The myth of blockchain anonymity is dispelled

On September 8, Chainalysis announced for the first time that it had seized the equivalent of $30 million worth of crypto assets stolen by Lazarus. This group of hackers, suspected of having ties to the North Korean regime, have built a solid reputation, in part for their role in spectacular attacks on hundreds of millions of dollars worth of decentralized finance (DeFi) crypto projects. And until then, the authorities have not been able to return a single crypto asset stolen by Lazarus.

The returned amount corresponds to 10% of the funds stolen during the $624 million Ronin Network hack that occurred on March 23 this year. “Chainalysis played a role in these confiscations by using advanced tracing techniques to trace stolen funds,” Investigation Director Erin Plante cheered, before adding, “Cryptocurrency transparency is essential for hacking investigations.” […] This would never have been possible in traditional financial schemes.”

The progress of the authorities

Blockchain and cryptocurrency promise a more transparent financial system. In public blockchains, that is, accessible to everyone, such as Bitcoin and Ethereum, for example, all encrypted transactions are recorded in blocks in an immutable way, and everyone can get acquainted with them, in particular, using tools such as Etherscan. This is why it is preferable to talk about a pseudonym rather than anonymity.

Characteristics that impose a real sword of Damocles on criminal activity, the financial flows of which will pass through these public blockchains. “Assuming the authorities are equipped with the tools to track illicit flows, which is not always the case today,” Ledger CEO Pascal Gauthier explained during the opening roundtable of the Surfin Bitcoin conference held in Biarritz from August 25-27. .

But it is the authorities who are progressing. On February 8, the United States announced the arrest of those responsible for the hack of Bitfinex, the exchange platform from which the equivalent of $72 million worth of bitcoins was stolen in… 2016. confiscations, including 3.6 billion recovered to date. “This case shows how a permanent record left by the blockchain can facilitate the recovery of (cryptoassets),” says a press release from Chainalysis, which today is working with, among others, the FBI and many tax administrations around the world.

This traceability of Binance also made it a line of defense following a Reuters journalistic investigation that claimed that the world’s most used cryptocurrency exchange platform had laundered over $2 billion between 2017 and 2021. The investigation specifically accused the company, created and run by Changpeng Zhao, with ties to Hydra, the Russian darknet marketplace, has since been liquidated. “Without cryptography, the Hydra case would most likely never have been solved. The ability to track the flow of funds to determine where the market was placed is why the case is closed,” Binance said in a statement.

Bilateral transparency

“It is much easier for a private bank like ours to verify the provenance of funds using a blockchain system than it is to trace the origin of a spreadsheet in a traditional financial system,” explains Rani Jabban, Head of Treasury at a private bank. Arab Bank Switzerland, which since 2019 has been providing its wealthy clients with access to bitcoin and ether, the native cryptocurrency of Ethereum. “The myth of the link between cryptocurrencies and crime is collapsing. Before, and sometimes today, bitcoin was used by criminals because it allowed the exchange of flows without going through a bank. But the reality is that it is currently virtually impossible to reintegrate bitcoin used for illicit activities into the traditional financial system,” continues Rani Jabban.

“This tracking capability holds great promise. But they will also ask other questions in terms of confidentiality,” explains Jacques Iffland, a lawyer specializing in financial market law. How to maintain confidentiality in the crypto world, where all transactions, even if encrypted, are available to everyone. This was one of the arguments put forward by the advocates of Tornado cash, a cryptomixer that allows transactions to be anonymized or at least made more difficult to trace. It was blacklisted on August 8 by the US Treasury Department, which accuses it of helping to launder several billion dollars and being used by Lazarus on numerous occasions.

Entrepreneurs in the crypto-ecosystem have praised the merits of the mixer, in particular for allowing it to keep a sort of trade secret. And also very useful for political activists. “With the growth of cryptocurrency adoption, the question of transparency will arise. Nobody wants their financial flows to be known to everyone,” concludes Rani Jabban.


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