Improving blockchain analytics will become increasingly important to combat the use of cross-chain bridging (cross chain) for illicit means, whose value is estimated to exceed $10 billion by 2025.
Blockchain analytics firm Elliptic forecasts a 60% increase in the value of illicit cryptocurrencies laundered through cross-chain bridges, from $4.1 billion in June 2022 to $6.5 billion next year. This figure is expected to double by the middle of the decade.
Cross-chain crime has been a buzz in 2022, with over $2 billion fleeced in hacks targeting cross-chain bridges. In addition to these bridges and their contracts, they have also become an avenue for criminals to launder cryptocurrency. A clear example is that of an unknown hacker who moved stolen funds from the now bankrupt FTX using cross-chain bridges.
Cointelegraph disclosed the results of research published by Elliptic in correspondence with senior cryptocurrency threat analyst Arda Akartuna.
The Elliptic analyst explained that Billions of dollars worth of assets have been transferred between Bitcoin, Ethereum, and other blockchains using bridging services like Portal, cBridge, and Synapse. Decentralized cross-chain bridges offer an unregulated alternative to exchanges for transferring value between blockchains.
Although some bridges are used legitimately, Akartuna noted that these tools have become a key element in money laundering. “Chain hopping,” or moving the proceeds of crime between blockchains, has long been used to circumvent tracing efforts by exchanging cryptocurrency assets through decentralized or anonymous exchanges.
As blockchain surveillance, law enforcement, and regulatory efforts have improved, criminals have turned to cross-chaining to continue laundering illicit funds:
“Decentralized cross-chain bridges provide unregulated alternatives that cybercriminals are embracing.”
Akartuna also notes that the sanction of the Tornado Cash cryptocurrency mixing service has seen a change in the way criminals launder money. Decentralized exchanges, cross-chain bridges, and coin exchange services are becoming a new means of moving illicit funds:
“Although the use of these platforms is overwhelmingly legitimate, they facilitate cross-chain money laundering and terrorist financing due to a lack of identity checks and anti-money laundering controls.”
One example of the increased use of a cross-chain pathway for illicit means is RenBridge, which, according to Elliptic’s research, has laundered around $540 million of illicit proceeds as of August 2022. Meanwhile, centralized exchanges, which also facilitate cross-chain or cross-asset exchanges, they are less popular for illicit actors given the momentum of AML and identity/KYC detection solutions.
The increasing prevalence of the use of chain bridging for illicit purposes highlights the need for solutions or efforts to minimize criminal use.. Akartuna suggested users do due diligence on services used to jump between blockchains and tokens and be wary of platforms associated with illicit activities.
Businesses should make use of blockchain analytics tools to filter addresses and transactions and set clear risk rules for their use of cryptocurrencies.. However, there are some circumstances that simply cannot be predicted or avoided, as Akartuna explained:
“The sanctions against Tornado Cash are a prime example of how legitimate wallets can be inadvertently contaminated due to sudden enforcement actions, as you now have ‘pre-sanctions activity’ that doesn’t carry the same risk as post-sanctions activity. “.
Existing single-chain analytics solutions have done much to combat money laundering in the cryptocurrency space, but they do not have the ability to necessarily track, examine, or investigate cross-blockchain or token transactions.
As Elliptic’s threat analyst highlighted, once an asset “jumps” to a different blockchain, investigations become much more complex and require more resources.
“The risk here is that a wallet can hold any number of different assets, and legacy blockchain solutions cannot automatically track the activities of the same entity on separate chains.”
Controlling the movement of funds across different blockchains can result in some assets being marked as sanctioned, while others show no risk. In theory, this could lead to an exchange or wallet user unknowingly transacting with a sanctioned entity.
Elliptic, for example, uses a proprietary analytics tool with “holistic detection” capabilities that merges existing blockchains into an interconnected system. This allows for cross-chain visualization and screening to better detect the movement of illicit funds.
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