the cybersecurity agencies of affected countries cannot fail to run their investigation operations and hunt down the real culprits.
To Sum Up
The role of crypto in ransomware has made it nearly impossible for the financial authorities and state cyber regulatory agencies to track the cybercriminals and recover the ransom amount. Attackers cash out the crypto coins into fiat currencies using high-anonymity-based decentralized crypto exchanges. They use unregulated private wallets and different blockchains to move the coins from one wallet to another to obscure the transaction trails and efficiently withdraw the amount by converting it into fiat currency. The combination of ransomware attacks and cryptocurrency payments is creating new challenges for the compliance agencies at every step of the way.
How FATF, FinCEN, and ESMA fight Crypto Challenges in Cyber Attacks?
FATF: AML/CFT focuses on ransomware and crypto platforms
FATF (Financial Action Task Force) is an international watchdog that develops policies and standards to combat money laundering and terrorist financing globally. It provides recommendations to countries to implement strict regulations for virtual assets and service providers.
- Created detailed global guidelines for ransomware and crypto.
- Targeted role of Virtual Asset Service Providers (VASPs).
- Recommended stricter national regulations.
- Advocated for training compliance staff.
- Endorsed use of blockchain analytics (chain‑hopping detection).
- Emphasized global collaboration between authorities and the private sector.
FinCEN: Oversight of exchanges and ransomware payments
FinCEN (Financial Crimes Enforcement Network) is a bureau of the U.S. Treasury Department. It plays a key role in protecting the financial system in the US, especially against ransomware and money laundering. It enforces the Bank Secrecy Act to spot and report linked transactions.
- Empowered monitoring of cryptocurrency exchanges and wallets.
- Released advisories/enforcements focusing on ransomware payments.
- Identified high‑risk platforms (Suex, Chatex, Garantex).
- Warned about money‑laundering methods (mixers, tumblers).
- Supported shutdown of Hydra and similar ransomware marketplaces.
- Advocated for enhanced due diligence and monitoring across crypto platforms.
ESMA & EU: Stronger KYC and ransomware detection across the EU
ESMA (European Securities and Markets Authority) is a financial market regulator in the EU. It works to ensure stability in the market and protects the investors in the EU member states. In the context of cryptocurrency, it regulates and guides EU nations to observe strict rules like KYC and transaction monitoring. These three agencies are considered global benchmarks that are working to combat new compliance challenges arising due to ransomware attacks and cryptocurrency fraud.
- Aligned policies with FATF standards.
- Obligated robust KYC for crypto firms.
- Focused on transaction monitoring for ransomware links.
- Support tracing across blockchains and cross‑chain platforms.
- Promote intelligence sharing and collaborative enforcement.
- Support sanctions against platforms that enable ransomware payments.
How is Chainalysis working to deal with Crypto-Ransom Issues?
Chainalysis is an innovative platform that develops advanced tools and software to track, trace, and analyze crypto transactions across different blockchain networks. It offers cutting-edge SaaS services in the Web3 market to law enforcement agencies, financial institutions, exchanges, and regulators to track the fraudulent cryptocurrency payments made to pay the ransom amounts. It works to trace stolen and laundered crypto tokens and enable investigators to crack down on ransomware gangs and other cybercrime. It provides cutting-edge tools to beat the challenges arising from crypto-ransomware. Chainalysis helps the compliance authorities like FATF, FinCEN, and ESMA to implement the security regulations and make the cryptocurrency space more transparent and accountable.
