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Search Institutions for Detailed Crypto Adoption Blockchain Analysis – Elliptic
As more institutions explore digital assets, the need for on-chain analytics platforms has never been greater.
Compliance experts, researchers, and regulators use these blockchain analytics tools to better understand the patterns and entities in cryptocurrency transactions.
To learn more about the tools and how they fit into wider cryptocurrency adoption, Cointelegraph sat down with Tom Robinson, the co-founder and chief scientist at analytics firm Elliptic; and Eray Akartuna, a senior cryptocurrency threat analyst at Elliptic.
Cointelegraph: What are the typical use cases you see for on-chain analytics for institutional clients?
Tom Robinson: Anti-Money Laundering (AML) and Sanctions Compliance for Crypto Exchanges and Other Companies Handling Crypto Assets: Our crypto transaction and wallet screening tools help businesses comply with regulations and reduce fraud.
Due Diligence on Crypto Firms: Our Discovery product provides risk profiles of exchanges and other crypto services based on analysis of their blockchain transactions. This is used by crypto companies and financial institutions to gain insight into the companies they do business with.
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Investigate crypto transactions: Investigator — our blockchain investigation software — enables graphical exploration of crypto wallets and the transactions between them. Law enforcement investigators use this to “follow the money” and link criminal activity to individuals. It is also used by crypto companies to investigate possible illegal activities of their clients.
CT: How does Anti-Money Laundering in crypto differ from regular AML within banks for fiat?
TR: The main difference is that most crypto transactions are visible on the blockchain. This makes it much easier to identify whether funds have come from criminal activity by tracing them using blockchain analytics tools.
CT: Do you see a role for artificial intelligence (AI) and machine learning within on-chain analytics? Particularly within fraud prevention and AML?
Eray Akartuna: Yes, we already use machine learning within our blockchain analytics products. However, it is very important to ensure the accuracy of these techniques through extensive testing.
There are certain aspects of blockchain transactions where we can use machine learning to understand or identify certain patterns. Patterns seen on the Bitcoin blockchain are not necessarily the same as patterns on the Ethereum blockchain; they work in slightly different ways. I point out the use of heuristics.
There are certain aspects of the blockchain transactions where we have common expenses that will help us know if the addresses are owned by a single entity or not – if I want to identify illegal activities and illegal actors on a blockchain – and their wallet addresses wants to identify.
For example, the North Korean cyber hackers used a programmatic method of money laundering. The hack was carried out in 2018, where they used about 113 wallets to automatically disconnect money from the original theft. We could programmatically analyze the timestamps of those individual transactions to understand exactly how this automated software works.
When analyzing dark web markets or terrorist entities, etc., using heuristics can help us identify whether a wallet address is associated with a particular illegal entity. We can then use those heuristics to understand what other wallet addresses might also belong to or be associated with that entity.
We have a risk score that fits into predictive analytics. If we look at the incoming and outgoing transactions to a cluster of wallets, we can finally see where they ended up. Entities identified as belonging to an exchange, terrorist group or dark market may be spotted when transacting with certain entities we target.
Let’s say about 50% of that cryptocurrency went to a particular dark web market; we can actually use that to provide a risk score of how risky the wallet is. The risk score is then used by exchanges and banks to decide whether to do business with these wallet holders or not.
CT: What are the most complex problems you are solving at Elliptic? Why are they complex and why is it important to solve them?
TR: The most complex and important problem we have solved recently is how to identify proceeds of crime in crypto, even if they have been laundered cross-asset and cross-chain. Criminals now move their proceeds between assets, using decentralized exchanges; and between blockchains, using cross-chain bridges.
We developed holistic screening as a way to automatically trace crypto funds between assets and blockchains. This unique capability is now absolutely essential; otherwise, money launderers will take advantage of companies’ lack of visibility into their activities.
CT: How do you see banks adopting digital assets and with it on-chain analytics? What is the turnout so far?
EA: We are seeing slow but steady adoption, but compliance is top of mind for banks. Blockchain analytics is seen as an essential piece of the puzzle and a way to address regulator concerns.
If institutions want to get involved in the decentralized finance (DeFi) space and plan to invest client money, they need to know if the pool of liquidity they invest in is credible and has the right risk profile. If the liquidity pool has illicit funds going in and out, there’s a compliance problem there. That’s an important use case for institutions looking to get involved in DeFi.
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The other use case is where some challenger banks like Revolut allow their customers to hold and trade cryptocurrencies. These banks need compliance and AML capabilities before they can offer these products to customers.
CT: Have you had any interactions with regulators that could affect how you would serve the financial services industry, and what are the key areas of interest from a regulatory perspective?
TR: We have a constant dialogue with regulators around the world, many of whom use our products. It is important that they understand how our blockchain analytics solutions work so that they can have confidence in the compliance programs of the exchanges and banks that use our products.
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