Institutions Seek Detailed Blockchain Analytics To Drive Crypto Adoption – Elliptic

As more institutions explore digital assets, the need for on-chain analytics platforms has never been greater.

Compliance specialists, investigators, and regulators employ these blockchain analytical tools to better understand 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, co-founder and chief scientist at analytics firm Elliptic; and Ire Akartuna, a senior cryptocurrency threat analyst at Elliptic.

Cointelegraph: What specific use cases do you see for on-chain analytics for institutional clients?

Tom Robinson: Anti-Money Laundering (AML) and Sanctions Compliance for Crypto Exchanges and Other Businesses Handling Crypto Assets: Our crypto transaction and wallet screening tools help businesses stay compliant with regulations and reduce fraud.

Due Diligence on Crypto Businesses: Our discovery product provides risk profiles of exchanges and other crypto services based on analysis of their blockchain transactions. It is used by crypto businesses and financial institutions to gain insight into the businesses they are transacting with.

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Investigating crypto transactions: Investigator – our blockchain investigation software – allows graphical exploration of crypto wallets and transactions between them. Law enforcement investigators use it to “follow the money” and connect individuals to criminal activity. It is also used by crypto businesses to investigate possible illegal activities by their customers.

CT: How is anti-money laundering in crypto different from mainstream AML for fiat within banks?

TR: The main difference is that most crypto transactions appear on the blockchain. It becomes very easy to identify whether funds originated from criminal activities by tracing them using blockchain analytics tools.

CT: Do you see a role for artificial intelligence (AI) and machine learning in on-chain analytics? Specifically within fraud prevention and AML?

Array Akartuna: Yes, we already use machine learning in 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 observed on the Bitcoin blockchain may not necessarily be identical to patterns on the Ethereum blockchain; They work in slightly different ways. I would point out the use of heuristics.

There are certain aspects of blockchain transactions where we have common spend that will help us to know whether addresses are owned by an entity – if I want to identify illegal activities and illegal actors on the blockchain – and their wallet address I want to identify

For example, North Korean cyber hackers were using a programmatic method of money laundering. The hack was conducted in 2018, where they used around 113 wallets to divert funds from the original theft in an automated manner. We can programmatically analyze the timestamps of those individual transactions to understand how this automated software works.

If we are analyzing dark web markets or terrorist organizations, etc., using heuristics can help us identify whether a wallet address is associated with a certain illegal entity. We can then use those inferences to understand what other wallet addresses may be held or associated with that entity.

We’ve got a risk score that fits the predictive analysis. When we look at incoming and outgoing transactions in a group of wallets, we can finally see where they ended up. Entities belonging to an exchange, a terrorist group or a black market can be seen when transacting with the particular entities we are focusing on.

Let’s say around 50% of crypto has gone to a certain dark web market; We can actually use this to provide a risk score of how risky a wallet is. The risk score is used by exchanges and banks to decide whether they want to do business with these wallet holders.

CT: What’s the most complex problem you’re solving at Elliptic? Why are they complex, and why is it important to solve them?

TR: One of the most complex and important problems we’ve solved recently is how to identify proceeds of crime in crypto, even when they’ve been laundered cross-asset and cross-chain. Criminals now move their proceeds between assets using decentralized exchanges; and between blockchains, using a cross-chain bridge.

We developed Holistic Screening as a way to automatically trace crypto funds between assets and the blockchain. This unique capability is now desperately needed; Otherwise, money launderers will take advantage of the lack of visibility into the businesses’ activity.

CT: How do you see digital assets to banks and that on-chain analytics? What has happened so far?

EA: We are seeing slow but steady acceptance, but compliance is top of mind for banks. Blockchain analytics is seen as an essential piece of the puzzle and as a way to calm the concerns of regulators.

If institutions want to join the decentralized finance (DeFi) space and plan to invest customer funds, they need to know that the liquidity pool they are investing in is reliable and has the right risk profile. Is. If there is illegal money going in and out of the liquidity pool, then there is a compliance issue. This is 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 such as Revolut are allowing their customers to hold and trade cryptocurrencies. These banks will need compliance and AML capabilities before offering these products to customers.

CT: Have you had any conversations with regulators that will affect how you serve the financial services industry, and what are the key areas of interest from a regulatory perspective?

TR: We have ongoing dialogue with regulators around the world, many of whom use our products. It is important that they understand how our blockchain analytics solution works so that they can have confidence in the compliance programs run by the exchanges and banks that use our products.