Ransomware Is A Growing Problem

To investors,

There has been an increasing threat of cyber attacks on critical infrastructure in the United States. Remember the Colonial Pipeline attack or meat processor JBS Foods?

This problem was first put on my radar by Joshua Steinman, a former member of the National Security Council, in the summer of 2021. During our conversation, Steinman explained how these attacks are carried out, why they have become so lucrative, and what the government is doing to mitigate this threat moving forward.

Towards the end of last year, Steinman started a new business, Galvanick, to create a technology solution aimed at making various industrial operations more secure. The Galvanick team are joining a growing list of companies that are addressing an increasing threat from nefarious cyber attacks.

Xona, another player in the space, describes their technology with the following excerpt:

“XONA enables frictionless user access that’s purpose-built for operational technology (OT) and other critical infrastructure systems. Technology agnostic and configured in minutes, XONA’s proprietary protocol isolation and zero-trust architecture immediately eliminates common attack vectors, while giving authorized users seamless and secure control of operational technology from any location or device.

With integrated multi-factor authentication, user-to-asset access controls, user session analytics, and automatic video recording, XONA is the single, secure portal that connects the cyber-physical world and enables critical operations to happen from anywhere with total confidence and trust.”

So why exactly are companies like Galvanick and Xona finding so much success in protecting critical infrastructure? Well, quite simply, the cyber problem is incredibly painful for the companies and organizations tasked with running this infrastructure.

There was a new ransomware report published by Elementus (I’m an investor) that highlights the growing ransomware problem, both in size and scope, since 2015.

The company estimates that approximately $2 billion has been paid in ransomware via bitcoin in recent years. This opening from their report gives a good sense of the problem:

Ransomware is a burgeoning criminal industry of staggering size, scope, and sophistication, extorting billions of dollars from victims, with vast implications for national security. It centers around sophisticated cyber attacks carried out by powerful, constantly-evolving criminal enterprises that in many ways resemble the Italian crime families of old. And like the Mafia, they are organized, ruthless, and adept at turning on a dime to evade the law.

Once rare outliers, multimillion-dollar ransom payments have become standard fare; and because locating the culprits on the blockchain is an exercise in finding a digital needle in a haystack, they often get away with unimaginable sums of ill-gotten gains in broad daylight. Of great concern is the fact that ransomware groups are increasingly turning their focus away from individuals and towards critical national infrastructure such as hospitals, meat-packing facilities, and oil pipelines.

While data breaches were once an unfortunate side-effect, today these criminals frequently execute a sinister one-two punch by collecting millions in ransom and then leaking the stolen data anyway. Put simply, we are facing a technology pandemic on the brink, one that demands careful study and a decisive response.

The headline takeaways from the report are also worth understanding:

Ransomware has become a full-fledged growth industry that is hundreds of millions of dollars larger than reported to date.

Hard as it to imagine, more than $2 billion in ransom has been paid since 2019.

In 2021 ransomware groups pulled in more than $1 billion, the first time payments exceeded nine figures in a single year.

Individual ransomware payments exceeding $1 million each increased by 465% between 2019 and 2020.

Russia has become the ransomware hub of the world. Five of the eight most lethal ransomware strains are operating out of Russia, and given the data, it would not be surprising if the other three also have ties to Russia.

Ransomware exposure has tainted the legitimate blockchain ecosystem because ransomware groups attempt to hide and launder large quantities of illicit proceeds by sending an estimated 43% of funds through mainstream entities such as exchanges. This has serious implications for banks, financial institutions, and cryptocurrency exchanges, as increased compliance and regulation around all things crypto looms on the horizon.

You can read the full report here.

Now here is one of the interesting things about the rise in ransomware and other illicit transactions using bitcoin — the number of transactions are growing in aggregate, but the percentage of total bitcoin transactions is actually dropping. Here is a graphic from Michael Morrell, the former acting CIA Director, in a report that he published last April showing that less than 0.5% of all bitcoin transactions are for nefarious or illicit purposes.

This is an important point to remember, because the ransomware threat is only going to increase over time. Critical infrastructure will continue to be attacked. Various criminal organizations around the world will attempt to use bitcoin or other cryptocurrencies as a tool in their attack. Regardless of their level of success, my expectation is that bitcoin transactions for non-illicit purposes will grow at a faster pace.

Whenever there is a growing threat, there will be a burgeoning industry that sprouts up simultaneously. This economic growth will be for both the bad actors and those trying to mitigate the threat. We are about to see an explosion of new companies that will help protect critical infrastructure — user access controls, alarm systems, etc — along with a rise in companies that will help track the nefarious actors and their financial activity. There are complex issues at play here (ex: financial privacy vs efficacy of law enforcement, geopolitical strategy, etc) that I will try to unpack in future letters.

Stay safe out there my friends. Hope you have a great end to your week. I will talk to everyone next week.

-Pomp

NOTE: This is a free installment of the Pomp Letter. To receive all five installments each week, make sure you’re subscribed alongside 220,000+ other investors.

Subscribe now

🚨 GET HIRED IN BITCOIN & CRYPTO: Are you looking for a job in the bitcoin and crypto industry, but don’t feel like you understand the nuances of the industry well enough to be hired? We have a training program aimed at helping people just like you.

The 3 week intensive course was created with the help of the HR teams at top companies in the industry and has seen graduates get hired at Coinbase, Gemini, BlockFi, Kraken, Anchorage, Strike, BTC Inc, and many more.

Our next cohort starts June 7th. APPLY HERE: www.thecryptoacademy.io

THE RUNDOWN:

Huobi Acquires Latin American Crypto Exchange Bitex: The Chinese crypto exchange is seeking to expand in Latin America, but Bitex will continue to operate under the same name and with its current management team. Read more.

Top Latin American Crypto Exchange Bitso Lays Off 80 Employees: Latin American crypto exchange Bitso laid off 80 employees on Thursday, the company told CoinDesk. “Our decisions about the people who work in our company are made on the basis of our long-term business strategy and to support our customers and our strategy as a company,” Bitso said in a statement. Bitso, which had more than 700 employees before the layoffs, still lists more than 60 open positions on its jobs page. Read more.

Director of government financial watchdog Rohit Chopra looks for signs of stress as consumers increase debt to deal with inflation: With inflation significantly impacting household budgets for millions of Americans, Chopra is focused on how financial products and services are being used or misused. Chopra said housing and mortgage debt are topping his watchlist right now. Read more.

Brent Johnson is the Co-Founder of Santiago Capital.

In this conversation, we discuss Brent's infamous "Dollar Milkshake Theory", the current macro environment, the collapse of currencies, Fed interests rates, how Brent is managing capital during an uncertain market, and why Brent does not recommend Bitcoin to his clients at this time.

Listen on iTunes: Click here

Listen on Spotify: Click here

Why Goverments Can't Print Unlimited Money: Mark Yusko

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment.

Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domainhere today.

Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

BetOnline allows you to use Bitcoin and other altcoins to bet on sports, casino games, horse racing, poker and more. Click here and use PROMO CODE: POMP100 to receive a 100% matching bonus on your first crypto deposit.

Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp

BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc

LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp

Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

You’re a free subscriber to The Pomp Letter. For the full experience, become a paid subscriber.

Subscribe

© 2022
5 West Hargett St, Suite 1110, Raleigh, NC 27601
Unsubscribe