Colonial Pipeline Hack Isn't the End for Bitcoin, Say Crypto Experts

Last month, the U.S. was hit by a cyberattack targeting the Colonial Pipeline—an oil transfer pipe thousands of miles long that carries fuel across the nation.

The pipe's operators were reported to have paid a ransom to the hacking group, known as DarkSide, to end the attack, but not before large parts of the East Coast were left with gasoline shortages.

The ransom, widely reported to have been worth around $5 million, was paid in bitcoin.

On June 7, Deputy Attorney General Lisa Monaco confirmed investigators had recovered 64.7 of the bitcoins—valued at around $2.3 million at the time—back from the hackers by gaining access to a bitcoin wallet that contained them.

According to an affidavit filed on Monday, the FBI had accessed the wallet after taking possession of its private key, Reuters reported. It is not clear how this happened.

The price of bitcoin fell the following day, down by around 7 percent as of 7:30 a.m. ET Tuesday morning, with CNBC citing potential concerns over the security of the cryptocurrency.

Experts have spoken to Newsweek about what the ordeal might mean for bitcoin and whether faith in its security has been shaken. There are also differing opinions on how the FBI performed the recovery.

Nicolas Christin is associate professor of computer science at Carnegie Mellon University in Pennsylvania. He doubts that the incident will affect people's faith in the digital coin.

"It just highlights that bitcoins are traceable, which has never been in doubt," he said. "There are other cryptocurrencies that are far less traceable, but they seemingly weren't used here.

"This has nothing to do with the underlying technology. Imagine you have the most impenetrable and secure safe in the entire world. If somebody manages to steal the key, they will still have access to the safe's contents."

Christin explained the FBI could have gained access to the wallet if the hackers had sent their bitcoins to an intermediary service, such as an online exchange.

He added: "That intermediary could have been subpoenaed/coerced by the authorities to surrender the money that had been deposited there."

Glen Goodman, author of The Crypto Trader, agreed that this could have been a potential method the FBI used—but voiced doubt that it happened.

He told Newsweek: "It's possible the hackers were stupid enough to move their bitcoins to a US-owned crypto exchange, from where the FBI could retrieve the private key to the bitcoins, but as the criminals were clever enough to hack into Colonial Pipeline, I think that's an unlikely explanation.

"It's more likely that the FBI tracked the movement of the bitcoins from wallet to wallet on the blockchain until they picked up a clue that allowed them to contact one of the hackers and threaten them…"

Newsweek was unable to contact the FBI for comment at the time of publication.

Goodman thinks the news "has clearly shaken the faith of some bitcoin holders," pointing to the token's fall in price afterward.

Antoni Trenchev, co-founder of the Nexo cryptocurrency lending platform, held the opposite opinion. He told Newsweek: "Quite the contrary, trust in Bitcoin will grow resulting from the recovery of $2.3M in BTC for Colonial Pipeline.

"Bitcoin's temporary price slip in response to the news was propagated by weak hands and predictably ill actors who use BTC for illicit activities.

"About concerns that Bitcoin is losing its signature anonymity and security, I'd issue a reminder that blockchain is a live technology… Ultimately, the future crypto landscape will be a balancing act between transparency propelled by regulation and the privacy provided by blockchain, two concepts that are not actually mutually exclusive."

Trenchev called the FBI's recovery "commendable" and "proof that governments are catching up with crypto and will soon regulate it accordingly."

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A view of a Colonial Pipeline storage site in Charlotte, North Carolina, May 2021. The pipeline suffered a ransomware attack last month. Logan Cyrus/AFP/Getty