News
Cash Still King of Illegal Transactions, Not Crypto, Says Chainalysis Executive
Less than 1% of cryptocurrency According to a Chainalysis executive, the transactions are linked to illicit activity, calling into question the association of cryptocurrencies with crime.
In this week’s episode of Yahoo Finance: Focus on the FutureGlobal Head of Capability Development at blockchain data platform Chainalysis and former head of criminal investigations at the U.S. Internal Revenue Service, Jim Lee, have shed light on the scope and nature of criminal activity involving cryptocurrencies.
Despite the popular perception that cryptocurrency is synonymous with criminal activity, fiat money remains the dominant medium for illegal transactions, according to Lee. “Cash is still king,” he stressed.
Transparency of blockchain ledgers
Blockchain technology offers an advantage to law enforcement, Lee said. “Everything is transparent on the blockchain ledgers, you can see it.”
To know more: How Artificial Intelligence Will Change the Scam World? | The Crypto Mile
Most blockchains are public, with every transaction recorded so anyone can see it and it cannot be changed or deleted. This traceability allows law enforcement to follow the flow of funds, identifying patterns that could indicate illegal activity.
While the identities behind the transactions are often pseudonymous, with further analysis and additional data, these blockchain addresses can sometimes be linked to real-world identities.
To know more: Sovereign Agents: Your Personal AI Assistant? | The Crypto Mile
“As a law enforcement officer, I often said to my division, ‘I wish everything was done in cryptocurrency, as far as the criminal element goes, just because it’s so transparent,’” Lee said.
Criminals are exploiting cryptocurrency innovations
Lee noted, however, that criminals continue to exploit innovations in the cryptocurrency industry to target retail investors.
For the average retail cryptocurrency investor, Lee identified Ponzi schemes and initial coin offering (ICO) scams as the most prevalent threats. The allure of high returns often attracts unsuspecting individuals, making them prime targets for scammers.
The story continues
“In a growing market, everyone is trying to get rich quickly and sees this as potential, but so do criminal elements,” he warned.
To know more: What is a spot bitcoin ETF and why did it spark a cryptocurrency rally?
Cryptocurrency Ponzi schemes promise investors unrealistically high returns through complex trading or technological advances, but operate under a fraudulent model, where early investors are paid with new investors’ funds.
This deception can lead retail investors to invest massively, hoping for significant profits, only to suffer substantial losses when the system inevitably fails.
Due to poor regulation in the cryptocurrency industry, these schemes thrive unchecked, exposing unsuspecting investors to serious risks that may make it difficult for them to recover their funds.
Initial coin offering scams pose serious risks to retail investors by exploiting the decentralized and often unregulated nature of cryptocurrency fundraising. Scammers can mislead investors with false information about the credentials of a cryptocurrency development team and the overall viability of the project they are dishonestly promoting, leading to substantial financial losses when the scam fails.
To know more: Bitcoin Price Drops Ahead of FTX, Mt Gox Bankruptcy Payments
In such cases, fund recovery is usually complicated due to the anonymity of transactions and the global reach of cryptocurrency markets.
This can undermine confidence in legitimate cryptocurrency investments and highlights the importance of thorough research and caution before participating in any ICO.
High-profile cases of cybercrime
A notable example is the shutdown of Hydra, the world’s largest darknet marketplace, primarily involved in drug trafficking.
“Think of eBay selling narcotics,” Lee said, describing the scope and scale of the operation. The investigation marked the largest takedown of the darknet market in the United States.
Another notable case was the Bitfinex hack, in which hackers stole approximately $3.6 billion (£2.8 billion) worth of bitcoin. “We actually seized $3.6 billion in value from hackers,” Lee said, noting that it was the largest single financial seizure in US government history.
To know more: What are Bitcoin ETNs?
Lee also spoke about a case that had a profound impact, the shutdown of the child pornography website Welcome to Video (WTV), which allowed users to purchase content with bitcoin (BTC-USD exchange rate) or upload your own.
Using Chainalysis tools, investigators were able to trace transactions, identify the market administrator, and make over 330 arrests worldwide, saving 23 children from ongoing abuse.
“That’s what really put us on the map,” Lee said.
The insights from these cases underscore the double-edged nature of cryptocurrency technology. While it offers greater financial inclusion and efficiency, it also presents opportunities for criminal exploitation.
However, Lee emphasized how tools like those developed by Chainalysis help combat these threats by ensuring transparency and traceability, which are essential for modern law enforcement.
To know more: What are bitcoin runic carvings?
The use of cryptocurrency technology by criminals and law enforcement to investigate crimes is an evolving landscape. It requires continued innovation and cooperation between the public and private sectors to ensure that its benefits are not overshadowed by its potential for abuse, Lee said.
Download the Yahoo Finance app, available for Apple AND Android.