Can blockchain analysis help eradicate cryptocurrency?

2021 has been a crucial year for the cryptocurrency industry. Despite the negative economic consequences of the pandemic, the cryptocurrency ecosystem has experienced significant growth.

Many cryptocurrencies have surpassed their price records in 2021, mainly thanks to rising demand from investors and the gradual takeover of Decentralized Finance (DeFi) and NFTs by consumers. But as cryptocurrencies become more popular, they unfortunately attract malicious actors. The latter want to take advantage of the fact that they are 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, especially as the amount of paid ransoms is underestimated due to underreporting of ransomware victims and the fact that the gradual identification of new ransomware addresses is constantly increasing this amount.

Globally, crime linked to cryptocurrencies reached a record high in 2021. However, this increase should be qualified as the use of cryptocurrencies has generally increased considerably. It is therefore not surprising that cybercriminals are also relatively more likely to use cryptocurrencies. In fact, the share of illegal activities in the volume of cryptocurrency transactions has never been so low.

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

This allows financial institutions to ensure that they work with reliable customers. Stock exchanges and other cryptocurrency companies can monitor transactions on their platforms in real time to detect any illegal activity. Finally, public authorities can track the flow of illegal cryptocurrencies more easily than in most other forms of value transfer.

It is essential that governments and companies increase their investment in the fight against cybercrime and work in more effective ways to cooperate. Many cyber-attackers, such as ransomware groups, will continue their activities as long as the potential rewards outweigh the costs. It is therefore important to develop effective strategies to deter bad actors by strengthening sanctions against cryptocurrency.

To assess the risk, many exchanges rely on Know Your Customer (KYC) and Anti-Money Laundering (AML), which are publicly declared by other KYC services. But this approach is now inadequate as institutional funds flow into cryptocurrencies like never before. Financial institutions that buy cryptocurrency themselves, offer custody services and / or accept cryptocurrency companies as bank customers will have to handle other services more carefully, as risk-based compliance is becoming the norm. In the long run, these efforts will reduce the incentive to use cryptocurrencies for criminal purposes, as it will be difficult for cybercriminals to convert cryptocurrencies into cash.

The speed of innovation in this sector leads to optimism. In 2021, we have seen the rise in DeFi and an influx of institutional dollars. The global pandemic tested the value of cryptocurrencies as a safe haven, and the result was clear: the price of Bitcoin was rising. But if the industry is changing fast, so are the malicious actors. Both the public and private sectors need to have the resources and tools they need to work together and benefit from the inherent transparency of blockchain and therefore cryptocurrencies to ensure the security of this new financial system.

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