Fraudsters’ New Frontier: The Dark Web

By Thomas Zadvydas

Once the exclusive domain of credit card thieves and fraudsters, the “Deep Web” or the related “Dark Web” is attracting a slew of startups and their venture capital backers.

A part of the Internet that is not accessible by mainstream search engines and requires specific authorization to enter, the Dark Web remains a blind spot for enterprises. A handful of cybersecurity firms now are seeking access to it to monitor the hacker communities that operate there and stay on top of emerging cyber threats, which include acts of espionage from international state actors and terrorist organizations.

“If [you] spend time in there, you begin to understand what’s happening in the hacker world. And you can in a sense be proactive to pick off emerging threats,” says Ryan J. Shaw, co-founder and CEO of Blockade Technologies, a Boca Raton, Florida-based company whose data storage platform uses blockchain technology to encrypt information and store it across several different networks.

Threats in this online netherworld are many and varied, say other sources, and could include acts of industrial espionage, says one cybersecurity attorney.

“It’s not just terrorists hanging out in the Deep and Dark Web. It’s credit card thieves, fraudsters, malware developers, hackers,” says Josh Lefkowitz, co-founder and CEO of Flashpoint, a New York-based company focused on collecting data from the Deep and Dark Web to protect its customers.

“We saw an opportunity to really address an acute pain point that was not only being felt in the public sector and government agencies, but also amongst the private sector, financial services companies, retailers, healthcare providers and law firms,” Lefkowitz said.

Companies such as Flashpoint, Intel 471 of the Netherlands, and Digital Shadows of London and San Francisco are building businesses around monitoring the Deep Web for companies. All have been receiving investment interest. Flashpoint, for example, secured a $10 million Series B funding round last July from Cisco Investments, Greycroft Partners and others.

The Dark Web is also an area that Fortinet and Cisco’s Sourcefire are already looking at as part of their own anti-malware focus. Those large security companies could emerge as acquirers of cybersecurity startups focused on the Dark Web, says Lefkowitz.

The market opportunity could be huge. Cyber attacks – much of them sourced from the Deep and Dark Web – are expected to cost victims $6 trillion per year by 2021, says Shaw.

Threats sourced from the Dark Web include increasingly advanced forms of malware, aimed at stealing sensitive information, and ransomware, which holds a system hostage via encryption until money or data is surrendered, explains Alex Vaystikh, CTO of SecBI.

“The pain is clear, organizations must react, the hackers are getting more sophisticated,” says Galid Peleg, SecBi’s CEO.

Because middle market companies often do not have the information technology infrastructure or staff to monitor such threats from the Dark Web, cybersecurity companies with platforms that can provide that service to small-to-medium-sized businesses will be especially attractive to venture investors, Shaw notes.

“The darknet is very much an emergent area, with diverse problems that require creative and adaptive solutions,” says Lefkowitz. It affects not just the Fortune 500 companies across all sectors, but also consumers who might use a service like Lifelock to protect credit cards and bank account numbers from reaching the underground of the Internet. “This is really one of the hot buttons of risk on the Internet,” Lefkowitz says.

Zadvydas is a reporter for Mergermarket and Dealreporter based in New York. He covers the technology, media and telecommunications sector. He can be reached at Thomas.zadvydas@mergermarket.com

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