In this blog, we provide an overview of the evolution of cryptocurrency, the growing problem of cryptocurrency crime and how open-source intelligence (OSINT) can play a role in uncovering misuse and ensuring cryptocurrency compliance.
As the digital world continuously evolves, law enforcement, government agencies and financial institutions are faced with unique and endless challenges. One of the growing challenges facing these sectors is the lack of cryptocurrency compliance and regulation which has created opportunities for threat actors to use cryptocurrency for illicit activities.
To better understand growing calls for cryptocurrency compliance and regulation and how open-source intelligence can be deployed, we need to firstly take a look back at how cryptocurrency came to be and the concepts that underpin the digital currency.
CRYPTOCURRENCY – A BRIEF HISTORY
Following the 2007 global financial crisis, trust in the banking sector and traditional centralized finance was at an all-time low. This sentiment gave rise to a new digital currency that leveraged the concept of decentralized finance (DeFi). In 2008, Bitcoin emerged as the first cryptocurrency enabling peer-to-peer exchange without the traditional controls of a financial system acting as an intermediary.
Bitcoin was initially traded for fun rather than profit by those mining Bitcoin by solving complex mathematical equations. However, on what has now become known and celebrated as ‘May 22 Pizza Day’, the first economic transaction took place. A Florida man purchased two pizzas valued at $25 with 10,000 BTC, which would be valued at close to $400 million today.
Since this first transaction, new cryptocurrencies have emerged and their value has grown exponentially despite volatility in price. What started as mathematical equations and trading for fun has evolved into a multi-billion dollar decentralized financial market where people can now borrow, lend, and make investments without brokers, banks or exchanges acting as intermediaries.
The concept behind DeFi markets is to create a faster, cheaper and more accessible financial system, free from currency manipulation, exchange rates, transaction fees and more. In practice, fiat currencies like the USD and GBP have been hit hard by the global pandemic and Brexit, while cryptocurrencies have increased in value during these events suggesting a high level of trust from investors. However, due to the speed at which these currencies have grown, they are largely unregulated and operate with little oversight providing pseudo-anonymity to users.
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CRYPTOCURRENCY CRIME:
In 2024, Chainalysis, a blockchain analysis firm found that crime linked to cryptocurrencies accounted for an estimated $24 billion compared to $9.4 billion in 2020, a figure which is believed to be much higher in reality. Although this is a small value compared to the overall market value of these currencies, the scale of criminal activity creates significant challenges for government and law enforcement attempting to identify illicit transactions and those perpetrating the illicit activity, including:
- Fraud
- Ransomware attacks
- Cryptocurrency heists
- Money laundering
- Tax evasion
- The purchase and sale of illicit goods
- Anonymous funding mechanism for extremist/terrorist groups
Recently, two individuals from New York were arrested for conspiracy to launder over $4.5 billion in cryptocurrency stolen back in 2016. In collaboration with other agencies and law enforcement, the Department of Justice was able to follow the money laundered through a labyrinth of cryptocurrency transactions and successfully seized $3.6 billion of the stolen crypto.
“Cryptocurrency and the virtual currency exchanges trading in it comprise an expanding part of the U.S. financial system, but digital currency heists executed through complex money laundering schemes could undermine confidence in cryptocurrency, … The Department of Justice and our office stand ready to confront these threats by using 21st-century investigative techniques to recover the stolen funds and to hold the perpetrators accountable.”
U.S. Attorney Matthew M. Graves for the District of Columbia
In addition, cryptocurrency has been linked to geopolitical incidents. North Korea was accused of stealing an estimated $400 million from crypto exchanges to fund their weapons of mass destruction programs despite UN sanctions.
Cryptocurrency Regulatory pressures:
Identifying these cryptocurrency crimes through traditional methods is increasingly difficult as cryptocurrency compliance and regulations are still being legislated as governments navigate these unique digital challenges.
Some cryptocurrencies and crypto exchanges are beginning to introduce their own Know Your Customer (KYC) requirements to address money laundering and other illicit activities. These measures include requirements to show proof of identification and address which can be correlated with a “public name”. This has led to users jumping from currency to currency or exchange to exchange as they seek out anonymity as internal and government regulations change.
OSINT & CRYPTOCURRENCY CRIME
In efforts to address cryptocurrency crime, it is extremely valuable to examine the intersection of illicit crypto activity and online publicly available information. Open-source data across the Surface, Deep and Dark Web can uncover a wealth of valuable information to help identify cryptocurrency crimes, resolve identities and track threat actors as they seek out more anonymous cryptocurrencies or exchanges.
People often place their crypto footprint alongside their social media footprint. By deploying open-source intelligence to collect and analyze data across the broadest data set possible, law enforcement, government agencies and financial institutions can develop a complete picture of cryptocurrency crime, threat actors and their networks.
Open-source intelligence is uniquely placed to support crypto investigations, providing valuable insights into hidden sources of data, situational awareness and anticipatory intelligence and can be deployed to automatically filter and analyze masses of data to uncover:
- Mentions of public crypto keys
- Threat actors including either organized criminal groups or extremist groups
- Transitions from online platform to platform and crypto exchange to crypto exchange
Fivecast’s world-leading open-source intelligence solution, Fivecast ONYX leverages AI-enabled risk analytics alongside advanced data collection capabilities to help intelligence teams rapidly identify the most relevant data and uncover valuable insights.
