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In their early days, cryptocurrencies were significantly used in darknet markets for illicit activities, including in the now-defunct Silk Road marketplace. Their use in these marketplaces led to a negative reputation that persists to this day, even though research shows illicit activity accounts for less than 1% of all crypto transactions.
Out of this small portion of transactions, blockchain analytics firm Chainalysis has found that the overwhelming majority of crypto-related crimes are made up of scams. On the other hand, fiat currencies are still dominating money laundering activities, with estimates of $1.6 trillion per year from the United Nations.
Nevertheless, there’s still criminal activity involving cryptocurrencies that cannot go unaddressed. Blockchains are essentially searchable public databases where anyone can see everyone’s transactions, so it’s very often possible to connect specific addresses to specific entities with enough digging.
As part of Binance’s commitment to the health and sustainability of the cryptocurrency industry, it has partnered with security and blockchain analytics firms to stop bad actors from getting away with illicit activities and taint the space’s reputation.
The Bulletproof Exchanger Project
Last year, the leading cryptocurrency exchange launched the Bulletproof Exchanger Project, meant to stop bad actors from using high-risk entities to launder ill-gotten gains on Binance or other cryptocurrency exchanges.
To succeed, the Binance Sentry team and its analytics arm, the Security Data Science team, develop algorithms trained on historical attacker data to help flag potentially malicious activity.
Bulletproof Exchangers are cryptocurrency platforms that can be used as “cash-out points for cryptocurrency operations connected to financial crimes and other fraud,” with lenient know-your-customer (KYC) and anti-money laundering (AML) policies.
The Bulletproof Exchanger Project, in August 2020, saw Binance analyze data in conjunction with regulatory technology startup TRM Labs to find these exchanges have a high proportion of transaction volumes linked to high-risk categories such as darknet-related activities and exchange hacks.
The Binance Sentry team then teamed up with the Cyber Police of Ukraine to identify and arrest a cybercriminal organization responsible for a ransomware campaign and the laundering of more than $42 million in cryptocurrencies.
When these groups get away with their laundering activity, they don’t just cash out: they recycle the funds and invest them back into infrastructure that helps further their operations and increase their ill-gotten gains. Taking down these networks prevents future attacks.
The FANCYCAT Takedown
Binance’s security team has since started working with international authorities in other investigations, including the Cyber Bureau of Korean National Police Agency, US Law Enforcement, Spanish Civil Guard, Swiss Federal Office of Police, and more.
The cooperation led to the apprehension of a prolific cybercriminal ring known as FANCYCAT that had been running multiple criminal activities. The group distributed cyberattacks, operated a bulletproof exchanger, and laundered money from darknet operations and high-profile cyberattacks.
FANCYCAT was responsible for over $500 million in damages related to ransomware and other cybercrimes. Binance managed to identify FANCYCAT’s operation through expanded anti-money laundering and analytics capabilities, which detected suspicious activity on Binance.com.
After detecting it, the security team identified a suspect network and worked with TRM Labs and Crystal to analyze on-chain activity and better understand the cluster it found. The analysis showed FANCYCAT helped launder funds from high-profile ransomware attacks in several jurisdictions.
Bolstering Crypto’s Security and Reputation
Ultimately, Binance’s work led to the identification and eventual arrest of FANCYCAT. The exchange’s work with law enforcement organizations and other entities helped take active criminals off of the web and make the space safer for everyone.
These takedowns also improved the space’s reputation. While a small percentage of crypto transactions represents criminal activity, cracking down on it using blockchain technology and big data shows crypto is safe to use and embrace.