Institutions Seek Detailed Blockchain Analytics for Crypto Adoption Elliptic

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

Compliance experts, investigators, and regulators use these blockchain analytics tools to better understand patterns and entities in cryptocurrency transactions.

To learn more about the tools and how they fit into broader cryptocurrency adoption, Cointelegraph spoke with Tom Robinson, co-founder and chief scientist of analytics firm Elliptic. ; and Eray Akartuna, senior cryptocurrency threat analyst at Elliptic.

Cointelegraph: What are typical use cases 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 Regulatory Compliant and Reduce fraud.

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

Magazine:Moral Accountability: Can Blockchain Really Improve Trust in AI?

Investigate crypto transactions: Investigator our blockchain investigation software allows graphical exploration of crypto wallets and transactions between them. Law enforcement investigators use it to track money and link criminal activity to individuals. It is also used by crypto companies to investigate potential illicit activities of their customers.

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

TR: The main difference is that most crypto transactions are visible on the blockchain. This makes it much easier to identify if the funds come from criminal activities by tracing them using blockchain analysis tools.

CT: Do you see a role for artificial intelligence (AI) and machine learning in on-chain analytics? In particular in the context of the prevention of fraud and the fight against money laundering?

Eray 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 some aspects of blockchain transactions where we can use machine learning to understand or identify certain patterns. The patterns observed on the Bitcoin blockchain are not necessarily the same as the patterns on the Ethereum blockchain; they work slightly differently. I would highlight the use of heuristics.

There are certain aspects of blockchain transactions where we have common expenses that will help us know if the addresses belong to a single entity or not if I want to identify illicit activities and illicit actors on a blockchain and identify their wallet addresses.

For example, North Korean hackers used programmatic laundering. The hack was carried out in 2018, where they used around 113 wallets to disassociate the funds from the original theft in an automated way. We could programmatically analyze the timestamps of these individual transactions to understand exactly how this automated software works.

If we are analyzing dark web markets or terrorist entities etc., the use of heuristics can help us identify if a wallet address has been associated with a certain illicit entity. We can then use these heuristics to understand which other wallet addresses may also belong to or be associated with this entity.

We obtained a risk score that is part of the predictive analysis. When we look at incoming and outgoing transactions from a group of wallets, we can ultimately see where they ended up. Entities identified as belonging to an exchange, a terrorist group or a black market can be spotted when they transact with particular entities on which they focused.

Let’s say that around 50% of this crypto went to a certain dark web market; we can actually use it to provide a risk score on the risk level of the portfolio. The risk score is then used by exchanges and banks to decide whether they want to do business with these wallet holders or not.

CT: What are the most complex problems you solve at Elliptic? Why are they complex and why is it important to solve them?

TR: The most complex and important problem that we have solved recently is how to identify the proceeds of crime in crypto, even when they have been laundered between assets and between chains. Criminals now move their products between assets, using decentralized exchanges; and between blockchains, using cross-chain bridges.

We have developed holistic filtering as a way to automatically trace crypto funds between assets and blockchains. This unique ability is now absolutely essential; otherwise, money launderers will exploit companies’ lack of visibility into their business.

CT: How do you see banks embracing digital assets and with this on-chain analysis? What has been the absorption so far?

EA: We are seeing slow but steady adoption, but compliance is a priority for banks. Blockchain analysis is seen as an essential part of the puzzle and a way to ease regulators’ concerns.

If institutions want to get involved in the decentralized finance (DeFi) space and plan to invest client funds, they need to know if the liquidity pool they are investing in is credible and has the right risk profile. If the liquidity pool has illicit funds flowing in and out of it, then there is a compliance issue. This is a key use case for institutions looking to get involved in DeFi.

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The other use case is where some challenger banks like Revolut allow their customers to hold and trade cryptocurrencies. These banks will need compliance and anti-money laundering capabilities before offering these products to customers.

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

TR: We have a constant dialogue with regulators around the world, many of whom use our products. It’s important that they understand how our blockchain analytics solutions work so they can have confidence in the compliance programs run by the exchanges and banks that use our products.

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