Since the crypto industry is growing at a frantic pace, blockchain analytics can help fill the void of curbing money laundering and cybercriminal activities, according to Raj Chowdhury, the CEO of HashCash Consultants.
“There has been a conscious effort in implementing stricter crypto regulations worldwide. Blockchain analytics will play a crucial role in decision-making processes for organizations dealing with crypto and blockchain technology,” said Chowdhury. Blockchain analytics is believed to be constructive in establishing order and propelling sustainable growth in the crypto sector.
Blockchain analytics render actionable insights that help enterprises comply with regulatory protocols regarding cryptocurrencies. Chowdhury said:
“The playing field required for innovation must not compromise the achievements we have made so far. Like any technology, blockchain is not immune to misuse. Hence the regulation is a necessity not only for AML compliance but also for developing blockchain research and the global crypto-community.”
As the cryptocurrency space continues grappling with the challenge of various lending and DeFi projects facing bankruptcy, Chowdhury has advocated the importance of crypto education when averting high-APY DeFi scams.
Rand Low, a quantitative risk modeller and senior fellow at the University of Queensland Business School, recently highlighted the importance of regulation and capital controls in fast-growing crypto lending platforms.
Low acknowledged that this would prevent depression and crashes in the market because the uncertainty rocking crypto lending entities like BlockFi, CoinLoan, and Celsius Network was causing panic selling.
A recent Wall Street Journal (WSJ) report disclosed that Celsius took more risk than it could handle because it had a total asset base of $19 billion. In contrast, its equity contribution was pegged at just $1 billion. Therefore, blockchain analytics can help prevent such trends by rendering more transparency and insights.
The price of Bitcoin (BTC) is increasingly correlating with that of tech stocks amid widespread uncertainty in the crypto markets, according to analytics firm IntoTheBlock.
In a new article, the market intelligence agency says that Bitcoin’s congruence with the Nasdaq 100 has reached a level it hasn’t seen in nearly two years and that the anticipation of looming regulations is causing investors to be skeptical.
“Bitcoin’s correlation vs the Nasdaq 100 reached its highest level since April 2020…
Now that artificially high monetary conditions are coming to an end, uncertainty is growing and buying interest is fading in anticipation of rate hikes and quantitative tightening.”
The market insights platform also says that based on their In/Out of the Money metric, they can find BTC’s key support and resistance levels.
“Based on this, we see high resistance around $38,000 where 1.27 million addresses previously bought 835,000 BTC. If Bitcoin clears that level, a move to $42,000 is likely.
On the other hand, some support can be expected at $35,000 where 291,000 BTC was acquired by 714,000 addresses. If this level fails to hold, Bitcoin should revisit its recent lows.
Momentum is still on the bearish side, though, with twice as many Bitcoin holdings near current price being held by addresses losing money on their positions.”
IntoTheBlock adds that investors can expect a potential upcoming supply shock of BTC due to the rate at which traders are currently moving the top crypto asset by market cap out of exchange platforms and into cold wallets or yield-generating protocols.
“Comparing the drawdowns experienced during May-July of last year and the current, the exchanges’ net flows paint [this] picture:
Between May and June of 2021, there were significant inflows of Bitcoin into exchanges (net amount of 130,000 BTC), coinciding with the sell-off that happened during that period.
This time, net outflows of 80,000 BTC suggest that less Bitcoin is available to buy at exchanges, as users tend to move these assets to cold storage or yield-generating strategies.
Ultimately, this suggests strong buying activity from holders, resulting in a potential supply shock as Bitcoin shifts from being held by short-term speculators to long-term investors.”
Bitcoin is exchanging hands at $41,490 at time of writing, an over 10% increase from its seven-day low of $36,920.
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After 12 years of adoption, the concept of bitcoin as digital money is now widely known. Ironically, when learning about bitcoin, many individuals are forced to (re)consider what money is. One example of a definition that they may run into is:
Bitcoin’s digital nature allows a seamless transfer of value across space. Its 21 million maximum supply makes it dilution-resistant and perfectly scarce, also allowing it to maintain purchasing power over time — assuming the future demand does not decline. So far that hasn’t been the case.
Quite the opposite, actually. In a world that is choking on the side effects of endless money printing and ever-growing mountains of debt, bitcoin’s hard money properties give it a gravitational pull from which it is difficult to detach. The resulting adoption improves its salability and market liquidity, repeatedly opening doors for even larger market participants to dip their toes into a pool that keeps expanding.
With bitcoin currently being added to the balance sheets of publicly traded companies and even countries, an increasing number of people are trying to answer the question “what gives bitcoin value?” and thus what a fair price is.
When Bitcoin was just one week old, Hal Finney became not only the first person besides Satoshi to mine bitcoin and receive the first transaction, but also the first to publicly speculate about its long-term value. By comparing its target market to a rough estimate of the worldwide household wealth, he envisioned a potential $100 trillion to $300 trillion market cap, which would give bitcoin a value of around $10 million per coin.
Since then, there have been many attempts at modeling both the short-term and long-term bitcoin price. Perhaps the most well-known models are the Stock-to-Flow (S2F) and S2F cross-asset (S2FX) models by PlanB that predict a price for the current halving cycle (2020-2024) of around $100,000 and $288,000, respectively. Although the statistical and methodological validity of either model can be debated, the models facilitated a narrative around scarcity as the central property that gives bitcoin value.
Others have attempted to predict the bitcoin price via regression models that use time as an input variable. However, the predictions of time-based models tend to vary depending on the time period that is used as input for the model, providing unstable predictions based on methodologically invalid models.
Another approach is to extrapolate futures price via statistical regression, but to adaptively value it in comparison to a baseline for “fair value” that adjusts as more information becomes available. An example of such a dynamic model is the Bitcoin Price Temperature (BPT), which attributes a relative valuation to price in comparison to its four-year average. Since the bitcoin price tends to move in four year cycles (at least historically), comparing prices to their four-year trend can help estimate how overheated or undercooled prices are. A downside of using just price is that it assumes that these trends are stable, which is not necessarily the case. Changes in market participants’ behavior can completely reverse a previously strong trend, which such purely price-based valuation models are only sensitive to after a lag.
An interesting aspect about Bitcoin is that its timechain is a public ledger of all transactions that were ever made. It provides a database about which legacy economists can only dream. In February 2017, Willy Woo first leveraged this by introducing the Network Value to Transactions (NVT) Ratio. In doing so, Woo pioneered the on-chain analysis field that has become very popular since then. The NVT Ratio compares the value of the bitcoin market to the value of all coins that are transacted weekly. Therefore, this models the bitcoin price based on one of the defining properties of money: the ability to transfer value.
Since the introduction of Woo’s NVT Ratio, Lightning Network adoption is changing Bitcoin’s on-chain footprint. An increasing amount of value is no longer being transacted directly on-chain but flows via channels on a layer on top of Bitcoin. As a result, the NVT ratio is gradually losing accuracy, creating a need for us to come up with alternative valuation methods.
HODLer Behavior As A Measurement Stick
If scarcity is a key aspect that makes a money valuable by allowing it to transfer value across time, investigating the behavior of those that have provably experienced this use case may provide meaningful insights into how it is valued by those that seem to understand it.
In March 2020, on-chain data intelligence company Glassnode made a first attempt at this. By analyzing the age of bitcoin transactions, they found that above a cut-off point of around 155 days, unspent transaction outputs (UTXOs) had a very low likelihood of moving on-chain again. Based on this, they created a metric they called Long-Term Holder (LTH) supply, which is the total amount of bitcoin that falls into this basket. In November 2020, Glassnode improved upon the metric by no longer looking at individual UTXOs, but instead utilizing (proprietary) algorithms and on-chain forensics to look at the average coin age of entities instead. They also applied a more fluid threshold for coins to age into this LTH supply.
A month later, in December 2020, Glassnode again iterated upon this concept by introducing a new metric called illiquid supply. Where the LTH supply looks at an entity’s average unspent bitcoin age, the illiquid supply looks at the entity’s spending history and classifies the entity as either illiquid, liquid or highly liquid. Figure 1 displays the circulating bitcoin supply (black), LTH supply (blue) and illiquid supply (red).
As can be seen in Figure 1, Glassnode’s algorithm for the illiquid supply appears to apply a more liberal method when it comes to classifying an entity as unlikely to spend.
Knowing how much supply is in the hands of these long-term holders and illiquid entities, we can calculate the Long-term holder Value (LV) and Illiquid Value (IV), which represent the total value of the LTH and illiquid supply (LTH or Illiquid supply * price), respectively. Since the bitcoin price can be volatile, applying a moving average over the LV and IV is helpful to better grasp its long-term trends. Figure 2 visualizes the LV and IV with a 1-year moving average that accounts for seasonal effects (e.g., seasonal effects on bitcoin mining, tax seasons, etc) on a yearly basis.
As can be seen in figure 2, the yearly average of the total value of the bitcoin supply that is in the hands of long-term holders and illiquid entities tends to be where the bitcoin price finds support during market downturns.
The reason for this can be attributed to a phenomenon called “HODLing,” which stems from a meme that finds its origin in a 2013 Bitcoin Forum post. Historically, bitcoin bear markets have proven to be tough, causing it to be declared dead 432 times at the time of writing. During bear markets, speculators that only bought bitcoin to try and get rich quick sell their coins. As a result, the market is flooded with excess supply that it may have difficulty absorbing after overly euphoric market conditions when the demand from these same speculators that drove up price falls away. Price then trends down until the low-conviction holders are all shaken from their positions and only “HODLers of last resort” remain. By holding onto their coins no matter what, this group effectively sets the price floor that was visualized in Figure 2. After all, thanks to the inelasticity of the bitcoin supply, price can only move up when there are no sellers left while there still is some demand.
Comparing Market Value To Illiquid And LTH Value
Similar to how David Puell and Murad Mahmudov created the Market-Value-to-Realized-Value (MVRV) Ratio that the anon account “Awe & Wonder” then standardized into the MVRV Z-Score, it is possible to compare the bitcoin market value to the illiquid and LTH value.
This is done by first calculating the difference between the Market Value (MV) and the Long-term holder Value (LV) and Illiquid Value (IV), respectively. That number is then divided by the standard deviation of the MV, creating the Market-Value-to-Long-term-holder-Value (MVLV) and Market-Value-to-Illiquid-Value (MVIV) metrics. The resulting MVLV and MVIV metrics therefore represent the number of standard deviations that the market value is (over)extended in comparison to the total value of the LTH and illiquid supply (figure 3).
Due to the similarity in the LV and IV metrics, both fundamentally and data-wise, the MVIV and MVLV are similar metrics, where the MVIV is the most expressive. The choice to use either should be based on the degree to which one feels that coin ageing should be considered to determine whether an entity is likely to sell their coins since that aspect is more strongly reflected in the LV than in the IV.
Both metrics allow historical comparison of the overall market value in comparison to the value of the supply that is in the hands of entities that are unlikely to sell. As can be seen in Figure 3, bear markets tend to bottom out at values around 0 (which is the 1-year moving average of the IV and LV itself) and have historically topped out at values of about 8 and higher. Although the cyclicality in Bitcoin’s market valuation is mesmerizing and seduces many to assume that history will repeat, there are no guarantees that this (four-year) cyclicality will necessarily continue.
MVIV And MVLV Bands
Now that we have a metric that quantifies the relative valuation of the bitcoin market in comparison to the value of the LTH and illiquid supply, it is possible to map the bitcoin price at each respective MVIV/MVLV level on top of the price chart, allowing us to graph how much room for growth or decline there is for price to reach certain MVIV/MVLV levels again. This was done before with the BPT Bands and MVRV Bands that were discussed above.
This is done by adding a multiple of the standard deviation of MV to the IV or LV itself, where the multiple represents the MVIV/MVLV value that you want to visualize. The resulting numbers are then divided by the circulating bitcoin supply to get the valuations per bitcoin. When plotted on top of the price chart, these values represent the “Bands” in the MVIV Bands and MVLV Bands concepts that are visualized in Figures 4 and 5, respectively.
Comparing Floor Models
With the MVIV and MVLV Bands added to the mix, we now have four bitcoin valuation models that each use different baselines to estimate its “fair value.” Figure 6 displays the baseline values of the MVIV, MVLV, MVRV and BPT Bands models.
As can be seen, the MVRV Bands baseline is the most responsive, since it is the only metric that does not include a one-year (MVIV & MVLV) or four-year (BPT) moving average component.
While relevant, that does not necessarily mean that it is the superior model to rely on. As can be seen in Figure 6, the baselines of both the illiquid and LTH supply value are currently above that of the MVRV, which has historically only briefly occurred late 2014 and late 2018 during peak bear market conditions, and never during a market uptrend towards all-time highs as is currently the case.
An explanation may be that a shift in how the world sees bitcoin may be happening. As can be seen in Figure 7, the trends for the percentage of the circulating bitcoin supply that is not on exchanges (blue) or that is labelled illiquid (green) have dramatically changed since roughly March 12, 2020.
On that day, global financial market sell offs triggered a cascade of long liquidations that took the bitcoin price down over 50% in two days and cleared the market of all excess leverage. Since then, publicly traded companies and now even a country have adopted bitcoin, while central banks have turned on their money printers heavily in their attempt to combat the economic downturn, creating a gigantic asset bubble instead.
In a time where bitcoin is making strides to replace gold as the go-to hard money shelter against monetary inflation, an increased adoption of bitcoin as an asset to transfer value over time means that coins become less likely to move on-chain. That trend may be exacerbated by Lightning Network adoption, which reduces the need to transact on-chain even further. As a result, unspent transactions may take more time to realize value via an on-chain footprint as is quantified in the MVRV metric. Simultaneously, their likelihood of being included in Glassnode’s illiquid or LTH supply increases.
If these trends continue, it is possible that the MVRV baseline will start lagging and that the presented MVIV and MVLV metrics may provide a more reliable estimate for the bitcoin floor price. It is therefore nice that we now have multiple similar options to fall back on that utilize this valuation method from different angles. For the time being, these metrics are very similar — especially when the bitcoin market value deviates further from the respective baselines (Figure 8).
The similarity between the floor models that are depicted in Figure 7 and the resulting metrics of Figure 8 can also be seen as a form of confluence. The MVRV, MVLV and MVIV all incorporate the lifespan of the underlying coins. These metrics therefore reflect investor time preference and hold valuable information about the relative bitcoin valuation in comparison to the price floor that is set by HODLers.
A limitation of the presented MVLV and MVIV Bands metrics that we need to be cognizant of is that proprietary algorithms were used by Glassnode to construct the illiquid and long-term holder supply metrics. It is likely that Glassnode will keep improving upon those algorithms to optimally service their clients, which would mean that both future and historic values may be subject to change over time. Charts representing MVIV and MVLV (Bands) metrics therefore should be seen as a snapshot in time that uses the most up-to-date method to quantify the supply that is in the hands of entities that are unlikely to spend it, and not to be compared to prior visualizations of the same metric.
At the time of writing there is no web-based version of the metric available yet (Glassnode’s Workbench currently does not support an expanding standard deviation), but the R code for the metrics and charts presented here is available on GitHub.
Special thanks go out to@Anoi30604540, @_Checkmatey_and@WClementeIIIfor providing feedback on the draft of this article.
Disclaimer: This article was written for educational and informational purposes only and should not be taken as investment advice.
This is a guest post by Dilution-proof. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
Leading U.S. cryptocurrency exchange Coinbase has secured a contract to develop tech for the Department of Homeland Security worth as much as $1.36 million.
Under the agreement, Coinbase has been contracted to deliver “application development software as a service” for the U.S. Immigration and Customs Enforcement division (ICE).
The contract took effect on Sept. 16 and will see Coinbase receive $455,000 from the department. However, the contract could be extended to last for up to three years in total, which would see Coinbase receive up to roughly $1.36 million.
The deal is the second partnership inked between Coinbase and ICE, with the exchange having secured a $30,000 contract to provide “computer forensics services” to the agency in August.
The news has received backlash from the crypto community, with Human Rights Foundation chief strategy officer Alex Gladstein asserting the compensation is relatively low given the scale of Coinbase’s operations and the reputation risk posed to the exchange by the partnership:
“This isn’t very much money for Coinbase in the grand scheme of things. Strange that they would risk much reputationally such a relatively small sum.”
The news has also resurrected criticisms concerning Coinbase’s 2019 acquisition of blockchain analytics startup, Neutrino.
During the year of the acquisition, it was reported that the people behind Neutrino had previously been part of Hacking Team — a company revealed to have helped authoritarian regimes to spy on journalists.
Neutrino CEO, Giancarlo Russo, was the ex-COO of Hacking Team while its CTO, Alberto Ornaghi, was at the company for more than 8 years. According to the Washington Post, the Italian company was implicated in the murder of a number of journalists in the Middle East between 2013 and 2018.
In March 2019, Coinbase CEO Brian Armstrong said that Neutrino staff with prior connections to controversial firm Hacking Team would transition out of their new roles at the exchange.
Responding to Coinbase’s new contract with ICE, Kraken CEO Jesse Powell, tweeted:
“Even more bizarre is the acquisition they made and reputational hit they took to be able to offer this service to the government.”
Related:Coinbase CEO Defends Licensing of Analytics Platform to Gov’t Agencies
Since its acquisition of Neutrino, Coinbase has also inked contracts with the U.S. Secret Service — which announced the creation of a Cyber Fraud Task Force in July 2020. The task force has been mandated to investigate the use of cryptocurrency for criminal purposes, stating later that year:
“Cryptocurrency presents a troubling new opportunity for individuals and rogue states to avoid international sanctions and to undermine traditional financial markets, thereby harming the interests of the United States and its allies.”
Coinbase is currently embroiled in a regulatory tussle with the Securities Exchange Commission, with the regulator taking umbrage with its planned stablecoin lending product and threatening to take the company to court.
Asset management giant Fidelity is delving deeper into the digital asset space with the announcement of an analytics platform called Sherlock.
In an announcement on April 29, Fidelity Investments — which has $10 trillion assets under management — unveiled a digital assets data and analytics solution to assist institutional investors and fund managers.
The platform, dubbed Sherlock, will be similar to Bloomberg’s Terminal and will collate data on fundamental and technical analysis, blockchain data, market data, social sentiment analysis, and industry news into one portal.
It will include research on crypto assets from some of the leading institutional data providers, in addition to unique analytics to help investors evaluate the market, according to the announcement.
The new platform will compete against existing solutions from companies such as Messari which was launched in 2018 to provide institutional-grade analytics. Research firm Delphi Digital, which announced a partnership with gaming venture firm Bitkraft on Thursday, is another provider of in-depth research and analytics for institutional clients.
Other platforms offering a deeper level of data and analytics include Glassnode, Skew, Coin Metrics, Dune Analytics, and Santiment.
Kevin Vora, vice president of product management at the Fidelity Center for Applied Technology, acknowledged the increased institutional interest in the crypto space:
“It’s been exciting to see the tremendous growth in the digital assets data space over the past few years, and while the market is maturing rapidly, we’ve heard from institutional investors that there’s still a need for a comprehensive and accessible data solution,”
In addition to an advanced set of analytics tools for institutional investors, Sherlock will also allow users to explore the data off-platform for modeling and back-testing.
Senior associate at Blockchain Capital, Kinjal Shah, commented that one of the major challenges when researching crypto markets is piecing together information from numerous resources, adding that “Sherlock helps us research more efficiently by giving us access to holistic, timely data, which is crucial in this fast-paced market.”
Fidelity’s Center for Applied Technology (FCAT) also has a blockchain incubator team that conducts research and builds proofs of concepts around specific use cases for distributed ledger technology.
Fidelity is bolstering its crypto asset presence which began in 2014 with BTC mining. On March 24, the investment giant filed for a Bitcoin ETF aiming to be the first to provide such a product in the U.S.
On April 8, Tom Jessop, who heads Fidelity’s crypto division, stated that he believes things have reached a tipping point for the crypto asset industry.
It’s every exchange’s worst nightmare: Falling victim to a security breach. An incident can disrupt a trading platform’s operations for weeks, affect customer confidence and damage a carefully cultivated reputation — even causing crypto markets to fall in some cases.
Crypto companies have been ramping up their security measures in recent years, determined to ensure that malicious actors don’t get an opportunity to infiltrate their systems. This has prompted hackers, scammers and fraudsters to rely on more sophisticated techniques.
One crucial weapon has emerged that helps trading platforms take speedy action in the event that their infrastructure is compromised: Analytics software. But how do these companies go about their investigations whenever a breach is reported? What are the tools that can be relied upon to follow a thief’s tracks?
This is a step-by-step guide to investigating crypto fraud, security breaches and ransomware.
Hunting the hackers
Irrespective of whether cryptocurrencies are stolen through fraudulent activities or scams — with ransomware becoming an increasingly popular method for swindling victims — investigation techniques often follow a similar pattern.
The first step is to identify a criminal’s crypto address as soon as possible. This information can then be passed on to analytics software companies, which can immediately tag the address as high risk. Doing this quickly can ensure that the entity is easier to track. There can be times when there’s little information about an address hash, but this doesn’t mean that there’s a dead end. That’s because transaction and date filtering can be used instead.
Next, it’s a race against time to start tracking bad actors who may begin to obfuscate the funds that they have misappropriated. They may start sending transactions to other exchanges or use mixing services and darknet entities. Although this commonly happens immediately after crypto has been taken, it can sometimes take months or years for obfuscation to commence — when a criminal may think no one is looking. Analytics providers can offer transaction alerts to ensure that victims can be immediately notified when funds flow to or from an address.
These transaction alerts need to be acted upon as a matter of urgency, as work begins to follow the trail. A crucial step involves notifying exchanges that might end up receiving some of this crypto to ensure they are able to block stolen funds that flow into their accounts. Visualization tools can play a role in illustrating how misappropriated assets are distributed — and show the addresses that may be directly or indirectly connected to the criminal.
An investigation in action
Crystal Blockchain has shared an example of how investigations work in practice. The analytics software provider recently played an instrumental role in examining the aftermath of a hot wallet security breach that affected Eterbase in September 2020, which Cointelegraph reported on at the time.
Immediately after the theft took place, Eterbase sprang to action by publicly announcing the address that was used by the Bitcoin thief. This enabled Crystal to immediately tag this wallet as a high-risk entity.
Quickly, it became possible to piece together information about this address — including statistics on further transactions and connections. It soon emerged that this suspicious wallet had connections to 16 other addresses.
Through Crystal’s All Connections tool, it was revealed that this address had indeed received funds from Eterbase, as well as other exchanges, which had been sent on to a plethora of unnamed entities.
The company said it was able to look further than a one-hop distance — and include indirect connections in its results. From here, it was established that 80% of the total funds that were stolen had been sent to a mixing service.
Eterbase went live once again on Jan. 15 — with its team asking exchange users to stop using old crypto deposit addresses that belonged to their accounts. In an update at the end of January, the company said that an official investigation is still ongoing — and it stressed that affected users who are eligible for a refund will receive one as soon as possible.
Crystal Blockchain says crypto crime is growing in parallel with the crypto markets. The company recently released a map of security breaches and fraud within the digital assets sector over the past 10 years.
The interactive timeline tracks the number of incidents in every year since 2011, and also provides a total figure for the funds that were stolen. Its data suggests that $1.48 billion was taken across 28 incidents in 2020.
Users who visit this article can also use a spinning globe to find out the total volume of funds that have been stolen in countries around the world — with the hardest-hit nations colored in the darkest shade of red.
According to Crystal, the most common locations for exchange breaches include the U.S., the U.K., South Korea, Japan and China. The largest-ever crypto security breach remains the incident involving the Japanese exchange Coincheck in 2018, overtaking the Mt. Gox incident back in 2014.
Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.
MicroStrategy is moving to assemble a blockchain analytics team. It would be the first bitcoin-related software product from a company best known for CEO Michael Saylor’s whopping bet on BTC as a reserve asset.
The firm, based in Tysons Corner, Va., put out calls on LinkedIn Friday for a Blockchain Data Analyst and Blockchain Data Engineer, explaining in job postings they will join a team “building an analytics platform with advanced metrics and insights for Bitcoin.”
MicroStrategy hinted last November its interest in building blockchain data products and even stated its intention to hire for them. Executives did not go public then with positions of interest and remained largely mum on program specifics, describing it as a potential data offering at the time.
But Saylor has been vocal about perceived deficiencies in bitcoin’s data. He declared last October that “garbage” market data was holding bitcoin back. “Where can you find something so incredibly compelling that has such bad data around it relative to other assets?” Saylor said at the time.
For a man who spent much of last week all but pleading his fellow CEOs to adopt the bitcoin standard, there’s an obvious, and vested, interest in improving upon the “garbage.”
MicroStrategy did not respond to a request for comment by press time.
The dual hirings add a rough picture to what is could eventually become a commercialized intelligence offering for digital assets beyond just bitcoin. MicroStrategy wants analysts experienced with public, private and permission blockchains (Bitcoin’s network is public and permissionless).
A product would also produce shareable, digestible analytical insights, the listings indicate. MicroStrategy’s new engineer would be responsible for developing software capable of turning troves of data into “visualizations” that can be shared with “broader audiences.”
The job postings position MicroStrategy to capitalize on bitcoin Saylormania through the software intelligence space, which, as is so easy to forget for a company with 71,079 BTC on its balance sheet, is the firm’s longstanding business expertise.
The crypto industry has boomed over the past 12 months. While 2019 began with a total market cap of $200 billion, the explosion in Bitcoin’s value resulted in this figure surging fivefold as 2020 began — and according to CoinMarketCap, the digital assets space was collectively worth $1 trillion at one point.
However, as the crypto sector continues to grow and flourish, so too does crypto-related crime. Virtual assets worth $3.8 billion were lost to fraud in 2019. This figure rose to almost $4.9 billion in 2020.
Fraud, money laundering and the financing of terrorism are not issues that are exclusive to the cryptocurrency sector — and every financial system on Earth has had to take action to ensure its infrastructure isn’t used for illicit purposes. But now, regulators around the world are stepping up their efforts to clamp down on criminal activity — and this has the potential to affect operations for crypto service providers, many of whom are still behind the curve.
Mainstream media coverage of digital assets has increased dramatically in recent months, with countless column inches devoted to BTC’s current bull run. This increased exposure also results in newfound scrutiny, especially when exchanges fall victim to high-profile hacks. Thankfully, there are ways for crypto businesses to take action, to protect their operations, and to work in the interests of their consumers in the process.
Amid the fractured landscape of regulatory developments for crypto, one of the most important sets of guidelines has come from the Financial Action Task Force, which has 39 members including the European Commission, Japan, the United Kingdom, and the United States.
The FATF recently unveiled a series of red flag indicators that suggest potentially suspicious activity is taking place — or possible attempts by entities to evade law enforcement. For example, the size and frequency of transactions could set off alarm bells for compliance officers, especially if such repeated payments are made that fall just underneath the threshold for reporting.
Other issues may arise where deposits are made using bank accounts that use a different name to the one registered with a crypto exchange, where mixers and tumblers are used to obfuscate the origins of BTC payments, or where potentially suspicious IP addresses are used.
At first, it might seem like a nightmare for virtual asset service providers to introduce safeguards that quickly detect when these red flag indicators emerge. In a competitive marketplace, some will be concerned about the costs associated with stopping high-risk transactions in their tracks — as well as the disruption that their operations could face if legitimate activity is mistaken for something more sinister.
But platforms do exist that can monitor new transactions in real time — instantaneously assigning a risk score to each and every transaction. This is by no means a straightforward task, as the high volume of transactions running through blockchains daily means that analysis needs to take place continuously and without interruption.
The speed with which bad actors can execute transactions also means that compliance systems need to be fast acting — identifying centers of suspicious activity, and creating meaningful connections to other wallets where potentially illegally acquired funds are distributed. Past data may also be used to anticipate future events, meaning that exchanges can receive a warning that potentially risky activity is about to happen — even if a transaction hasn’t been confirmed yet.
The benefits associated with this type of software aren’t hypothetical. In late September, KuCoin announced that close to $280 million was stolen from its exchange as a result of a security breach. Analytics tools enabled the company to track down and freeze these funds so they couldn’t be laundered further — and 84% of the assets taken were later recovered.
The technical nature of blockchain — along with the prevalence of crypto scams — has caused a significant image problem for Bitcoin in society. But despite missteps in the first decade of its existence, aspects of blockchain design champion transparency and security — meaning it can offer far greater levels of protection than older financial systems. If $500,000 in banknotes are stolen from a bank vault, the funds could end up being far harder to track down than if the same amount was taken in BTC from an exchange that has safeguards in place.
Crystal Blockchain says its analytics platform enables compliance officers and anti-fraud departments to stop illicit activity in its tracks — and monitoring can either be performed manually or automatically as settings are configurable by the user.
This is achieved by understanding the provenance of funds being sent over the blockchain, their connections, their flow paths, and by alerting crypto service providers if these assets are stolen or fraudulent. Addresses and bank cards can be linked to fraud, extortion, ransomware and darknet marketplaces. Businesses can also be alerted when entities are attempting to deposit to or withdraw funds from accounts and exchanges that have little or no due diligence procedures in place.
Institutional adoption of cryptocurrencies is happening at a staggering rate — and as we head into 2021 and beyond, Wall Street is ramping up efforts to ensure it has the infrastructure required for traders to gain exposure to digital assets. But this comes with an expectation of a mature marketplace, meaning crypto service providers need to take the necessary actions to ensure they aren’t operating in the Wild West any more.
Marina Khaustova, the CEO of Crystal Blockchain, told Cointelegraph: “The crypto industry is relatively young, and as the technology develops it also brings with it unique compliance requirements. We need to combine the best practices of the more mature financial industries with the knowledge amassed by crypto market experts to combat money laundering and the financing of terrorism. By assisting with fraud identification and suspicious activity monitoring on the blockchain, Crystal aims to improve safety and trust in the global financial markets.”
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