“The application of our unique dataset and our ability to quickly surface valuable insights means compliance analysts can home in on suspicious activity faster and with greater confidence, supported by an intelligent platform that enables fast interpretation of risk exposure at scale”

The world of crypto is moving at breakneck speed. In the 13 years since the Bitcoin genesis block was mined, blockchains and crypto have gone from innovative, yet fringe, technologies, to becoming embedded in the global financial ecosystem.

When talking about adoption of cryptocurrencies and cryptoassets, reliable data is hard to come by (an important point we will return to). The decentralized nature of crypto means people and entities hold multiple wallets in multiple different ecosystems, and new blockchains and assets are being created at pace.

For enterprises, sentiment around cryptoassets is warming quickly, even against the early breeze of a crypto winter, fed by a strong argument to say that blockchain and digital currencies can be used by financial institutions to lower costs, increase transaction processing speed, reach new customers and enable continuous auditing. To this end, 20% of large organizations will use digital currencies for payments, stored value or collateral by 2024, according to industry analyst Gartner.

Building a safer financial ecosystem
But for crypto to truly become a compelling financial product and a mass market proposition, trust is essential, and this is the domain of companies like Elliptic, the blockchain intelligence solution that crypto-enables compliance processes for AML and CTF (anti money laundering and counter terrorism financing) that are already well established in the fiat realm.

Founded in 2013, Elliptic has the most comprehensive blockchain dataset in the industry, covering hundreds of billions of data points from the earliest days of Bitcoin to the thousands of blockchains and assets that have emerged in recent years. The company covers more than 98% of all cryptoassets by market cap and two thirds of crypto volume worldwide is transacted on exchanges that use Elliptic solutions. But the focus of the firm’s innovation has been to make enterprise compliance teams more efficient and effective when investigating high-volume caseloads and to deliver a holistic view of risk across the broadest spectrum of assets, when screening against wallets, transactions, or exchanges.

To the point above - while reliable data is hard to come by in this industry, it is something Elliptic delivers in spades, ingesting vast quantities of data and outputting actionable insights via an intuitive user interface, and a rich and flexible API.

“The application of our unique dataset and our ability to quickly surface valuable insights means compliance analysts can home in on suspicious activity faster and with greater confidence, supported by an intelligent platform that enables fast interpretation of risk exposure at scale,” says Tom Robinson, Chief Scientist at Elliptic.

Bridging the gap to next generation blockchain intelligence
Back in 2014, there was only the Bitcoin blockchain and Elliptic pioneered the analytics space, transforming blockchain transaction data into a network view of wallets and the flow of bitcoins between them, where the wallets are linked to specific actors or entities. By 2017 new blockchains and assets had appeared, Ethereum being the next most recognizable name, but each asset was still considered in isolation. In the five years since we have seen major shifts in the use of cryptoassets, from a wider variety of assets including stablecoins, NFTs, and governance tokens, to low-friction cross-asset movement of funds through DEXs (Decentralized Exchanges), cross-blockchain bridges and wrapped assets.

Bridges, DEXs, and near frictionless crypto transfer have created a multi-chain world where BTC can be exchanged for ETH, and then to SOL. It can be mixed, demixed and more and criminals are using these innovations as a way to try and outwit blockchain analytics solutions only operating in single assets. Elliptic’s new Nexus technology shows that one cross-chain bridge in particular, RenBridge has been used to launder at least $538 million in cryptoassets originating from theft, fraud, ransomware and various other types of criminal activity since 2020.

Follow the money
Because the underlying transparency of the blockchain enables investigators to trace the movement of stolen funds relatively easily, criminals have an incentive to swap stolen assets for other cryptoassets quickly, in an attempt to break the digital trail. Without a multi-chain solution, enterprises are forced to each distinct asset or blockchain as a separate ecosystem, substantially increasing the resource overhead when assessing risk.

DEXs – which automate token swapping without taking custody of user funds or requiring the presence of a central intermediary – present certain advantages for criminals seeking to launder funds and most DEXs still do not engage in AML monitoring. DEXs also offer ample liquidity in a wide range of tokens, enabling rapid execution.

Hackers therefore will often swap their stolen tokens at DEXs prior to sending them to centralize exchange services, where they can be converted into fiat currencies – such as the US dollar or euro – and eventually laundered through the banking system. So being able to trace the movement of funds through bridges and DEXs is critical to a future-proof financial ecosystem. “Cryptoassets need to be treated as part of a single, highly interconnected financial system. In terms of screening and tracing this can only be solved by merging them all and viewing the entire cryptoasset ecosystem as a unified financial network,” says Robinson.