Can Blockchain Analysis Help Eradicate Cryptocrime?

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

Many cryptocurrencies have surpassed their price record in 2021, thanks in particular to growing investor demand and the gradual consumer adoption of Decentralized Finance (DeFi) and NFTs. However, as cryptocurrencies become more popular, they unfortunately attract malicious actors. The latter want to take advantage of being pseudonymous and the ease with which they allow users to instantly send money anywhere in the world. Money laundering is one of the fastest growing illegal activities related to cryptocurrencies. Crypto ransomware is also in vogue, mainly because the ransom amount is underestimated due to the under-reporting of ransomware victims and the fact that the gradual identification of new ransomware addresses is constantly increasing this amount.

At the global level, crime related to cryptocurrencies reached an all-time high in 2021. However, this increase must be qualified as the use of cryptocurrencies in general has increased significantly. It is therefore not surprising that cybercriminals are also relatively more likely to use cryptocurrencies. The share of illegal activity in the volume of cryptocurrency transactions has actually never been this low.

Another encouraging news is the fact that cryptocurrencies are becoming more and more transparent. Every transaction is recorded in a public and immutable ledger.

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

It is essential that governments and companies invest more in fighting cybercrime and work on more effective ways of working together. Many cyber attackers, such as ransomware groups, will continue to operate as long as the potential benefits 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 that have been made public by other KYC services. But this approach is now insufficient as institutional funds are flowing into cryptocurrencies like never before. Financial institutions, which buy their own cryptocurrency, offer custody services and/or accept cryptocurrency companies as banking customers, will need to be more careful with other services 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 is fueling optimism. In 2021 we saw the rise of 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 rose. But as the industry changes rapidly, so do the malicious actors. Both the public and private sectors need to be given the resources and tools they need to work together and take advantage of the inherent transparency of blockchain and thus cryptocurrencies to ensure the security of this new financial system.

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