Crypto-Related Crime Less Common, Easier to Track, Says Chainalysis

Last week, the number of unique cryptocurrency addresses passed the 1 billion mark.

That isn’t to say there are a billion crypto users, Kim Grauer, head of research at blockchain data firm Chainalysis, told PYMNTS. There are plenty of reasons why people have multiple addresses, and she can’t put a number to that, as their identities are pseudonymous, hidden behind those alphanumeric address strings.

But still, by the best estimates, the beginning of the year saw 300 million crypto users. However, they aren’t anonymous, Grauer pointed out. And very, very few of them are criminals.

“We can quantify it,” she said. “We’re able to say that less than 1% of all transactions that we’ve identified at Chainalysis are associated with criminal activities.”

That compares to an estimated 3% to 5% of U.S. dollars around the world used for criminal purposes. But that’s also a flawed number, she said, arguing that it’s far easier to see what’s happening on public blockchains, which instantly and immutably record every transaction.

“The transparency of this data set actually allows us to see how much crime is happening in real time,” Grauer said. “Every transaction that ever occurs on the blockchain is available forever. It’s always going to be there. And that is devastating for criminals who don’t want the evidence of their crime to be preserved for all time.” 

Tracks Preserved

In February, the Internal Revenue Service, Federal Bureau of Investigation and Department of Homeland Security recovered $3.6 billion in crypto allegedly stolen in the $4.5 billion 2016 hack of the Bitfinex exchange, the Justice Department (DOJ) announced — its largest ever seizure.

Read more: Plea Talks Underway in NY $4.5B Crypto Laundering Case

“That’s after five-plus years,” Grauer said. “The evidence stayed there, was intact, didn’t deteriorate over time. Transparency of blockchains is a very important tool in the toolkit for law enforcement, who’ve been able to follow the money for investigations.”

That kind of seizure is “starting to happen more and more, especially of stolen funds, but increasingly of scammed funds, ransomware funds,” she said.

Whether those funds, or alleged thieves, are in a jurisdiction where U.S. law enforcement can get cooperation is beginning to become an issue.

“You’re definitely not guaranteed to get your funds back if you are a victim of a ransomware or a scammer, but you do have a shot if it is fully investigated by law enforcement,” Grauer said.

Crypto also gets a bad rap, she said, pointing out that Ponzi schemes and other types of fraud are “a part of our entire financial world. I mean, for every one crypto Ponzi scheme, there’s hundreds of Ponzi schemes using U.S. dollars.”

“Not a lot of these problems are unique or new to cryptocurrency,” she added. “We’ve kind of accepted that if you go into the world, you run the risk of getting defrauded in some way.”

What’s Needed

First and foremost, building trust in crypto requires “clear, straightforward regulation for the industry,” Grauer said. “That’s the most important thing. People at least know what they’re dealing with. Let’s get it all out there, let’s get it on paper.”

Related: Chainalysis Opens Crypto Security Service for US Government

One big problem the crypto industry has, she said, is that “a lot of people feel, ‘I don’t know if I should get into this space. I don’t know what the regulatory impact is.’”

The most important thing for the industry, according to Chainalysis, “is just clarity so [financial institutions] can get into this space,” Grauer said. “I think a lot of what we do with regulators is in myth busting and saying, ‘Oh, you think that it’s all used for crime? Well, this is what the data shows.’ So there’s a lot of everyone getting educated together.”

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