In the Q2 Cryptocurrency Anti-Money Laundering Report written by CipherTrade, a data security company, it is stated that cryptocurrency theft from exchanges has nearly tripled since last year. That is only considering major known thefts for Q1 and Q2 data for 2018. The actual number may be greater as stolen funds may not be reported or ongoing unbeknownst to exchanges.
CipherTrace’s research and data has accounted for nearly $760 million in stolen funds so far in 2018. In comparison, 2017 had a total of $266 million reported to have been stolen from exchanges. Some of the largest thefts this year include $30 million worth of crypto from South Korean exchange Bithumb, $170 million from the Italian exchange Bitgrail, and $500 million from Japanese exchange Coincheck.
Cyber extortionists are said to be utilizing dark markets to fence stolen funds and anonymously launder them by using mixers, chain hopping, and privacy coins. These methods allow transaction data to be scrambled leaving the trail of where they originated from difficult to trace. Many of these scripts are said to be highly complex written by technologically skilled programmers with PhDs or sophisticated hacker groups. The report also states while many different altcoins have been included in thefts, hackers seem to prefer exchanging altcoins into Bitcoin on the black market.
Dave Jevans, the CEO of CipherTrace, said they are using a risk scoring mechanism that allows the system to look at every transaction or address involved in crypto thefts. While the exact total amount of money-laundering activity can’t be traced, Jevans estimates that at the rate of thefts that have occurred in Q1 and Q2 he is expecting the total amount of stolen funds to rise to at least $1.5 billion by the end of the year.
In response to the increase in exchange thefts and money laundering, financial regulators like FinCEN and the FATF are working on creating and enforcing global anti-money laundering laws increasing KYC (know-your-customer) and AML (anti-money laundering) regulation as well as penalizing exchanges that don’t comply.
“Until now, the lack of regulatory guidance has hindered the broader adoption of cryptocurrencies. Now we are seeing the big guys coming together asking for cryptocurrency anti-money laundering regulation—it is inevitable, it will be unified, and it will be global. There will be little room for privacy coins without AML or mixers in these Know Your Customer and Anti-Money Laundering regulated regimes. This will also be a wake-up call for virtual currency exchanges and financial institutions, exposing them to the risk of facing stiff penalties.”
Dave Jevans, CEO of CipherTrace
Download and read the whole Cryptocurrency Anti-Money Laundering Report.
CipherTrace develops blockchain security, AML compliance and enforcement solutions that make cryptocurrencies, crypto tokens and enterprise private blockchains safe and secure. CipherTrace was founded in 2015 in California USA. CipherTrace operates globally and has top cryptocurrency, payments and security executives and programmers on its team. Founded by experienced Silicon Valley entrepreneurs in 2015, CipherTrace was funded by DHS Science and Technology and DARPA to develop their cryptocurrency tracing capabilities. The team has deep expertise in cyber security, payment systems, banking, encryption, bitcoin mining and were the early participants in the bitcoin community. CipherTrace has the backing of leading Silicon Valley venture capital investors.