Crypto Crime and Chainalysis

[Whited35 15285]

Bitcoin was created to give full financial freedoms to human beings. Maybe, Bitcoin's creator Satoshi Nakamoto had no idea that it can also be the favorite currency for the criminals. In 2020, we are familiar with so many terrible incidents like the Twitter hack in Bitcoin scam, 51% attack on ETC blockchain network, DeFi lending protocol bZx hack, and recently KuCoin exchange hack, etc. These incidents indicate a growing pain created by crypto criminals. Due to the pseudonymous nature of cryptocurrency, we can not reject the fact that it is challenging to prevent Distributed Ledger Technology(DLT) based fraud but I would like to thank the high transparency feature of the blockchain technology.

 

How crypto criminals steal crypto from the hacks and scams?
Get it clear, exchange and wallet hacks are not the same as blockchain network hacks. Generally, cryptocurrency exchanges and wallets are being hacked due to phishing attacks, loopholes in the system, and weakly managed servers, etc.

 

Image:-Chainalysis

 

In the case of blockchain hacks, the following are the most notable possibilities.

• 51% attack
• Exploiting bugs in the cryptographic codes
• Lunching Sybil attacks
• Routing
• Direct Denial of Service (DDoS) attacks

 

Crypto criminals and terrorist organizations like ISIS or Al-Qaeda use cryptocurrencies for the so many purposes like:-

• Ilegal black money laundering
• Buying illicit goods like weapons, rare materials, drugs, wildlife, and human beings, etc.
• Running scam projects or Ponzi schemes
• Tax evading 
• Promoting to spread ransomware

 

So how crypto criminals are being caught and punished?
Once hackers steal the funds from exchange or wallet, their first aim is to sell stolen cryptocurrencies in the market without revealing the personal information so that they illegally sell stolen amounts on the darknet/dark web with the discounts. Due to massively increased crypto-based crimes, the blockchain community has already formed a forum named The Blockchain Alliance which aims to work together with the crypto community and law enforcement against criminals. It is the beauty of the blockchain technology that every transaction details are visible to the public it means once blockchain confirms the data, it can not be erased. Due to such public nature and transparency of blockchain, some blockchain analytics companies are doing a great job to catch the crypto criminals. Chainalysis, CipherTrace,and Coin Metrics ,etc perform the blockchain analysis by using publicly available data from the blockchain technology to spot how criminals are routing the stolen crypto to cash out.

 

How Chainalysis helps to spot crypto criminals? 
This top-ranked & 5 years old blockchain analysis company works together with the governments and private companies from so many countries. Basically, it has four most effective products.

• Chainalysis KYT
• Chainalysis Reactor
• Chainalysis Kryptos
• Chainalysis Data

 

Image:-Chainalysis

 

So many crypto exchange sites use Chainalysis KYT product to detect the flow of the transactions. If they detect the transaction coming from the crypto mixer platform, they are more likely to freeze such funds. Binance and Coinbase are famous for detecting the BTC coming from the mixer. So once an exchange or wallet gets hacked, Chainalysis carefully monitors the hacker's wallet address and flow of transactions followed by that address. If they detect fund is entering on some exchange, they let exchange to know that hackers have just deposited the stolen funds. This is how criminals are being caught. 

Image:-Chainalysis

 

Nowadays, scammers are finding other ways to sell stolen crypto-like on darknet/dark web so it can be extremely useful to follow the following safety measures.   

• Exchange owners can hire trained software engineers with enough blockchain expertise to create the safest system with higher security layers.
• Enable two-factor authentication
• Start to use anti-phishing software
• Use cold wallets to store valuable cryptocurrencies
• Blacklist the scam projects, hacker's wallet addresses, and suspicious websites. 

Thank You! 

[rekter 8129]

Good article! Quality as always.

 

I have been wondering how criminals can even relax after they have robbed an exchange. 

If i was a criminal i would be in constant panic about Chainalysis tracking my every move.

Everything literally leaves a trace, tracking methods get better and every move the hackers make stays recorded as long as those blockchains exist.

 

Any mistake that could give a clue about their ID will come back haunt them at some point as they can't even undo any mistake of a with this tech.

[Whited35 15285]

16 hours ago, rekter said:

Any mistake that could give a clue about their ID will come back haunt them at some point as they can't even undo any mistake of a with this tech.

@rekter Thanks for your feedback. I assume, you are also familiar with a great news, KuCoin has recovered $204 M in hacked crypto assets fortunately blockchain analysis companies like Elliptic helped exchange to spot the criminals. Criminal has also swapped stolen crypto on DEX but blockchain analysis companies can still trace the transactions record. It is looking extremely useful to down crypto-based crimes and we ought to thank a high transparency feature of blockchain technology.  

[Ridam 7455]

@Whited35 I had read the article about recent Twitter hacks criminal getting caught, 

Quote

Chainalysis carefully monitors the hacker's wallet address and flow of transactions followed by that address. If they detect fund is entering on some exchange, they let exchange to know that hackers have just deposited the stolen funds. This is how criminals are being caught. 

Exactly they had done same thing to split their funds and send on Binance exchange. One of them had verified account on Coinbase and another in Binance. Chainalysis was used to carefully monitor the transaction and FBI managed to find out them shortly. 

 

[Whited35 15285]

2 hours ago, Ridam said:

@Whited35 I had read the article about recent Twitter hacks criminal getting caught, 

Exactly they had done same thing to split their funds and send on Binance exchange. One of them had verified account on Coinbase and another in Binance. Chainalysis was used to carefully monitor the transaction and FBI managed to find out them shortly. 

 

@Ridam Exactly Chainalysis helped to law enforcement to catch Twitter hackers in the Bitcoin scam. Recently, KuCoin exchange has also recovered a massive amounts which was lost in the recent hack. Blockchain technology is looking extremely useful to control the cyber-crimes and Blockcahin analysis companies are doing their best. I think Binance is also using some Chainalysis products like Chainalysis KYT.

[Ridam 7455]

Quote

Recently, KuCoin exchange has also recovered a massive amounts which was lost in the recent hack.

@Whited35 I'm following Johnny lyu so I'm hearing the news about kucoin from his tweets. They have managed to recover the funds and also he tweeted that they had found the suspects of attacks and law enforcement are taking action over there. Yes it clearly shows how much importance chainalysis is playing for overcoming with the Crypto threats.

[Whited35 15285]

On 10/5/2020 at 10:23 AM, Ridam said:

@Whited35 I'm following Johnny lyu so I'm hearing the news about kucoin from his tweets. They have managed to recover the funds and also he tweeted that they had found the suspects of attacks and law enforcement are taking action over there. Yes it clearly shows how much importance chainalysis is playing for overcoming with the Crypto threats.

@RidamSurprisingly, Chainanalysis helped to recover the lost huge sum for KuCoin exchange. Now exchange has opened and restored some assets. The beauty of Blockchain technology is, transaction path can not be erased and blockchain analysis companies see everything and every activity from the hackers or scammers. 

[Ridam 7455]

2 minutes ago, Whited35 said:

@RidamSurprisingly, Chainanalysis helped to recover the lost huge sum for KuCoin exchange. Now exchange has opened and restored some assets. The beauty of Blockchain technology is, transaction path can not be erased and blockchain analysis companies see everything and every activity from the hackers or scammers. 

@Whited35 That sounds extremely helpful as hacks in Crypto field seems to be attached and happen in coming days too. But the chainalysis is helping in recovering the loss caused by hacks. And I have heard that some projects had freezed the hacked funds? What do you think about this as we are in Decentralized ecosystem?

[George10 9932]

On 10/3/2020 at 5:33 PM, Whited35 said:

, the blockchain community has already formed a forum named The Blockchain Alliance which aims to work together with the crypto community and law enforcement against criminals

That's a great article over there and it's good to hear about this forum named Blockchain Alliance formed to fight against crypto criminals and hackers by working together with the community,and I believe one day all sorts of hacks or attacks will be lessened while as all culprits brought to book and face the law.

[Whited35 15285]

11 minutes ago, Ridam said:

And I have heard that some projects had freezed the hacked funds? What do you think about this as we are in Decentralized ecosystem?

@Ridam Excellent questions. Well, projects have freezed their tokens by disabling the smart contract to prevent the further losses. It is really not good because some projects did not care their tokens investors or holders and they disabled tokens without giving another alternative to them. 

18 minutes ago, George10 said:

I believe one day all sorts of hacks or attacks will be lessened while as all culprits brought to book and face the law.

@George10 So we should thank the high transparency feature of the Blockchain technology. Are you familiar with the news that Kucoin exchange has recovered a huge lost amounts in crypto with the help of blockchain analysis companies ? 

[Whited35 15285]

4 hours ago, Nairobis5 said:

The cryptocurrency scams that netted criminals billions; And more! Sign up now and download your copy today! Scams are the biggest threat in cryptocrime, accounting for a large majority of all cryptocrime in 2019, more than tripling their revenue from 2018 to $4.3 billion. 92% of this was driven by Ponzi schemes. Blackmail scams nearly quadrupled from 2018, hitting $22.5 million in revenue.

@Nairobis5 Yes, crypto crimes are increasing that's why Blockchain analysis companies are looking effective but governments from so many nations have to make an unity to fight against crypto criminals. Blockchain analysis company alone can do nothing, co-operation and supports are needed. 

[Maharba 237]

The main reason why these thieves are so abundant, is because of the weakness or total absence of penalties that exist in most countries, even, there are countries they have absolutely no legislationat all on the digital markets and cryptocoins or in exchange, in this way, they do not feel any fear, because they know, they will not pay for their crimes, while not massive legislation happen in all our countries, they will feel safe, we don't. The bad side  is: when a government creates laws to contain crypto crime, it's because they know there is money using cryptocoins and they will also create laws to at least charge taxes for the use of crypto in those same countries.
 

[martcoinn 31]

Hi! very good note, very interesting, thank you very much for sharing it.

[Projectcrypto 4382]

Cryptoworld is filled up with many hackers, scammers and different fraudulent activity which is why we all need to be extra careful on how and where we store our valuable Cryptocurrencies because hackers have many techniques they use in order to hit the target but when we are vigilant the risk will be lessen, so we should use thrlikes of cold wallets to store our valuable Cryptocurrencies to avoid lose because there will be no one to compensate you if you lose in cryptoworld.

[Whited35 15285]

2 hours ago, Maharba said:

The main reason why these thieves are so abundant, is because of the weakness or total absence of penalties that exist in most countries, even, there are countries they have absolutely no legislationat all on the digital markets and cryptocoins or in exchange, in this way

@Maharba Alright, I got the crux of matter from your texts. I can only see effective action from blockchain analysis companies if governments from so many countries help them to catch the crypto scammers. Crypto transactions path can not be removed from blockchain so scammers are finding darknet market as the heaven. In future, wwe might still expect some advanced technology to keep down the crypto criminals. 

Still, blockchain analysis companies like Chainalysis, Coin Metrics are doing their best. 

[Maharba 237]

4 hours ago, Whited35 said:

@Maharba Alright, I got the crux of matter from your texts. I can only see effective action from blockchain analysis companies if governments from so many countries help them to catch the crypto scammers. Crypto transactions path can not be removed from blockchain so scammers are finding darknet market as the heaven. In future, wwe might still expect some advanced technology to keep down the crypto criminals. 

Still, blockchain analysis companies like Chainalysis, Coin Metrics are doing their best. 

@Whited35 I hope the do the best they can, I understand perhaps, they can think, to implement resources for security will be another load to blockchain companies, just, they  have to operate with its natural operations, plus they have to deal in the fight against this criminals, it's hard to do, I know, just I think, the health of the crypto system well woth it. lets see what the close future will give us, in order to enjoy a little of more peace for our money and work here. Btw I searchin about Chainalysis and Coin Metrics, I want to give a glance what they do, thank you for the information!

[prabesh2058 171]

Wow that's an amazing information.

We should not also forget about dark web transaction which are processed in the form of cryptocurrencies.

Since cryptocurrencies transaction are anynomous and cant be traced the owner so there is no way to find out the cryptocurrency transaction details.

We know that in dark web there is supply of criminal items and other things that enhances criminal activities and terrorism. In todays time due to anynomous feature of cryptocurrency most of these type of transaction are done with the help of cryptocurrency so that government cant trace it. It has been a great headache to the government.

[Whited35 15285]

8 hours ago, Maharba said:

@Whited35 I hope the do the best they can, I understand perhaps, they can think, to implement resources for security will be another load to blockchain companies, just, they  have to operate with its natural operations, plus they have to deal in the fight against this criminals, it's hard to do, I know, just I think, the health of the crypto system well woth it. lets see what the close future will give us, in order to enjoy a little of more peace for our money and work here. Btw I searchin about Chainalysis and Coin Metrics, I want to give a glance what they do, thank you for the information!

@Maharba First of all, I think you are facing difficulties to mention someone in comment. To do it properly, first type @ and write the letters of intended user name one by one not copy paste and from the suggestion, pick the desired user. 

I have also provided the links of Chainalysis and Coin Metrics in my topic too. At least I am following them to get the up to date information regarding the crypto crimes and their success rates to catch the scammers. 

[Maharba 237]

14 hours ago, Whited35 said:

@Maharba First of all, I think you are facing difficulties to mention someone in comment. To do it properly, first type @ and write the letters of intended user name one by one not copy paste and from the suggestion, pick the desired user. 

I have also provided the links of Chainalysis and Coin Metrics in my topic too. At least I am following them to get the up to date information regarding the crypto crimes and their success rates to catch the scammers. 

@Whited35 Yes! you are right, Another skill I learn today, thank you friend. A day with a new lesson, is a good day!

[Raqeebzy 6456]

@Whited35 What a great article you have here. Again, I am not surprised you always have good stuffs.

On 10/3/2020 at 4:33 PM, Whited35 said:

Due to massively increased crypto-based crimes, the blockchain community has already formed a forum named The Blockchain Alliance which aims to work together with the crypto community and law enforcement against criminals. It is the beauty of the blockchain technology that every transaction details are visible to the public it means once blockchain confirms the data, it can not be erased.

I don't know how old the forum is and time it has been in operation but I really believe it is a good development against crypto frauds. Recently, there has been a long list of cryptocurrency exchange hacks, scam exits and others; it is worrying as it is not so healthy for the crypto community as a whole, a very bad painting. This will surely reduce it to some appreciative extent.

[lonewolf 47]

these crypto hackers especially are pretty smart and intelligent, it amazes me how they are able to spot weak holes in a system and retrieve cryto from crypto wallets, its really amazing

 

[Calvinpriva 17296]

On 10/3/2020 at 6:33 PM, Whited35 said:

How crypto criminals steal crypto from the hacks and scams?
Get it clear, exchange and wallet hacks are not the same as blockchain network hacks. Generally, cryptocurrency exchanges and wallets are being hacked due to phishing attacks, loopholes in the system, and weakly managed servers, etc.

 

Well explained brother @Whited35 i thought criminals uses the same method to steal crypto from exchanges, wallets and blockchain network. But i still wonder how can phishing attack used to steal millions of coins from exchanges or wallets? Are there different ways of phishing or how does it happen?!

[Whited35 15285]

12 hours ago, Raqeebzy said:

I don't know how old the forum is and time it has been in operation but I really believe it is a good development against crypto frauds.

@RaqeebzyBlockchain Alliance forum is looking effective as so many exchange sites are also co-operating with it. If the governments from all nations be united then it is for sure, blockchain itself prevent the criminals from getting the wrong benefits. 

11 hours ago, Calvinpriva said:

But i still wonder how can phishing attack used to steal millions of coins from exchanges or wallets? Are there different ways of phishing or how does it happen?!

@CalvinprivaBrother, attackers first find the loopholes by analyzing the remote servers from the exchange. Basically, those exchange having mobile apps have to be more careful. Phishing attacks are done by sending a malicious email to exchange operators or admins. Scammers may send email by mentioning fake sites info with malware to make attack successful. 

[Calvinpriva 17296]

26 minutes ago, Whited35 said:

Brother, attackers first find the loopholes by analyzing the remote servers from the exchange. Basically, those exchange having mobile apps have to be more careful. Phishing attacks are done by sending a malicious email to exchange operators or admins. Scammers may send email by mentioning fake sites info with malware to make attack successful. 

Thank you my brother @Whited35 now i got you. I remember i read news about facebook hack and they lost over millions of USD by this phishing method for sending malicious emails to operators!

[Whited35 15285]

3 hours ago, usamah said:

I prefer storing in cold wallets because it is safer to store cryptocurrencies, and you are not in contact with the Internet, and you must take great care and caution, and I hope that the matter will develop until it becomes difficult for hackers to carry out their attacks

@usamah Cool, hardware wallet is safest but still be extremely careful while connecting wallet with online protocol.Malicious protocols are capable to route your money from your hardware wallet to another wallets. There are already growing numbers of crimes based on the cryptocurrency.