Tag Archives: Cryptocurrency

News

Tech News : 30% Rise In Crypto-Laundering

A report by blockchain data platform ‘Chainalysis’ has shown a 30 per cent increase in cryptocurrency being used for money laundering in 2021 compared to the previous year.

$8.6 Billion

The 2022 Crypto Crime Report noted how cybercriminals laundered a massive $8.6 billion worth of cryptocurrency in 2021. The figure was arrived at by compiling the amount of cryptocurrency being moved from illicit addresses to addresses hosted by services.

Only A Measure Of Online, Not Offline

If $8.6 billion seems like a very large amount, the report also notes that this doesn’t even take into account the amount from offline crime (e.g., traditional drug trafficking) that is converted into cryptocurrency to be laundered.

Most Money Laundering Doesn’t Involve Cryptocurrency

To put the numbers into perspective, it’s worth noting that between $800 billion and $2 trillion of fiat currency (government-issued currency) is laundered each year, which represents as much as 5 per cent of global GDP. By contrast however, only 0.05 per cent of all cryptocurrency transaction volume was laundered in 2021, meaning that cryptocurrency is by no means the preferred method for money laundering yet.

Blockchain More Transparent Says Chainalysis

Chainalyis, the report’s author, says that the reason why there is a big difference between fiat and cryptocurrency-based money laundering is that the transparency of blockchains means that it’s easier to trace how criminals move cryptocurrency between wallets and services to try and convert it into cash.

Thieves Use DeFi Platforms & Scammers Use Centralised Exchanges

The report highlights how those involved in theft tend to use DeFi Platforms (with DeFi protocols) whereas scammers tend to prefer centralised exchanges for their money laundering. The report says that this is because:

– DeFi /open finance platforms have no middleman (no bank or credit card issuer as an intermediary in financial transactions) and, therefore, offer greater anonymity, which may be why they received 17 per cent of all funds sent from illicit wallets in 2021 (up from 2 per cent!). Chainalysis noted in its report that addresses associated with theft sent just under half of their stolen funds to DeFi platforms (around $750 million worth of cryptocurrency in total).

– Scammers tend to lack technical sophistication and, therefore, prefer to send the majority of their funds to addresses at centralized exchanges.

Looking For Patterns & Using Compliance Checks

The report accepts that because some criminals use cryptocurrency to launder funds from crimes that happen offline, it is not easy to track all money laundering activity. However, looking for patterns that suggest users may be trying to avoid compliance screens, and introducing compliance checks can help uncover more illegal activity.

What Does This Mean For Your Business?

As the report points out, using cryptocurrency to launder money is becoming increasingly popular, but is still nowhere near as big a problem as fiat-based money laundering, perhaps due to the transparency risks of blockchain (with increased checks) and the complexities of using cryptocurrencies not being widely understood. In fact, even most genuine investors and traders don’t fully understand cryptocurrencies. For example, a Cardify report (March 2021) showed that only 16.9 per cent of investors who have bought cryptocurrency don’t fully understand its value and potential, and 33.5 per cent of buyers have either little or zero knowledge about cryptocurrencies.

Nevertheless, criminals using cryptocurrency for money laundering is clearly a growing problem. One important measure that could be taken to help tackle the problem is making sure that those tasked with investigating it have a good understanding and are trained in cryptocurrency and blockchain analysis and/or have expert help. Also, more attention needs to be paid to how DeFi transactions can be analysed, and to enlisting the help of the teams behind DeFi protocols to screen wallets for suspicious activity and patterns e.g., prior transactions with known illicit addresses.

News

Tech News : Hamster Crypto-Croaks

Max, a.k.a. “Mr Goxx”, the hamster that found Internet fame through outperforming many human cryptocurrency-traders, has died.

Experiment With ‘Wheel’ Results

The hamster’s life as a crypto trader was down to him being used as part of an experiment by an anonymous German lecturer and prototyping specialist duo who set out to demonstrate the randomness of the crypto markets.

How?

Max’s cage (“office”) contained an ‘intention wheel’ used to select different crypto-currencies, and two tunnels, one for ‘buying’ and one for ‘selling’. A run on the wheel, followed by which tunnel he chose to walk through, decided which cryptocurrency would be bought/sold. His ‘office floor’ activities were shown on ‘Twitch’ (a video live streaming service).

Live Fast, Die Young

The hamster’s financial predictions only began in June this year but in his short time as an unsuspecting crypto-trader, he occasionally came out slightly ahead of Bitcoin, gained followers around the world on Twitter, and even attracted the attention of multi-billionaire Elon Musk.

Finished On A High

Following his last trading session on 20 November, Mr. Goxx was reported to have been up 19.72 per cent, apparently outperforming Warren Buffet’s company, Berkshire Hathaway.

The Point

The duo behind the experiment, who always stressed that Mr Goxx’s predictions should not be taken as any kind of real financial advice, were making the point that for most people, the world of cryptocurrencies is baffling, and lacks transparency. For example, the pair are quoted as saying that “It seems like most people from our generation see no other chance than throwing a lot of their savings on the crypto market, without having a clue what’s going on there”.

One-Third of Investors Know Little To Nothing About Crypto

The point of the Mr Goxx experiment is also illustrated by a report from Cardify (March 2021) which showed that only 16.9 per cent of investors who have bought cryptocurrency “fully understand” its value and potential. The survey also showed that 33.5 per cent of buyers have either little or zero knowledge about cryptocurrencies and would describe their understanding of the subject as “emerging.”

What Does This Mean For Your Business?

Many businesses are likely to share the view that despite much of the hype and news about the benefits and the apparent volatility of cryptocurrencies to date, there is still a lack of clear information and guidance about how crypto-currency investment can be undertaken successfully, and how it can be used to benefit businesses. Whereas blockchain (the technology behind cryptocurrencies like bitcoin) is already being used successfully in multiple business sectors, if the random choices of a hamster can outperform the deliberate moves of renowned investors business, trust in crypto-trading is likely to remain very low, scepticism will remain high, and all things crypto-currency are likely to remain a mystery. For those businesses already involved or thinking of getting involved in crypto-currency investment, some of the suggested guidance includes setting limits on investment amounts and which currencies, having a diverse portfolio, taking a long-term view, as well as using automated purchases, and possibly using trading bots. Without the knowledge and understanding of crypto-currencies, however, many may be tempted to seek the help of professionals in crypto-investment.

News

Tech News : $610 Million Hackers Return Most Of The Crypto-Cash

On 12 August, the Poly Network DeFi platform announced that, following the theft of $610 Million in digital coins, the hacker thieves had returned $342 million. However, it’s been reported that more recently, almost all of the stolen crypto has now been returned.

The Hack

The original theft, which had taken place just two days before (10 Aug), saw hackers stealing an incredible $610 million in different cryptocurrencies from the Poly Network, a decentralised finance platform (DeFi) that facilitates peer-to-peer transactions.

Returned

After calls to return the stolen currencies, amazingly, the thieves decided to return just over half the next day (11 Aug).  The returned currencies were $3.3M of Ethereum, $256M of BSC, and $1M of Ploygon. Poly Network Tweeted that this has left $269M on Ethereum, and $84M of Polygon still outstanding.

How?

According to blockchain forensics company Chainalysis, the hackers were able to exploit a vulnerability in the digital contracts Poly Network uses to move assets between different blockchains.

For Fun & To Expose Security Issues

It has been reported that the (unknown) hackers have sent messages to say that the hack and theft were carried out for “fun” and to “expose the vulnerability”, and that it was always the plan to return the stolen currencies. There is also speculation that the hackers have (so far) returned most of what they stole because of the complications of trying to launder stolen cryptocurrencies on that scale because of the transparency of the blockchain, and the broad use of blockchain analytics by financial institutions.

DeFi Platforms

DeFi platforms, including the Poly Network, handled more than $80 billion worth of digital coins last year and are valued by people and businesses because they offer free access to financial services without having to go through the usual gatekeepers such as banks or exchanges and, therefore, help to cut costs as well as boosting economic activity.

Vulnerabilities and Previous Hacks

As highlighted by hackers in this recent $610 million hack, DeFi platforms tend to have technical flaws and weaknesses in their computer code that can make them vulnerable to attack.

For example, $530 million in digital coins was stolen from Tokyo-based exchange Coincheck in 2018. Also, the Tokyo-based Mt. Gox exchange, collapsed in 2014 after losing half a billion dollars in bitcoin.

What Does This Mean For Your Business?

There have been more positive signals about cryptocurrencies in recent years since the last bitcoin crash (e.g. Tesla allowing customers to pay in Bitcoin – before changing their minds over its environmental impact), and PayPal (previously owned by Elon Musk) saying last October that it was ready to allow its users to buy, sell, and hold Bitcoin BTC and other cryptocurrencies.  This recent hack, however, highlights an area that has held back cryptocurrencies and their trading; i.e. technical vulnerabilities / security risks. The volatility and lack of stability of cryptocurrencies, and the negative environmental impact such as the vast amounts of (mainly fossil fuel) power needed for crypto-mining have also acted as deterrents to many potential users and investors. One key technology behind them, blockchain, has, however, proven to be very useful in many different other applications across many industries. Despite the problems that crypto-currencies are having now, their development and wider and continued use going forward seems likely, and more businesses will use them as the big security, instability, and environmental issues are ironed out over time.

News

Featured Article : Art, Cars, Carbon & Crazy Numbers

With news of a booming NFT market and the acceptance of Bitcoin as payment for Tesla cars, we look at the environmental impact of these and how the technology needs to be improved to be made more sustainable.

Robot Painting Collaboration

This week there was news that an artwork co-created by a robot called Sophia fetched $7,000,000 dollars. The artwork, which consisted of a 12-second MP4 file showing how the work evolved and a ‘self-portrait’ painted with a robot arm, was not just an example of the advancements of robotics and AI, or the incredible collaboration between a human and a robot to create an artwork but is also an example of how the market for ‘NFT’ art is growing.

NFT

Blockchain is at the incorruptible ledger, a bit like a secure spreadsheet that no-one can alter, that is the technology that powers cryptocurrencies like Ethereum or Bitcoin.  A non-fungible token (NFT) is the term for any unit of data on that blockchain / digital ledger. A unit could be any digital file such as digital artwork files, audio, videos, and more.  Each NFT represents a unique, non-interchangeable, exclusive digital item/asset, and is recorded in the blockchain ‘ledger’ as a cryptographic “hash”.

NFT Artwork

The market for NFT artworks is growing and more examples of digital NFT artworks fetching high prices are making the news more often as they break new boundaries. For example, this month, an artist known as Beeple sold a photo collage artwork (of 5000 images) at Christies called ‘Everydays — The First 5000 Days’, for a staggering $70 million. This makes it the third most expensive sale ever of a living artist, only beaten by the price fetched for works by David Hockney and Jeff Koons.

Another Price – Carbon

Many environmental and tech commentators are, however, concerned about the environmental impact of transactions involving the use of Blockchain and the cryptocurrencies that it powers. 

Mining

Much of the concern focuses on how energy-hungry the process of adding data to the blockchain, known as ‘mining ’, is. Crypto mining, uses software to explore millions of cryptographic checksums to find one that has the right number combination to “mint” a transaction and to try computations on the next block to be added to the blockchain.  Unfortunately, solving this complex puzzle involves using a large amount of electricity, the production of which produces carbon dioxide. The obvious conclusion for some tech and art commentators is, therefore, that NFTs may be making a negative contribution to climate change.

Debate

Turkish artist Memo Akten recently posted details online of “The Unreasonable Ecological Cost of #CryptoArt”.  Akten highlighted how “a single Ethereum (ETH) transaction is estimated to have a footprint on average of around 35 kWh. This in itself, is ludicrously high. To put that into perspective, this is roughly equivalent to an EU resident’s electric power consumption for 4 days.”  

The artist also compared how a single ETH transaction mouse click can set off a chain reaction to mining farms that ultimately delivers a footprint of 35 kWh for an ‘average’ transaction, and emissions of close to 20 KgCO2.  For perspective, the artist compares the impact of this one single mouse click to an average email being estimated to have a footprint of a few grams of CO2 or watching one whole hour of Netflix being estimated at resulting in the production of around 36 grams CO2.

Akten argues that just one NFT can involve many transactions including minting, bidding, cancelling, sales, and transfer of ownership which creates a footprint of a single NFT of hundreds of kWh, and hundreds of KgCO2 emissions.  Akten says that a single NFT footprint works out to be the “equivalent to an EU resident’s total electric power consumption for more than a month, with emissions equivalent to driving for 1000Km, or flying for 2 hours.”

Other commentators, such as Kelsie Nabben, a researcher at the RMIT University Blockchain Innovation Hub, believe that NFTs may be no more environmentally damaging than other ways of trading art e.g., transporting them around the world and storing them in temperature-controlled environments, all of which uses a lot or energy.

More Efficient In Time

Many agree, however that NFT technology is still relatively new and that it could be made more energy efficient as it advances, thereby reducing its environmental cost.

Buying Tesla In Bitcoins Cancels Environmental Benefits

The recent announcement that Tesla Inc customers can now buy its electric vehicles with Bitcoin, and how this could be a big step forward for the cryptocurrency’s use in commerce has been met by counter-argument that focuses on the potential environmental cost.  A medium.com article pointed to how, ironically, the cost of buying an energy-saving, environmentally friendly electric-powered Tesla car in Bitcoins could equate to cancelling one third of the CO2 savings for its whole lifetime.

Cambridge Bitcoin Energy Research

NFTs and buying Tesla vehicles with Bitcoins essentially highlight how the whole interaction between blockchain and cryptocurrencies has some way to go to reduce its energy-consumption.  Recent figures from Cambridge Researchers recently highlighted how power-hungry “mining” for Bitcoin consumes 21.36 terawatt-hours (TWh) a year meaning that if Bitcoin were a country, its energy (electricity) consumption it would be ranked above Argentina and the energy could power all the kettles in the UK for 27 years. Although this sounds shocking when framed this way, it should be remembered that the amount of electricity consumed each year by home devices in the US alone that are always-on but not active could power the entire Bitcoin network for a year, thereby highlighting other important areas for improvement in terms of widespread environmental impact.

Looking Ahead

There has been an explosive rise in NFTs and in only three months, the combined market cap of major NFT projects has increased by a massive 1,785 per cent. Although this has created booming NFT, high valuations of NFT-related tokens and the accompanying new market and investment opportunities, the environmental cost appears to be growing at the same time.

Calls for a carbon tax on cryptocurrencies to help balance out some of the negative consumption, carbon offsetting, and offering prizes (Elon Musk) for new Carbon Capture Systems are all very well but may not be tackling the problem itself. Developing a more energy-efficient and environmentally sustainable way of managing how crypto-currencies work and how they interact with Blockchain may be the way forward in solving some of the environmental problems created by the increased use of cryptocurrencies and the growth of the NFT market. This could involve several steps such as using different, low-energy consensus algorithms, building more energy-efficient blockchains and creating more sustainable mining solutions, and is something that must be addressed soon in order to ensure that Blockchain technology and cryptocurrencies, which have many benefits, can grow in a way whereby those benefits aren’t outweighed by the environmental cost.