How the transparency of crypto data can help fight crime and strengthen national security (Guest blog by Chainalysis)
Cryptocurrency had a rollercoaster of a year in 2022 with the FTX collapse and numerous other ransomware headlines continuing to dominate the media. It is safe to say that crypto is never too far away from a negative headline. This is understandable as Cryptocurrency-based crime hit a new all-time high in 2022, with illicit addresses receiving $20.1 billion over the course of the year, up from $14 billion in 2021. And as ransomware payments continue to grow, so too does ransomware’s role in geopolitical conflict - and per the 2021 NCSC Annual Review, ransomware is the biggest cyber security challenge facing the UK. But, crypto is a huge, nuanced ecosystem that can actually provide us with data that can help to combat national cyber threats, crime and other illicit activity. But how?
How does Chainalysis work?
One of the biggest misconceptions about cryptocurrency is that it’s anonymous and untraceable. In fact, it operates on public, immutable blockchain ledgers, making it more transparent than most other forms of value transfer. Everytime cryptocurrency is bought, sold, or traded, it is logged on a public blockchain that is available for anyone to access. Chainalysis’ tools and products can search this blockchain data to accurately trace the money and the addresses involved with transactions.
For example, if a cyber criminal attempts to launder money through a crypto exchange, Chainalysis can track the transactions and alert the exchange. Or, if the thief sends the stolen funds to another criminal who also has publicly shared their wallet, Chainalysis can then provide the information around the whereabouts to law enforcement by linking the thief to the individual who posted the wallet address.
How cryptocurrency experts are battling against hackers
One of the most troubling trends in crypto crime is the rise in funds stolen from DeFi protocols, and in particular cross-chain bridges. Earlier in 2022, Ronin Network, a key platform powering the popular mobile game Axie Infinity, had $615m (£467m) stolen. Much of the value stolen from DeFi protocols can be attributed to bad actors affiliated with North Korea, especially elite hacking units like Lazarus Group. In 2022, North Korea-linked groups have stolen approximately $1 billion of cryptocurrency from DeFi protocols.
Criminal nation state actors, like North-Korean hacker groups, are on the rise. But, with the help of law enforcement and leading data experts in the cryptocurrency industry, more than $30 million worth of cryptocurrency stolen by North Korean-linked hackers has been seized. In this example, the Chainalysis Crypto Incident Response team played a role in these seizures, using advanced tracing techniques to follow stolen funds to cash out points and working with law enforcement and industry players to quickly freeze funds. This proves that with the right blockchain analysis tools, world-class investigators and compliance professionals can collaborate to stop even the most sophisticated hackers and launderers.
How does Chainalysis harness the power of crypto data
Aside from the tracking capabilities, Chainalysis also uses its data and market analytics tools to conduct economic analysis by tracking the movement of cryptocurrency across exchanges and around the world.
This data provides insight into market momentum and a vast array of detailed information, allowing financial personnel to feel more confident in making informed decisions about cryptocurrency investments. Unlike traditional financial systems, the blockchain allows for complete visibility of the movement of funds, eliminating uncertainty and loss of visibility.
While crypto has become the money laundering tool for many criminal organisations, this transparency means crypto data can be used to provide an overall view of the black market.
What’s next?
Crypto is an ever-growing and continually evolving ecosystem. But one of its biggest advantages is its transparency. This ability to access and analyse crypto data is instrumental in investigating hacks like the one suffered by Axie Infinity. Investigators with the right tools can follow the money to understand and disrupt a cybercrime organisation’s laundering activities. This would never be possible in traditional financial channels, where money laundering usually involves networks of shell companies and financial institutions in jurisdictions that may not cooperate. There is still more work to be done, but every seizure is a milestone in the crypto community’s efforts to make the cryptocurrency ecosystem safer.
Authors
