If You Use a Computer, You Have to Think About Ransomware

Global Head of Research

I’ve started to notice an unfortunate rhythm to the news flow over the course of any given week in 2021: there is usually some sort of report that an entity was hit by a ransomware attack.

If we go back in our minds a few years, ransomware seemed far more “exotic.” It existed, but many people and many companies had logical reasons to believe it was far removed from their operations.

In 2021, it’s become clear that ransomware can impact any business at any time. 

Colonial Pipeline: Ransomware Crosses the Rubicon

We may look back on 2021 and view the Colonial Pipeline attack as the moment that galvanized a coherent U.S. policy and enforcement response to ransomware. 

As of this writing, this was the largest single impact on the U.S. energy system that we’ve seen from a cyberattack, with officials noting that the consequences have a similar feel to a severe hurricane or weather event that causes physical damage1

To recap: The Colonial Pipeline is roughly 5,500 miles long and is the largest refined products pipeline in the U.S., supporting about 45% of East Coast fuel consumption. It runs from the Houston, Texas, area on the Gulf Coast up to the New York metro area. 

The actual ransomware attack hit Colonial’s information technology systems, but as a precautionary measure the firm shut down its operational technology systems because it was uncertain in the early hours how deeply the attack could spread2.  

It is the case today that most ransomware attacks, even if they hit industrial targets, impact information technology systems as opposed to operational technology systems. Ransomware experts are seeing an uptick in the targeting of industrial control systems, but a critical point is that many such targets do not have high connectivity between information technology and operational control. It is not always a simple matter for malware to jump from the IT side to the operational side. 

DarkSide: Victim of the Publicity Paradox

Within the ransomware world, anonymity is one of the most-prized assets. 

DarkSide, widely viewed as producing the specific malware used in the Colonial Pipeline attack, views ransomware as a business. Cybereason estimates that its malware has been used to compromise more than 40 victims, demanding figures between $200,000 and $2 million in each case. However, the group is not unconcerned with its reputation, declaring publicly that it would not target health care systems, schools or businesses that it believes cannot pay ransoms3.  

During the COVID-19 pandemic, cloud computing and the concept of “Software-as-a-Service” (SaaS) have proliferated. DarkSide is seeking to be a player in “Ransomware-as-a-Service.” The organization is offering its software on loan to criminal organizations, and it is actually those organizations that turn around and use the software.4  

The most profitable, long-run strategy for DarkSide would be to remain in the shadows. A consequence of the Colonial Pipeline attack was the awakening of the fully unified force of the U.S. Justice Department and Biden administration, making “DarkSide” almost a household name. It was even reported that the group would be disbanding as a result of events surrounding this attack. 

To Pay or Not to Pay—That Is the Question

To hear the FBI advice, the view is apparently “never pay.” If every victim perfectly adhered to this advice, then it would be impossible for a ransomware attacker to make money. Ransomware attackers have an oddly rational stance, in the sense that while many victims might feel “unlucky,” it is much more likely that targets are researched in detail. 

Why? If the criminal organizations are going to make the effort, they want to ensure the maximum chance that they will receive a payday. 

The CEO of the Colonial Pipeline did opt to pay the ransom, which was roughly 75 Bitcoin, valued at the time as roughly $4.4 million.5 While companies paying ransoms does encourage further ransomware, it is very difficult to make this decision when you are in the position of power or influence at an affected firm. Depending on the circumstances, it is possible that not paying could lead to months of service outages and the utter impossibility of ever recovering certain data. 

To be fair, paying doesn’t always guarantee a favorable result, but each company has to approach this decision in its own way. 

It is recommended that, in all cases, victims of ransomware work with an expert firm of some sort, like FireEye, and that they also notify the FBI of their situation.

Is Bitcoin or Cash More Anonymous for Criminal Purposes?

When Satoshi Nakamoto’s white paper came out, introducing Bitcoin to the world, one of the virtues of the new cryptocurrency widely touted was anonymity. It’s possible that this was truer in Bitcoin’s earlier times than at present—market participants now understand that if being anonymous is the critical desire, other cryptocurrencies may exceed Bitcoin’s capabilities. Experts have indicated that transactions on the blockchain create “digital breadcrumbs” that authorities can then follow.6 

In the case of the Colonial Pipeline attack, roughly 64 of the 75 Bitcoin were seized by authorities. That means that they were able to trace the specific on-chain activities related to the attack to find the digital wallet associated with DarkSide and then obtain the appropriate public and private keys to make the seizure. 

While the details behind every step of this process have not all been publicized, it’s notable that this all happened within about a month of the initial attack and payment.7  

When criminals use cash and international bank accounts, authorities need to go through many layers of lawyers and bureaucracy to make seizures. This can take months or even years depending on the situation. Authorities, duly motivated, do not face such lawyers or such bureaucracies on the blockchain, so seizures may occur faster in certain cases.

Cybersecurity: The Megatrend Everyone Must Consider

Megatrends are being “created” all the time. Some will persist and survive, while others will not. 

Consider a scenario, however. One business is saying that it prefers not to focus on artificial intelligence. We may have our own opinions on this statement—but in the end, it may be the case that AI would have only limited value, depending on the details. 

However, now picture a firm saying that it prefers not to focus on cybersecurity. Does it have computers? Email? A network? Not focusing on AI could be an interesting debate, whereas not focusing on cybersecurity is a serious business risk. We may not know which services companies will use, but we do know that a lack of focus is irresponsible, and possibly even reckless. 

It’s important to keep the current landscape in mind:

  • Mandiant, a cybersecurity response firm, has reported ransomware response frequency increasing 10 times from 2018 to 2020. 
  • Mandiant has reported that the average demand has been anywhere from $250,000 to $50 million.8  
  • Mandiant’s figures indicate that one in ten businesses is forced to close once it is a victim of a ransomware attack.
  • Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) are estimated to see global revenues around $217.7 billion by 2023 as cloud computing massively proliferates. However, worldwide hybrid cloud security spending is estimated to reach $2.0 billion by 2023. “Don’t forget cloud security” is a phrase the comes to mind from this statistic.

Aligning an investment thesis with the growth of cybersecurity could be a very interesting proposition in 2021


1Source: Andy Greenberg, “The Colonial Pipeline Hack is a New Extreme for Ransomware,” WIRED, 5/8/21. 
2Source: Colin Eaton and Dustin Volz, “U.S. Pipeline Cyberattack Forces Closure,” Wall Street Journal, 5/8/21. 
3Source: Lily Hay Newman, “DarkSide Ransomware Hit Colonial Pipeline—and Created an Unholy Mess,” WIRED, 5/10/21. 
4Source: Lily Hay Newman, “DarkSide Ransomware Hit Colonial Pipeline—and Created an Unholy Mess,” WIRED, 5/10/21.  
5Source: Collin Eaton, “Colonial Pipeline CEO Tells Why He Paid Hackers a $4.4 Million Ransom.” Wall Street Journal, 5/19/21. 
6Source: Nicole Perlroth, Erin Griffith and Katie Benner, “Pipeline Investigation Upends Idea That Bitcoin Is Untraceable,” The New York Times, 6/9/21. 
7Source: Nicole Perlroth, Erin Griffith and Katie Benner, “Pipeline Investigation Upends Idea That Bitcoin Is Untraceable,” The New York Times, 6/9/21. 
8FireEye 2021 Corporate Presentation.
9Source: CrowdStrike Corporate Overview, March 2021. 

Important Risks Related to this Article

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About the Contributor
Global Head of Research

Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he was based out of WisdomTree’s London office and was responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. In November 2021, Christopher was promoted to Global Head of Research, now responsible for numerous communications on investment strategy globally, particularly in the thematic equity space. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst Designation.