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Blockchain and crypto can be a boon for prosecuting financial crimes

Governments around the world have also become more aware of the crypto market and the various ways it can be regulated.

However, despite a growing adoption rate and the involvement of mainstream financial giants, naysayers continue to portray crypto as a tool for rogues and criminals. Several crypto platforms and decentralized finance (DeFi) protocols have been compromised over the years due to various code vulnerabilities or centralization issues. However, stealing money is the easiest part, while moving and withdrawing that money is almost impossible.

This is mainly because most crypto transactions are recorded in a public ledger that acts as a permanent trail, and even if the hacker uses various coin mixing services to hide their origins, powerful transaction monitoring tools can do such finally identify illegal traces.

Even coin mixing services themselves have started blocking related transactions or those marked as illegal.

Through rigorous studies, cryptoforensic firms like Chainalysis and Elliptic have further debunked the notion that cryptocurrency is an ideal tool for financial crime and the concealment of illicit activity.

A recent report by Chainalysis shows that the percentage of crypto transactions associated with illegal activities was just 0.15% in 2021.

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Cryptocurrencies have become increasingly mainstream in recent years, with the public rule of the crypto market evolving from an internet bubble a few years ago to a reliable investment option today.

Dmytro Volkov, chief technology officer at crypto exchange CEX.IO, told Cointelegraph why the notion that crypto is primarily used by criminals is outdated:

“The misconception that crypto is predominantly used by criminals likely has roots in the days of the Silk Road. The truth is that the immutable aspect of the blockchain makes hiding transactions very difficult. In the case of Bitcoin, whose blockchain ledger is publicly accessible, a reputable exchange with a competent analysis team can easily monitor and thwart hackers and money launderers before the damage is done.”

He added, “As long as the security team remains proactive and ahead of blockchain technology, we can continue to protect our customers. As this industry continues to grow, I believe this myth that crypto is primarily used by criminals will fade.”

Volkov noted that there is an “arms race between cybercriminals and cryptocurrency ecosystem security teams” as good-for-nothings are still trying to find tools to facilitate illegal activities. “But this isn’t unique to the digital asset industry,” Volkov claimed.

A “paper trail”.

There have been several instances of criminals attempting to launder stolen cryptocurrencies years after the fact, the most recent example being Bitfinex.

Law enforcement officials were able to trace the stolen bitcoin (BTC) – estimated to be worth around $4 billion today – through the blockchain to eventually arrest influencer Heather Morgan and her husband Ilya Lichtenstein, a cybersecurity specialist.

Related: Understanding Bitfinex’s Bitcoin Billions

Derek Muhney, executive vice president at Coinsource — a Bitcoin ATM provider — told Cointelegraph:

“Check out the result of the 2016 Bitfinex hack. The people involved attempted to launder approximately $4.5 billion worth of cryptocurrencies using various methodical washing techniques. Still, law enforcement was able to track the money through the blockchain, identify the perpetrators, and recover a significant portion of the stolen money. Cases like this prove criminals will try to exploit crypto but will not succeed. Crypto was created for the people and will continue to be for the good guys.”

From the outside, using cryptocurrency for criminal activity might seem ideal. Online transactions can be carried out quickly without having to physically move funds over long distances. But those in the crypto world know that there are robust protocols in place that allow law enforcement to keep records and verify customers’ identities when necessary.

Crypto exchanges play a key role

Crypto exchanges play a key role in identifying and blocking or freezing stolen funds as they effectively serve as off-ramps for crypto to fiat.

Recently, Binance blocked $6 million worth of stolen funds related to the Ronin Bridge hack. The crypto exchange revealed that the hacker attempted to withdraw $5.8 million in small batches out of a total of $600 million across 86 accounts.

As laundering via centralized exchanges with strict Know Your Customer (KYC) policies has become difficult, hackers have turned to decentralized exchanges (DEX) in hopes of anonymizing their movements.

More often than not, however, these hackers convert their stolen cryptos into stablecoins which, once tagged, can easily be frozen by the issuer. This also makes washing via DEX platforms increasingly difficult.

Tigran Gambaryan, Vice President of Global Intelligence and Investigations at Binance, told Cointelegraph that while criminals will continue to use crypto for laundering, exchanges are the first line of defense against them:

“Criminals will launder money no matter what form it comes in. When it comes to cryptocurrency, exchanges are the first line of defense and need to be prepared. What exchanges need to do is have a sufficient number of people with the right expertise and the necessary tools to stop and identify suspicious transactions. Proper KYC and transaction monitoring tools are essential.”

Binance also helped take down a cybercrime ring laundering $500 million in digital assets obtained from ransomware attacks. The exchange has also worked with local governments and law enforcement agencies to combat ransomware risks.

Fiat currencies are more prone to illegal activity

Some of the biggest naysayers promoting the narrative of crypto as a tool for crime are traditional bankers who are not innocent of financial misdeeds themselves.

Although governments have poured billions of dollars into strict banking regulations, including anti-money laundering (AML) measures, since 2000, major banking institutions have paid over $300 billion in fines for a range of different conduct violations, including but not limited to insider trading and AML -Defects .

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Some of the biggest naysayers promoting the narrative of crypto as a tool for crime are traditional bankers who are themselves innocent of financial misdeeds.

Although governments have poured billions of dollars into strict banking regulations, including anti-money laundering (AML) measures, since 2000, major banking institutions have paid over $300 billion in fines for a range of different conduct violations, including but not limited to insider trading and AML -Defects .