How Blockchain Analytics Can Make Crypto Payments Safer

Last week, in the United States, the Department of Justice (DOJ) made an announcement that will provide further consumer safety and legal clarity around a burgeoning cryptocurrency market. This comes on top of other U.S. government efforts to curtail ransomware attacks that result in cryptocurrency ransom payments, and to sanction exchanges used by ransomware related criminals.

Cryptocurrency markets are growing quickly but crypto funds used by criminals still represent a small fraction of the circulating value. According to a report by Cipher Trace, cybercrimes involving cryptocurrencies totaled about $1.9 billion across the world in 2020. Still many users, investors and consumers view cryptocurrency networks as havens for criminals, as they do enable money laundering and anonymized payments to criminals for ransomware and other crimes. 

Illicit activity is more common when criminals act as their own Crypto Custodian and do not use a VASP (Virtual Asset Service Provider). Transparent and immutable blockchain payments and fund transfers are much easier to trace than those on opaque legacy payment networks, where technically, records can be modified or deleted. In fact, high profile crypto hacks in 2021 resulted in criminals returning stolen funds or law enforcement clawing them back. Investigators use advanced blockchain forensics to track stolen funds and identify blockchain addresses where funds are parked. Once stolen funds are marked, they cannot be easily moved off the blockchain for subsequent use without being seized by watchful parties and law enforcers.

For example, In June 2021, U.S. law enforcement recovered $2.3 million, or almost half of nearly $5 million in bitcoin paid to a criminal gang that participated in the devastating ransomware attack on the Colonial Pipeline.

How to make these payments safe?

Cryptocurrencies represent just under 11% of the $14.9 trillion US dollars in circulation but are growing quickly. Mainstream corporations, investors and financial institutions are increasingly buying in. Law enforcement efforts layer on top of the increase sophistication and use of blockchain-based analytics from companies like Chainalysis, Ciphertrace and Valid Network.

Blockchain based payment networks are potentially much safer and already more transparent than the spaghetti code of payment networks we use today.  Criminals will find it extremely difficult to get stolen money off crypto networks without getting arrested and thrown in jail. Law enforcement and smart regulations help ensure a safe and sound cryptocurrency network future.

By Avivah Litan, Distinguished VP Analyst, Gartner