New cryptocurrencies and trading platforms are proliferating. Blockchains are increasing in both numbers and length. Non-fungible tokens (NFTs) are entering the mainstream. In other words, the crypto world is unrecognizable from how it began. But along with this growth, crypto crime is also on the rise. Managing this threat is vital to ensure safe and legal trading.
Back in 2013, it seemed that law enforcement agencies were getting up to speed with crypto. That year the FBI shut down the Silk Road darknet market (essentially a hub for drugs) and seized 26,000 BTC. But things have changed since then – almost beyond recognition.
In recent years, Ethereum has led to the exponential growth of decentralized finance (DeFi). CryptoKitties, which began as an in-joke for gamers, led to the proliferation of NFTs. These are now seen everywhere from sports team branding to the art world, where they have become so established that they’re sold at Sotheby’s.
Not surprisingly, there has also been an explosion in the number of trading platforms that support digital assets, with an increasing number of banks getting in on the action.
Every adoption milestone, every new network and every additional dollar that enters this fast-moving asset class brings new challenges. In this evolving ecosystem, there are ever increasing blockchains to be analyzed for criminal activity, while funds move across multiple networks with ease.
If the stakes weren’t already high enough, mainstream acceptance of cryptocurrencies is moving faster than anyone could have predicted. But with that acceptance comes the responsibility to ensure that criminality is not being aided or abetted in any way. In a decentralized, anonymous and permissionless environment, how can this be done?
Mitigating counterparty risks
When Bitfury launched Crystal Blockchain Analytics in January 2018, founder Valery Vavilov told CoinDesk: “The industry needs some very user-friendly tools so that you can track bitcoin transactions and see if this bitcoin address that you’re getting money from is green or black.”
This goal hasn’t changed. Crystal Blockchain undertakes crypto transaction analysis and monitoring for exchanges, banks and FI anti-money laundering (AML) compliance requirements. By assessing counterparty risks in real time, it provides institutions with an invaluable tool in the fight against crypto crime.
As crypto markets become more closely linked, and ties are forged between blockchains, connecting the dots across multiple networks is crucial to avoid chain-hopping by criminals looking to conceal illegal activity. The sheer volume of users and transactions also means that data needs to be presented immediately and clearly – especially as crypto-related crimes and DeFi protocol scams continue to grab the headlines.
Crystal’s investigations increasingly span not just multiple blockchains but also multiple jurisdictions (a process that remains difficult for law enforcement agencies). In this way, analytics play a critical role in connecting transactions and wallets as part of the fight against international crime and money laundering.
Crystal collates data from multiple sources, including darknet and ransomware research laboratories that provide a wide variety of data. This approach is complemented by algorithms that cluster suspicious transactions automatically, a process that can predict what will happen next and identify patterns at speed. Rigorous use of machine learning ensures Crystal’s capabilities and infrastructure constantly evolve.
All this feeds into real-time assessments, delivering up-to-date risk scores for transactions, addresses and entities spanning multiple blockchains. In an always-online world, where business moves fast and money moves even faster, these tools empower Crystal users to make informed decisions quickly.
As the crypto world has diversified, so too have the types of customers who need Crystal’s help. New users include investigative and financial journalists, retailers performing due diligence, lawyers and auditors involved in disputes and the payment processors responsible for opening crypto to merchants and consumers alike. Intelligence firms like Crystal play a vital role in making these digital assets safer for all.