The US-based FBI agency traced the cryptocurrency that moved from the pipeline company to several online locations using blockchain-based information, including transactional data. The agency used a cryptographic address or private key to recover as much as $2.3 million from dark web actors in early June. In the same way, online payment platforms and financial institutions could avert or trace suspicious activity using blockchain technology.
But there are many ways to avoid illegal activities in cryptocurrency and fiat currency using blockchain technology-powered cyber security chains. For example, blockchain-powered crypto wallets could avert and keep a tap on illegal activities like money laundering and cyber-attacks.
Cyber threat actors mostly breach weaker cyber security software and demand ransomware from high-profile firms. For such data breaches, highly skilled hackers use the cutting-edge tool. By creating a fake website and phishing web pages, threat actors could invade personal and financial information.
Collecting ransomware in cryptocurrency is distinguishable because public blockchains make cryptocurrency traceable. While money laundering using a fake account or using fiat money could not be as easy to uncover.
Money laundering and other financial crimes could be resolved by inducting blockchain technology into our banking systems. Integrating an unalterable ledger that registers verified information of sender and receiver during a virtual transaction can be a remarkable restraint to money laundering. As the publicly listed ledger would present conclusive proof against any financial criminal activity and parties involved.
A massive drop in illicit transactions in the crypto space
Due to increasingly stringent security measures adopted by blockchain companies, global regulators, and financial institutions, Money laundering has plunged heavily and made up a minuscule fraction of overall transactions. As of 2020, less than 1% of crypto transactions involve illegal activity vis-à-vis 35% in 2012.
Any blockchain-powered financial payment platform that enables its users to transfer digital currency or assets could be designed to capture a verified ID of each party for each transaction. Under this process, these individuals could then be held liable in the case of any misconduct.
How can blockchain daunt dark web threat actors?
Any implementation of a blockchain-powered anti-money laundering (AML) solution would need the incorporation of smart contracts. These digital contracts are transaction protocols that enable the automatic execution of any peer-to-peer agreement. These transactions between two parties are authenticated and publicly available. Thus, identifying threat actors would be faster and efficient by using advanced technology.
Software engineers can write smart contracts using blockchain platforms such as Ethereum (ETH), Polygon (MATIC), and Polkadot (DOT). Smart contracts would be using programmed algorithms to synthesize the process of AML or scam detection.
By advanced programming integration of user databases, blockchain technology would allow identifying any problematic transactions automatically. Accordingly, it would be feasible to achieve oversight throughout virtual transactions made via any financial platform without having any manual auditing.
Central authorities could enact regulations allowing such oversight processes that would secure financial organisations and digital assets. If governments allow blockchain technology integration, AML solution providers would have to operate independently.
Importance of public-private partnership to execute AML
Blockchain firms can support crypto operations and financial agencies engaged in virtual currencies by efficiently tracing transactions through their protocols. Thus, the government should collaborate with digital asset stakeholders to bolster the financial security against any money laundering action.
Public cyber cells sometimes take more than months to identify the financial frauds. Whereas, Blockchain-powered systems could unearth such cases within hours. Hence, illegal actions like money laundering and tax evasion could be averted by bringing in a safer and robust financial ecosystem.
Blockchain-based AML products could be a panacea to all banking-related frauds and digital asset management problems. By tracing the end-to-end transactional information, digital asset management firms and FinTech players can ensure compliance with AML regulations.
Blockchain technology and digital assets researcher at WazirX| Former Financial Journalist @BloombergQuint & Kalkine
Anuj is a cricket pacer, and he also plays forward position in football.
He knows Hindi, English, Spanish, and French.