The dark side of cryptocurrencies and what can be done about it

In early February 2021, many of us took note when Tesla bought $1.5 billion in Bitcoin and announced that going forward it would accept cryptocurrency as payment.

Cryptocurrencies, such as Bitcoin, Ethereum, Ripple, Bitcoin Cash, Monero, and others, are no passing phase, empty buzzword, or the esoteric interest of tech savvy enthusiasts.

To the contrary, as we can see by the significant investment of Tesla, as well as other market developments, these new digital currencies are gaining a powerful foothold and are already disrupting multiple industries. And it’s no surprise, considering the portability, transparency, and inflation resistance they offer.

We can also see the far-reaching popularity reflected in the fact that Bitcoin tripled its price in 2020 and ended the year at close to $29,000.

This trend is expected to continue to grow in 2021 and beyond, with institutional support and mainstream adoption expected to increase, and with the global blockchain technology market projected to reach more than $57 billion by 2025.

Beware of the dark side

With all of its benefits, such as enabling easier and faster transactions with reduced or no fees, and not to mention its potential for improving financial inclusion for the un- and underbanked, crypto does have a dark side.

Namely, cryptocurrency is also notorious for being preferred by criminals and terrorists for payment and trade. It is unregulated, offers a high level of anonymity, is easy to use, and enables these bad actors to more easily bypass regulatory limits and avoid being detected by authorities.

And just as cryptocurrencies are gaining traction for legitimate transactions and consumers, they are also generating a lot of value for illicit activities and perpetrators.

A recent crypto crime report by Chainalysis noted that illicit cryptocurrency transactions in 2020 are valued at $10 billion. Although the share of illicit crypto transactions from the global total is not big, $10 billion in illicit activities cannot be ignored.

This is all the more true when considering the types of crime that received the most cryptocurrency funding between 2017 and 2020, which include financing terrorists, buying and selling drugs and weapons on the dark web, scams, ransomware, child abuse materials, and domestic extremism.

In addition, crypto is also the go-to for individuals in their criminal activities such as money laundering and tax evasion or state actors seeking to evade international trading sanctions.

Needless to say, we can see why cryptocurrency is considered to be an emerging threat by law enforcement and security organizations. To illustrate, Europol in its recent IOCTA – Internet Organised Crime Threat Assessment, includes privacy-enhancing crypto wallets, such as Wasabi and Samurai, as a “top threat” and states that “privacy coins may present a considerable obstacle to law enforcement investigations.”

And in a late 2020 report on its cryptocurrency enforcement framework, the US Department of Justice Cyber-Digital Task Force addresses “the emerging threats posed by rapidly developing cryptocurrencies that malicious cyber actors often use” and notes that “an aggressive but well-informed approach toward abusive cryptocurrency activity” should be taken.

What can be done about it?

The key to detecting and de-anonymizing illicit activity on the blockchain and to preventing bad actors from leveraging cryptocurrencies to fund their activities is to leverage specialized crypto analytics and blockchain intelligence.

This is the only way law enforcement and security organizations can effectively address and mitigate multiple complex threats, such as:

• Identifying illicit or suspicious transactions and crypto addresses
• Tracking activities on the blockchain
• Following the trail of money used for illicit means
• Exposing the real identities of those behind these transactions, and bringing them to justice

But having access to advanced technology is not enough. This is a continually evolving arena that also involves several services that enable criminals and terrorist to hide their tracks more easily, such as:

• Mixers – for mixing potentially identifiable crypto funds with others in order to bolster the anonymity of the cryptocurrency
• Shapeshifters –for mixing and converting crypto funds from one crypto coin to another
• Privacy-enhanced crypto wallets – which have embedded privacy or security features such as anonymized TOR browsers and/or mixing services

As such, preventing crypto funding of crime and terror also requires deep domain expertise.

How Cognyte can help

Cognyte provides security analytics solutions that are designed to empower law enforcement agencies and government security organizations to overcome the challenge of the dark side of cryptocurrency.

Our crypto analytics and intelligence solution is driven by over 20 years of experience in leveraging security analytics to find and stop criminals and terrorists in their tracks. And with our unique patent-pending crypto intelligence solution, we are empowering these organizations with a unique approach to fighting illicit crypto threats by identifying suspicious transactions and de-anonymizing the individuals who made them.

And they can do all this with zero dependence on collaborative exchanges, and regardless of crypto services, such as the mixers, shapeshifters, and privacy-enhanced wallets, that are used to obscure the trail back to the source of funding.

To find out how you can fight crypto-enabled crime and terror we invite you to contact us.