Blockchain Data Platform Leader Issues Warning Over Rising Cryptocurrency Crime

CNME Editor-in-Chief Mark Forker sat down with Kim Grauer, Director of Research at Chainalysis, to learn more about some of the key findings that emerged from their 2022 Crypto Crime Report – and the how the blockchain-based data platform provides law enforcement with the “best data.” ‘ available to help them fight cryptocurrency crime.

NFTs are everywhere and their popularity has exploded in the last 12 months. However, as is the case with any new disruptive technology, there is always the possibility that the technology could be misused, and this has certainly proven to be the case when it comes to NFTs.

A comprehensive report compiled by blockchain-based data platform company Chainalysis illustrated concrete evidence that the rise in demand for NFTs has caught the attention of cybercriminals, who we know are well accustomed to following.” the noise”.

Since its inception in 2014, Chainalysis has enjoyed phenomenal success providing cryptocurrency exchanges, international law enforcement agencies and other clients with blockchain transaction analysis software to help them comply regulations, assess risks and identify illegal activities.

CNME managed to secure an exclusive interview with Kim Grauer of Chainalysis, to further explore how NFTs are used for illicit activities.

The report by Chainalysis revealed that there was a significant amount of washout trading when it comes to NFT markets – and Grauer kicked off the conversation by explaining what exactly washout trading is.

“Wash Trading is something we hear about in the crypto space, and it’s basically buying your own asset to artificially inflate the demand for that particular asset. For example, let’s say I start an NFT, but that no one buys it, I then proceed to fake request by buying my own NFT to make it look like there’s a lot of hype around this NFT, hoping it leads to someone believing that hype and buy the NFT,” Grauer said.

Wash trade is not a new concept in the cryptocurrency industry, but as Grauer has pointed out in the past, people were unable to gauge how bad it was until Chainalysis enters the fray.

“We have been hearing about wash trading in the crypto space for a long time, however, it has never been possible, or no one has been able to accurately estimate how much wash trading is happening. Some analysts will argue that 90% of order book volumes are fictitious trades, but there is very little evidence to support this claim.However, our approach is the first real data-driven attempt to demonstrate that wash trade occurs with NFT,” Grauer said.

Interestingly, the research director revealed that contrary to what people would expect, it is not so profitable to wash trade NFTs due to the excessive cost of transaction fees – and explained how they use their technology to track it.

“You can identify wash trading on the blockchain by simply looking to see if the person who bought the NFT on the platform received the money from the person who was selling the NFT on the platform. What we found with of the population of people who exhibited this behavior is that the majority did not make any money in this effort, simply because they spent more in transaction fees than they received of people falling from this scam One person we really looked at tried to wash his asset 800 times but it cost him about $32,000 in transaction fees but he only got $27,000 from people There was a small population making money, and a few of them were making a lot of money, but it’s still a big risk,” Grauer said.

Grauer added that people who engage in this activity are space-tuned and likely have a better idea of ​​what types of NFTs to pump, but stressed that it would still be a big risk.

As for what really triggered the explosion of interest, demand and investment in NFTs, Grauer said it was a combination of the fear of missing out on something big and the philosophical offerings of some NFTs have resonated with many potential investors.

“I think the interesting thing about NFTs is the potential for disruption because it represents this new digital concept of ownership. You have a feeling it’s going to be big, but you’re not sure why it’s going to be big. I believe the more philosophical offerings of NFTs are extremely appealing to people, and it could really disrupt the way we handle things. I think any space that’s growing very quickly will have people come in and bid to make sure they don’t miss the opportunity, so it explodes faster because investors don’t know what’s going to happen, but they don’t want to miss it. The hype has increased and we have brought many people into the industry, and now we have to put our money where our mouth is. We have to make these killer apps for people, so a lot depends on what comes from these developers and big business,” Grauer said.

The software deployed by Chainalysis has helped law enforcement uncover some of the internet’s darker underbelly, and Grauer explained how they equip agencies with the tools they need to uncover this kind of incognito crime.

“We invest most of our resources in identifying services, and we have experts in many areas of crime. We have an expert in human trafficking and child abuse and darknet markets, and they work to ensure that our data platform has all the best data – and is in partnership with the right people. We allow law enforcement officers to see transactions from human trafficking wallets, and then we step in and also provide data and investigative support. We work with cryptocurrency companies, financial institutions, government agencies and law enforcement, and each of them has a different data need and we meet their data needs with a different product. For example, with law enforcement, we will provide them with investigative products, while with financial institutions, we will provide them with compliance products,” Grauer said.

Regarding what she considered to be one of the most interesting trends to emerge from their 2022 Crypto Crime Report, she cited the growth of hacking and De-Fi this year.

“A common thread throughout our conversation is that all of this growth comes with risk, and people are investing in platforms that have been hacked and are insecure, so there is this need to have sustainable growth. where you can integrate new people in a sustainable way in the sense that it is not going to be the victim of an attack. We’ve seen this massive explosion of De-Fi and NFT, but it’s been countered by an explosion of hacking and scamming. We are working on industry solutions to combat this crime. A good illustration of this is that some exchanges use our software to prevent their clients from sending known scams and this has had the effect of reducing the number of scams by 80%,” Grauer said.

When it comes to what differentiates Chainalysis from its competitors in the market, the company’s research director was candid and concise in her response, saying she simply believes they have the best data.

“We try to illustrate how we are the best in the market with our reports, but I think we really bring the best data. We’ve been around since 2014, we have the best attribution, the best insight into how many crimes are happening, and we really are the best in the business in terms of the quality of our data, and that’s why we publish these reports, and in not only because we need to tell people about trends, but also because we are confident in the quality of our data. In summary, you won’t see this level of reporting in any of our competitors’ marketing materials, and the reason for that is if our rivals could, they would,” Grauer said.

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