The myth of blockchain anonymity is fading

On September 8, Chainalysis announced for the first time the seizure of the equivalent of $ 30 million in cryptocurrencies stolen by Lazarus. This group of hackers suspected of having ties to the North Korean regime have built a solid reputation for their role in spectacular attacks on crypto decentralized finance (DeFi) projects worth several hundred million dollars. . And until then, the authorities had never been able to recover a single cryptoasset stolen by Lazarus.

The recovered amount corresponds to 10% of the funds stolen during the Ronin Network’s $ 624 million hack on March 23 of this year. “Chain analysis played a role in these seizures, using advanced tracking techniques to trace the stolen funds,” cheered her investigating director Erin Plante, before adding, “Cryptocurrency transparency is essential for investigating hack […] This would never be possible in traditional financial circuits ”.

The authorities advance

Blockchain and cryptocurrencies promise a more transparent financial system. On public blockchains, i.e. accessible to anyone, such as Bitcoin and Ethereum, all encrypted transactions are recorded in the blocks in an immutable way and can be consulted by everyone, in particular through tools such as Etherscan. This is also why it is preferable to speak of a pseudonym and not of anonymity.

Features that weigh a real sword of Damocles on the criminal activities whose financial flows would transit on these public blockchains. “Provided that the authorities are equipped with the tools to track illicit flows, which is not always the case today,” explained Ledger CEO Pascal Gauthier during the introductory roundtable of the Surfin Bitcoin conference held in Biarritz from 25 to 27 August.

But in fact, the authorities are proceeding. On February 8, the United States announced that it had arrested the hackers of Bitfinex, an exchange platform from which the equivalent of 72 million dollars worth of bitcoin had been stolen in … 2016. An estimated sum of 4, 5 billion at the time of the seizure, of which 3.6 billion recovered to date. “This case shows how the permanent record left by the blockchain can facilitate recovery (of cryptocurrencies),” welcomed in a Chainalysis press release that today collaborates in particular with the FBI and many tax administrations around the world.

Binance also made this traceability a line of defense following the Reuters journalistic investigation that the world’s most used cryptocurrency exchange platform had allowed more than $ 2 billion to be laundered between 2017 and 2021. The investigation specifically blamed the company created and headed by Changpeng Zhao for having ties to Hydra, a Russian darknet market, which has since been dismantled. “Without cryptocurrencies, the Hydra case would most likely never have been solved. The ability to track fund flows to identify where the market was hosted is why the case was closed, ”Binance said in a statement.

Double-edged transparency

“For a private bank like ours, it is much easier to verify the origin of funds via a blockchain system than to trace the origin of a table in the traditional financial system,” explains Rani Jabban, head of cashier at the private bank. Arab Bank Switzerland, which since 2019 has been providing its wealthy clients with access to bitcoin and ether, the native cryptocurrency of Ethereum. “The myth of the link between cryptocurrencies and crime is falling. Previously and still sometimes today, bitcoin is used by criminals because it allowed them to exchange flows without going through a bank. But the reality is that at the moment it is almost impossible to reintegrate a bitcoin used for illegal activities into the traditional financial system ”, continues Rani Jabban.

“This tracking capability holds immense promise. But it will also ask other questions on the subject of privacy, ”explains Jacques Iffland, a lawyer specializing in financial market law. How to maintain confidentiality in a cryptographic world where all transactions, although encrypted, are available to everyone. This was one of the arguments wielded by the defenders of Tornado cash, a crypto mixer that allows transactions to be made anonymous, or at least to make them more difficult to track. He was blacklisted on August 8 by the US Treasury, which accuses him of helping launder several billion dollars and being used multiple times by Lazarus.

Crypto ecosystem entrepreneurs praised the merits of the mixer in particular because it allowed a kind of business secret to be kept. It is also very useful for political activists. “With the growing adoption of cryptocurrencies, the question of transparency will arise. Nobody wants their financial flows to be known to everyone ”, concludes Rani Jabban.

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