Bitcoin and blockchain experts are urging US lawmakers to ramp up pressure on unlicensed offshore exchanges.

Coming yesterday during a hearing held by a subcommittee within the US House of Representatives, the calls followed a notable string of ransomware attacks that have seen consumer data held hostage in exchange for bitcoin payments. The situation has also seen politicians taking a renewed interest in the more negative aspects of cryptocurrency technology in response.

Yet, the core problem, panelists told the committee members, is not in bitcoin purchases, it's that when criminals do use bitcoin or other cryptocurrencies for illicit purposes, they often go through exchanges hosted outside the US.

In statements, panelists sought to portray these businesses as unlicensed, unregulated and unwilling to abide by basic anti-money laundering and know-your-customer regulations, rules that digital currency exchanges in the US and Western Europe must abide by.

"Nearly 100% of ransomware campaigns cash out through platforms such as these. It's a huge problem," said Kathryn Haun, a former Assistant US Attorney and now a lecturer at Stanford University. "Not surprisingly, the bad actors are not using the Coinbases of the world."

Elsewhere, the hearing examined the use of cryptocurrencies to finance criminal activities such as terrorism, money laundering and cybercrime, all of which fall under the House Terrorism and Illicit Finance Subcommittee's mandate to explore the national security implications of new financial innovations.

Perhaps unsurprisingly against this backdrop, committee members expressed concern that nefarious activity is becoming more common, while remaining largely outside the reach of authorities.

"The reality is criminals today use cash, money service businesses and other means for illicit purposes, but we've provided law enforcement the regulatory tools to catch the bad guys," said Representative Ed Perlmutter of Colorado, the top Democrat on the committee.

He told attendees:

Tracking down criminals and funds through unregulated overseas exchanges, however, is a difficult proposition for US law enforcement, as even the pettiest of criminals can find ways to obscure their identity.

Complicating matters, these businesses can frequently obtain implicit or explicit political protection from US authorities in certain jurisdictions, panelists said.

"Criminals can open anonymous accounts, or accounts with phony names to fly under the radar of law enforcement," Haun said. "Thus, we have received 'Mickey Mouse' who resides at '123 Main Street' in subpoena returns."

If Congress and regulators are serious about tackling the national security implications of digital currencies, taking on these kinds of exchanges is a good place to start, emphasized Scott Dueweke, president of The Identity and Payments Association.

Dueweke said:

While bitcoin has had its share of nefarious uses, the panelists emphasized that this dynamic is hardly a historical anomaly in technology.

"Early misuse is a fact of life with many emerging technologies, and cryptocurrency is no exception," said Stanford's Haun, who is also a member of cryptocurrency exchange Coinbase's board of directors. "We often say that any technology worth adopting is adopted first by bad actors."

Further, the nature and frequency of the illicit activity actually being financed by digital currencies differs from the current general perception.

Jerry Brito, executive director of non-profit advocacy group Coin Center, cited a recent report from the Center for a New American Security, which concluded that only anecdotal evidence exists to support the suggestion that terrorist groups are financing operations through the use of digital currencies.

Jonathan Levin, co-founder of Chainalysis, seconded that point, adding that only one verifiable public case of crowdfunding by a known terrorist organization has occurred, and that this campaign raised a meager $1,000.

While it is certainly plausible that such activity could become more common, Brito said, there is little reason to justify a crackdown that might quash the technology's advancement:

Haun added that the more immediate misuse is occurring in the areas of cybercrime, money laundering and financial fraud. "These activities have major national security implications," she said.

Still, while digital currencies do offer criminals a fresh way of financing themselves and procuring services, they also provide authorities with powerful new analytical and tracking tools for following the movement of funds.

As such, participants in the panel portrayed bitcoin's underlying blockchain technology as a potential solution to issues caused by bitcoin, the technology that invented and popularized this unique union of digital innovations.

"Bitcoin is thought to be anonymous by some criminals, in reality it's far from anonymous, and companies like Elliptic have assisted law enforcement and private industry to identify who is behind illicit bitcoin transactions,” said Luke Wilson, vice president of business development at the startup.

Haun went so far as to recall her experience using transactions on a blockchain ledger to investigate and prosecute a rogue federal agent who had been working with Silk Road, an online dark market shut down by authorities in 2013.

She said:

Disclosure: CoinDesk is a subsidiary of DCG, which has an ownership stake in Chainalysis, Coinbase and Elliptic.

Hearing image via Aaron Stanley for CoinDesk