FIs Seek Expert Insights on How Best to Tame Crypto

When Chainalysis helped U.S. authorities track down and retrieve $30 million in crypto stolen in March by a very sophisticated North Korean government-sponsored hacking group, the work the blockchain data platform performed was very complex. But what it did was provide tools and expertise to make tracking the stolen ether easier for the federal agents.

Cryptocurrency blockchains like Ethereum and Bitcoin make every transaction open for the public to see, but keep the identity of the people making them hidden behind alphanumeric digital wallet addresses.

See also: Chainalysis Aids US in Recovering $30M in Stolen Crypto

Peter James, director of Americas training at Chainalysis, explained that “you can see the movement of value from one pseudonymous identifier that we call an address to another, [but] you’re not going to be able to tell what’s happening with those funds subsequently without the right tools. You won’t have the context” of whether it’s going to a mixing service that tries to break that publicly-accessible transaction trail, to a wallet that belongs to a sketchy fiat off-ramping service or somewhere else.

He added that one of the company’s main products, Chainalysis Reactor, provides context and visualization tools to investigators, compliance officers and regulators — such as addresses known to belong to hackers or to unlicensed money service businesses.

Read more: Is Bitcoin Really Anonymous and How Can Law Enforcement Track It?

Keep It Simple

That core service, simplification, is at the heart of the company’s new, open-to-all Chainalysis Academy, a series of free, online video courses launched this summer by its learning team’s training experts with the goal of providing “a resource for anyone who’s crypto curious,” not just investigators, James told PYMNTS.

“There’s a lot of information out there on cryptocurrency on the internet,” he said. “We think there’s a really constructive role for us at Chainalysis to play in the education space.”

For example, it explains what proof of stake is and its importance to this month’s Ethereum Merge, and it explains how non-fungible tokens (NFTs) work, “but we’re not at the same breath trying to sell you ether … or trying to convince you to bid” on a digital cat or Bored Ape, James said.

Learn more: Planet of the Bored Apes

“We’re looking to equip people with the tools to better understand the space and help them not be misled by the hype,” he said, adding that no prior learning or technical know-how is needed for the online video courses. “Our aim is to be able to explain this effectively to anyone who’s interested.”

Financial Focus

For financial institutions specifically (FIs), that might mean simplifying decentralized finance (DeFi) or showing how NFTs, which have largely been used for art and collectables, can be used for anything unique that needs a provable record of ownership — tickets to events, fractionalized real estate purchases, digital identity documents — and can even enhance loyalty programs like the one Starbucks just announced, James said.

Related: Starbucks Deploying NFTs in Rewards Program

“There are significant opportunities here and customers of financial institutions will definitely be purchasing these tokens, and more businesses will be thinking about how they can use them,” he said. “Generally, how to take a risk-based approach to cryptocurrencies.”

Then there are other areas that might cross over from traditional finance like “sanctions, regulations and how blockchain analytics can enable transaction monitoring,” James said.

One set of courses that would be particularly useful for FIs’ compliance teams is about Chainalysis’ know your transaction (KYT) monitoring system, which “enables any business interacting with cryptocurrency to monitor their customer’s transactions and receive alerts in real time — based on risk thresholds they’ve set — and review them and decide the appropriate compliance action to take,” he added.

See also: DOJ Asks Congress for Tools to Limit NFT Money-Laundering Risk

That can range from a deposit into a wallet address known to be linked to scams, ransomware and even — at the extreme end — terrorist activities, James explained.

“You can layer on more traditional typologies for transaction monitoring,” he said, suggesting an alert for multiple cryptocurrency deposits just below the $10,000 threshold — which might indicate structuring funds — or for repeated large-dollar value transfers from peer-to-peer exchanges, which “could suggest someone’s acting as an unlicensed money service business.”

More broadly, “Cryptocurrency is impacting across financial services with decentralized applications, offering payments, lending, insurance and far more,” James said. “Our goal with the academy is really to provide accessible, professional and expert-created learning [which can] help anyone in that financial institution space feel more comfortable with what’s going on in this ecosystem.”

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