https://www.coindesk.com/layer2/privacyweek/2022/01/26/criminals-still-find-it-easier-to-hide-in-fiat-than-cripto/
Recently CoinDesk carried an article by Avivah Litan that struck a real chord with us here at Everest. In this article she asserts that because of the transparent nature of the blockchain networks, that it is in fact MORE difficult to carry on criminal activity in these decentralized networks than it is on the traditional fiat networks.
Her first point is that because everyone has the transaction history of the entire network at their disposal, that anyone can scrutinize any activity on the network. By comparison, fiat networks and their interconnections are famously opaque, even to the global regulators and those who participate in fiscal policy making. Large-scale financial transaction screening systems have been able to apply increasingly more sophisticated correlation and pattern matching on top of the readily available dataset. Proactive, or nearly real-time reactive, law enforcement responses on certain networks are now possible because of these investments into data analysis
The second point made is the difference in scope of investment required to see across the fiat versus cripto networks. The sheer scale of the undertaking for fiat is huge with literally thousands of different systems written in various programming languages, with incompatible APIs, networking protocols, security measures, and concepts of transparency. By comparison about 99% of the total cryptocurrency market cap is handled by 23 public blockchain networks, some of which are nearly identical technological implementations. So the complexity of finding fraud in cryptocurrency is much easier simply because of the homogeneity of the technology and small number of networks to monitor.
The third point made is that the “ring-fencing” of the cryptocurrency fiat off-ramps has resulted in making it exceptionally difficult for criminals to get their money out of the illicitly gained cryptocurrency. Further, the ability of law enforcement to track criminal activities to a specific wallet address, then to prevent that wallet from “cashing out” their cryptocurrency, has made this type of financial asset undesirable for non-cripto-related crime. Most illicit activities are not using cripto to move their money because of these difficulties, they are using reliable fiat-based methods of moving their funds.
As the author notes, having the wallet address of the criminal is not the same as having the identity of the criminal. There are currently too many easy ways of acquiring a self-hosted wallet without providing any identifying information. While there is a lot of work going on in associating darknet intelligence, social network profiles, geographic data, and the criminal identities behind their movements, there hasn’t been a lot of success with this process. The more that wallet addresses are used as the login credentials for Web3 sites and apps, the more they will proliferate, and the correlation of these addresses to individuals will become more difficult. Additional services marketed as protecting the user’s privacy, like mixers or privacy coins, are gaining some appeal, however, are not easy enough to use to go mainstream. Criminals are the only ones who will be willing to invest in these more and more difficult to use methods, further isolating their use and increasing their profile to law enforcement.
Everest believes that the future of Decentralized Finance, and the cripto-economy, is to conform to the financial regulations that already existed, and work with the regulators to further refine them for this new class of digital asset. The Everest network has been built explicitly for this future with a network that is based upon verifiable identity. Our EverWallet comes with an EverID — inseparable identity baked into the wallet — along with document, identity and claims sharing. To gain more capabilities within a financial system, the user needs to satisfy KYC (know your customer) onboarding requirements, and can do so by providing or confirming additional identity information with their EverID.
On February 8th the US Department of Justice tracked down $3.6 billion from the 2016 Bitfinex hack. https://decrypt.co/92396/doj-seizes-3-6-billion-bitcoin-from-2016-bitfinex-hack-arrests-couple
