how the WannaCry cyber attack could herald a new frontier of regulation
Last week’s ransomware attack, known as WannaCry, infected 230,000 computers around the world. This included those of the British National Health Service and Russia’s interior ministry. An event of this scale could usher in a new frontier of regulation as governments turn their attention to Bitcoin and other “cryptocurrencies”. Savvy law firms will reap the rewards.
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One man’s disaster is another man’s delight, or so the saying goes. As governments and businesses around the world scrambled to contain the damage from the WannaCry ransomware attack, some groups emerged from the chaos not just unscathed, but better off. Unsurprisingly, cyber security firms on both sides of the Atlantic have seen their shares climb by up to 25%.
Crises of this scale pressure the authorities into responding, often heavy-handedly. The 2008 financial crash saw a shift from the Blair era’s “light touch” regulation, to a system of such detailed legislation that many operating in the banking sector felt they could not move without consulting their compliance teams.
Public outrage had spurred well-meaning lawmakers into swinging the regulatory pendulum into uncharted territory. This kind of reactive response tends to create headaches for most parties, but always opportunity for one – the legal sector.
So what new regulatory frontier could be heralded by last week’s cyber attack? There is nothing novel about ransomware, which has existed in some form or another for about 20 years. But WannaCry stands out for two reasons; firstly, the scale of the attack; secondly, how payment was demanded– in Bitcoin.
Until now, regulation of Bitcoin and other cryptocurrencies has proved little more than a pipe dream. Despite its well-known use for criminal purposes, most governments simply do not consider it mainstream enough to warrant serious regulatory scrutiny. This suits much of the relatively small user base – many of whom share a strong libertarian streak – just fine.
But this could be about to change.
Lately there has been a focus on tackling international crime by targeting funding. High-denomination notes typically used for money laundering and financing terrorist activities are being withdrawn from circulation, for example the €500 “Bin Laden note”.
Cryptocurrencies have seen a staggering rise in value in recent months. Bitcoin is now worth more than gold, up 55% this month alone. The market is being fuelled by a surge in Initial Coin Offerings (ICOs), which are an unregulated means of raising capital for new types of cryptocurrency. Early backers buy some of the new “alt coin”, often with other cryptocurrencies like Bitcoin, bypassing the heavily regulated capital-raising process required by banks and venture capital firms.
Concerns are developing that these ICOs are breaching existing securities law. Lawyers are starting to take an interest. The governments of some major economies are nervously watching the spiking value of cryptocurrencies, in particular Bitcoin. Both India and Australia are now reportedly moving towards regulating digital currencies. And a precedent exists.
Just last month Japan introduced legislation to protect users, authorising Bitcoin as a normal payment method and bringing its exchanges in line with anti-money laundering regulations. This largely came about as a response to the 2014 collapse of Tokyo-based early Bitcoin exchange Mt Gox, and the disappearance of some $450mn. It took this headline-grabbing event to incentivise the Abe administration into cryptocurrency regulation. WannaCry may prove to be the Mt Gox for other major economies, and Tokyo has provided the template.
Whether cryptocurrencies will grow into a genuine, mainstream alternative to fiat currencies, or are just a wildly speculative fad closer to gambling than investing, remains to be seen. One thing is true: whether lucky or prescient the early Bitcoin investors like Charlie Shrem or the Winklevoss twins came out on top. Similarly, the savvier and nimbler legal businesses, quick to position themselves as experts in the mostly unfamiliar territory of cryptocurrency regulation, will be reaping the rewards for the foreseeable future.