In a world where there is a perceived value of something - money, art objects, luxury goods, there are always those who want to take p...
In a world where there is a perceived value of something - money, art objects, luxury goods, there are always those who want to take possession of this value by illegal means. In recent years, cryptocurrencies have firmly entered this list. For many, they have become a very tasty morsel, promising a fast track to wealth, and there is no shortage of funds used to get hold of them.
Exchange hacks, ransomware viruses, phishing attacks are just a small part of the arsenal of tools used by cybercriminals in the cryptocurrency space.
But every action gives rise to opposition, and it is quite natural that they try to resist this criminal activity. The matter is not limited to physical protection of the infrastructure - the open nature of bitcoin and many other cryptocurrencies makes it possible to trace the movement of coins to a certain extent and, with sufficient efforts, to identify the person behind a particular transaction.
It was probably only a matter of time before specialized software appeared to make this process more efficient. Today in the cryptocurrency space there are several companies offering such solutions. The most famous of them are Elliptic, CipherTrace, Crystal Clear, Bitfury and, of course, Chainalysis, which in 2018 and 2020 was included in the list of Top 50 fintech companies according to Forbes and is one of the recognized leaders in this sector.
What does Chainalysis do?
According to Crunchbase, Chainalysis has raised over $ 50 million in investments and works closely with law enforcement and many exchanges including Binance, Bittrex, Bitfinex, and Paxful. Among the clients of the New York company are such US government structures as the Federal Bureau of Investigation (FBI), the Drug Enforcement Administration, and the Immigration and Customs Enforcement Service. Its suspicious-transaction tracking tools have been used in major international crime-catching operations.
For example, in 2018, the Dutch police used Chainalysis to liquidate one of the largest darknet markets at the time, Hansa, and arrest its administrators involved in the drug trade.
In 2017, Chainalysis co-founder and chief operating officer Jonathan Levin, speaking at a hearing before the US House of Representatives Subcommittee on Counterterrorism and Illicit Finance, said the company had located 650,000 BTC that had disappeared from the bankrupt Mt. Gox.
The WizSec research group connects the notorious Alexander Vinnik, who is suspected of laundering $ 4 billion through the BTC-e exchange, with the theft of these coins. Chainalysis tools helped her to track his trail.
It was the collapse of Mt. Gox, as Levine revealed last year in an interview with Unchained podcast host Laura Sheen, pushed him to create Chainalysis. Today, after five and a half years of operation, the company has become one of the most important components of the cryptocurrency industry - exchange hacks and theft of funds continue to occur, and in these situations its software often comes to the rescue.
Chainalysis actively cooperates with large financial institutions. It started back in the fintech accelerator Barclays, of which the company is a graduate. Its software, according to Chainalysis CEO Michael Gronager, helps them fight money laundering, detect fraud and investigate cybercrime, thereby facilitating compliance with legal requirements.
Today Barclays is one of Chainalysis's largest clients. According to Gronager, it was the participation in the British bank's accelerator that helped the company understand what exactly worries the financial industry about cryptocurrencies.
“We are part of a powerful community. Having established relationships with people at Barclays, we were able to understand what banks need to feel confident when working in the cryptocurrency market. Without participation in the accelerator, we would not have access to this understanding, and they would not have the opportunity to work with cryptocurrencies without knowing how to prevent money laundering through cryptocurrencies, ”said Gronager.
Why is the Bitcoin community criticizing Chainalysis?
Nonetheless, Chainalysis and other companies offering blockchain analytics tools enjoy a controversial reputation in the community, especially among the part of it that preaches the principles of Bitcoin maximalism.
On the one hand, their software can generate useful research reports on network activity of bitcoin and other supported cryptocurrencies (outgoing transactions, lost coins, etc.) or track the movements of stolen funds.
On the other hand, quite a few people are convinced that Chainalysis and their peers are going against the very spirit of bitcoin, flagging certain coins as "dirty" if they were involved in malicious transactions.
It is difficult to disagree with these arguments: the interchangeability of money, which is inherent in fiat currencies, in the case of cryptocurrencies for some reason is questioned, while their "quality" is determined by some companies.
Some believe that the use of such tools by government agencies can go far beyond the fight against crime and not only threaten the privacy of individuals, but can also help in persecuting dissidents, especially in countries with undemocratic regimes.
In a recent interview with What Bitcoin Did podcast host Peter McCormack, Jonathan Levine tried to allay those concerns.
“Bitcoin can be used for both good and bad purposes. I would not want North Korea to be able to create nuclear weapons thanks to cryptocurrencies, ”he said, commenting on data from Chainalysis that North Korea has accumulated $ 1.5 billion in cryptocurrencies to circumvent sanctions.
However, there was another question, with the answer to which Levin had difficulties. It was about whether he would feel comfortable if the government monitored all transactions with cash without exception.
It is noteworthy that it was McCormack who interviewed Levin, who a few months ago openly denounced Chainalysis as an "enemy of freedom."
However, not everyone agrees with this statement. So, representatives of Zcoin noted that Chainalysis fills the niche for which there is a demand, and if it were not for them, someone else would be in their place.
The true enemy of bitcoin (that is, the very freedom that McCormack talks about) Zcoin calls the fact that it does not have enough privacy, but not the firms involved in blockchain analysis.
In response to McCormack's objection that pimps satisfy the demand for prostitutes in the same way, Zcoin reminds that in many countries prostitution is allowed and regulated by laws, and where it is not, prostitution still works, but only thanks to bribery and corruption. Hence, "blockchain analysis is not a crime and cannot be banned due to its very open nature."
“The point is, you can't talk about an open decentralized ledger and hate companies that use its data. The best approach is to find real solutions to the problem, that is, more stable privacy mechanisms that would increase the cost of such an analysis, ”said Zcoin.
How to avoid being monitored on the Bitcoin network?
Chainalysis carefully protects the technological part of its tools, preferring not to disclose to the general public all the methods used to analyze transactions.
However, there are methods of counteraction, as one of the company's employees spoke about last year, to the surprise of many who arranged a question and answer session on Reddit . After 12 hours, probably under pressure from the management or, perhaps, at the initiative of the author himself who wished to remain anonymous, all comments under the original post were deleted, but they can still be found on the Internet.
From them you can learn a lot of interesting details from the inner kitchen of Chainalysis. For example, when asked about attitudes towards Coinjoin's coin mixing technology and the wallets that use it (Wasabi and Samourai), the now likely former employee of the company replied:
“Personally, I love her very much. The company's management, of course, hates her. This kind of thing removes the need for our / their software. They make it completely useless. "
According to him, even ordinary private coins successfully resist the Chainalysis tools, and if you add anonymization technologies here, all the company's work is nullified.
“Enemy number one is Wasabi. It is impossible to de-anonymize the coins passed through it, and I do not see how the government can legally close them. So we could say that if everyone was using Wasabi, Chainalysis would go bankrupt, ”he added.
The author of the thread also noted that another way to avoid the attention of Chainalysis and prevent them from determining their IP is to have their own node and electrum server.
Among the most "unethical" things Chainalysis does, he cited the fact that the company is fighting against the very purpose of cryptocurrencies (anonymity), reducing interest in them and pushing people to leave for platforms that it cannot track.
“They definitely think they're the good guys. And they definitely work with the government, which is not very comfortable for me personally. Hypocrisy is probably a good word to describe some of them ... No one in the company ever raises concerns about the ethics of our product. Only one person once expressed doubts that using our software, law enforcement agencies can abuse their power ... but he left, ”said a company spokesman.
He confirmed that Chainalysis manages its own Electrum nodes (at a certain stage, their number was 10% of the total number of nodes in the Bitcoin network, but did not agree with rumors that the company was carrying out "dust attacks" on addresses of interest to it for tracking purposes. According to him, there is no point in such actions, since this will not increase the quality of tracking.
Regarding the cryptocurrencies that went through the mixers, he said that such coins are flagged as high risk, just like coins that have been involved in transactions on the darknet. For greater anonymity, he recommended Monero in combination with VPN and Tor, but advised to be careful with mobile wallets, since they do not provide the required level of privacy.
“Remember, everything you do on the Internet is saved by someone,” added a Chainalysis employee, soon after which he deleted his account.
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Are Chainalysis and other similar companies really enemies of freedom, or, on the contrary, are they helping to legitimize cryptocurrencies and promote their wider adoption in a world where state control is becoming more strict every day and market regulation is becoming more stringent?
The answer is likely to be different for everyone. What remains unchanged is the need to take care of your privacy - both personal and financial.
