Can blockchain analysis help eradicate crypto crime?

2021 was a pivotal year for the cryptocurrency industry. Despite the negative economic consequences of the pandemic, the cryptocurrency ecosystem has seen substantial growth.

Many cryptocurrencies broke their price records in 2021, thanks in particular to growing demand from investors and the gradual adoption by consumers of Decentralized Finance (DeFi) and NFT. However, as cryptocurrencies become more popular, they unfortunately attract malicious actors. The latter want to take advantage of the fact that they are pseudonyms and the ease with which they allow users to send funds instantly anywhere in the world. Money laundering is one of the fastest growing illegal activities related to cryptocurrencies. Crypto-ransomware is also in vogue, especially as the amount of ransomware paid is underestimated due to the underestimation of ransomware victims and the fact that the gradual identification of new ransomware addresses steadily increases this amount.

Globally, cryptocurrency-related crime hit an all-time high in 2021. However, this increase should be qualified as the use of cryptocurrencies has increased dramatically overall. It is therefore not surprising that cybercriminals are also proportionally more likely to use cryptocurrencies. The share of illicit activity in the volume of cryptocurrency transactions has actually never been lower.

Another encouraging news is the fact that cryptocurrencies are becoming increasingly transparent. Each transaction is recorded in a public and immutable register.

This allows financial institutions to ensure that they are working with reputable clients. Exchanges and other cryptocurrency companies can monitor transactions on their platforms in real time to detect any illegal activity. Finally, government agencies can track the flow of illicit cryptocurrency funds more easily than most other forms of value transfer.

It is essential that governments and businesses increase their investments in fighting cybercrime and work on more effective ways of collaborating. Many cybercriminals, such as ransomware groups, will continue their activities as long as the potential rewards outweigh the costs. It is therefore important to develop effective strategies to deter bad actors by strengthening sanctions against crypto crime.

To assess risk, many exchanges rely on Know Your Customer (KYC) and Anti-Money Laundering (AML) policies publicly declared by other KYC services. But this approach is now insufficient as institutional funds are flowing into cryptocurrencies like never before. Financial institutions, which independently purchase cryptocurrency, offer custody services, and / or accept cryptocurrency assets as banking clients, will need to deal with other services with greater care as risk-based compliance will become the norm. In the long run, these efforts will reduce the incentive to use cryptocurrencies for criminal purposes as it will become difficult for cybercriminals to convert cryptocurrencies into cash.

The speed of innovation in this sector leads to optimism. In 2021, we saw the rise in DeFi and an influx of institutional dollars. The global pandemic tested the value of cryptocurrencies as a safe haven and the result was clear: Bitcoin’s price has risen. But while the industry is changing rapidly, so are malicious actors. Both the public and private sectors must obtain the necessary resources and tools to work together and exploit the intrinsic transparency of the blockchain and therefore of cryptocurrencies to ensure the safety of this new financial system.

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