Name: Balancing the Ledger: Chainalysis Now Providing Monitoring for 10 Cryptocurrencies
Uploaded: 2019-04-23
Duration: 9 min 52 s
Description: Cofounder and COO Jonathan Levin stops by to announce new product features, and talk in-depth about current trends in crypto crime.

Welcome to balancing the ledger where tech and finance intersect. I'm Jen Wietczner. And I'm Jeff Roberts. And today were joined by Jonathan Levin whose the Co founder and COO of Chainalysis. Thanks so much for being here Jonathan. Thanks for having me on the show. So tell me a little bit about what Chainalsysis does. Chainalysis provides And seen money laundering software to prevent criminals from abusing cryptocurrencies. We provide investigation software for law enforcement to go after bad actors. And we provide compliant solutions for cryptocurrency businesses and financial institutions to identify high risk activity and report it to regulators What's sort of a state of illicit activity in the industry right now? I mean, is it as bad as people often say it is? We've seen the darknet markets continue to serve customers like the [ UNKNOWN ]. We've seen some beginnings of terrorist financing. But, we've seen much more sophisticated approaches by law enforcement and by the private sector to Got rid of the activity from the ecosystem, some of the best examples are some of the dark net market take downs and a lot of the arrests recently actually of a lot of the opioid dealers within the United States that has been happening in actually the last couple of months. And they say a lot of that opioid crisis was fueld by crypto transactions? So a lot of fentanyl that gets delivered into the United States comes by way of China, sometimes through Mexico and ultimately ends up in the United States. And what we've seen is that there is the ability to tie some of those cryptocurrency transactions either to the pharmacies in China and Well, actually, to the services that the people are using to distribute Fentanyl. And that has been something that Homeland Security and the DEA have actually become really good at apprehending those people. And you'll see many arrests that have come out of Take downs of , net markets and going after particular vendors. And they were able to do that because they kept track of the transactions on the block chain? Yeah, and this is where actually having the transparency of crypto currencies helps law enforcement actually build these cases a lot faster in a lot of instances. Than traditional finance where you might be waiting on a payment record from a Chinese payment processor or a corresponding bank in some different part of the world that takes a long time. With cryptocurrencies using Chainalysis, you can track that transaction instantly. And then ask the exchanges which customers are doing those activities. Chainalysis is expanding its products suite. Right now, you have Bitcoin and a couple others, but you're getting a lot bigger. Yeah, so most of our customers still just use Bitcoin for compliance and investigations. We've spent the last year rearchitecting our platform to make adding additional currencies really cheap and easy for us. So today we are launching ten cryptocurrencies. So that will be Bitcoin, Bitcoin Cash, Litecoin, Ethereum, and then we've got a basket of stablecoins. So the Gemini dollar packs true USD to have USDC as well. I'm also launching with a binance coin. So that's an exchange coin that the binance issues and we're going to be supporting that for both our compliance solutions and our investigation ( inaudible ). Was this in response to demand from law enforcement or why are you doing this? So, this has been in demand for both, this has been in high demand for the last year For both customer sites. We have exchanges that want to be able to offer any token that they want to be able to run. And law enforcement are now trying to track down, for example, hacks, where hackers are getting into exchanges and stealing not just Bitcoin, but they steal all the different tokens that that Exchange has. Do you find that criminals have a favorite cryptocurrency these days? And what is it? Bitcoin is by far the favorite. With our law enforcement customers we see that is over 95 % of cases involved bitcoin. Wow. What about the privacy coins [ INAUDIBLE ] and stuff? That's still a little bit out of your reach right? Those coins we're not supporting from a compliance stand point today. And the reason is that When you receive a lot of money from somewhere where you can't tell where you got the money from, you need to then use paperwork to understand where that money came from, and ask a lot of questions to those customers. What Chainalysis is about is automating compliance, making sure that you can Understand there's also funds progamatically and ( inaudible ) costs for actually doing the compliance. The one big scandal that I can think of this year is Quadriga where the funds weren't necessarily stolen, but the founder died very suddenly and then so they couldn't find any of the cryptocurrencies, or at least his wife couldn't access it. Do you have any insight into what was going on there? I know a lot of people Have been following it? Yeah, so we don't track living people. We track transactions. So I have [ UNKNOWN ] the transactions that were on the crypto currency ledgers. And we were looking at the bitcoin holdings and also tether holdings of Quadriga And what we found very quickly was that Quadriga as an exchange actually didn't have those customer funds that were reported in the media to be now lost. Those funds actually never existed, and so some of the industry has been raising a flag about it. For a while that this is an exchange that was operating on fractional reserve and maybe in deep trouble But they never even had the money or at least they never actually deposited it in the exchange Yeah And does any of the sort of forensic blockchain trail point to criminal syndicates roller? I think the You could follow sort of the method of laundering the funds and tie that to- you could tie some of that to other types of groups that are involved in money laundering and cryptocurrency. You have done a study of some of the syndicates that are very active in these facets. Tells us a little bit about what you learned there. There has been over a billion dollars hacked from Cryptocurrency Exchanges in the last year. And when we analyzed those hacks just from the transactions themselves, you can see how those funds are then being launded. And what we can see is that there are two groups, we call them alpha and beta And one a them takes that time before laundering the funds, lets it sit in a address for a long period of time before then moving large sums of it. And then the other group is much faster, probably more hungry for immediate cash, and Is moving those funds a lot quicker. Reading between the lines, are alpha and beta perhaps North Korea and another nation- state? Perhaps. But you can't definitively tell? So there has been a lot of evidence, actually, in the public domain that ties some of these hacks to Lazarus, which is the North Korean hacking group, and That evidence can be twinned with some of our evidence to suggest which one is North Korea. How would you kind of sum up the trends you're seeing. A lot of people in the crypto space are kind of afraid of mroe regulation, more afraid of sharing data or gathering data on their customers... What kind of effect is this going to have? So I think the regulatory clarity can only be good for this phase. Ultimately, the financial institutions that are offering services to cryptocurrency exchanges are the lifeline for this industry. And the regular tricality that is coming out is really helping build this relationship between close country business and financial institutions may play core role in that. What we see is that the processes that those businesses have to do for the compliance tampering are falling in line with financial institutions. I think you see a convergence where Financial institutions now look at cryptic currency exchanges, not as cryptic currency exchanges, but as financial institutions. And, when that starts to happen, I think you'll see the proliferation of products and potential also some [ UNKNOWN ] activity. But, do you think the overall crypto market's growing, or shrinking, or what's gonna happen in the next year or two? I think that there is Still a tendency to look a price and say, is that a good sentiment feeling on the market? My indicators are how many businesses in Japan are applying for licenses, either Japan financial services authority, how many new businesses are starting in Singapore? What sort of corporates are actually entering the space and offering products. Those are the types of indicators that we look at, and ultimately we create that bridge for those businesses to get involved in the sector. We've seen no slow down in the level of interest, and actually have seen an increase in the level of sophistication. I was talking to a minister yesterday from a country in APAC, and he asked me what's the difference between the move from Proof of Work to Proof of Stake. And I said, well, if a minister can ask that sort of question, The level of sophistication in the market has increased. Yeah, it sounds like the industry is growing up a bit. Well, on that note, thank you so much for being here, Jonathan. Thanks for having me. I'm Jen Wieczner. And I'm Jeff Roberts. For more Balancing the Ledger, please go to Fortune. com. We'll see you next time.

Balancing the Ledger: Chainalysis Now Providing Monitoring for 10 Cryptocurrencies

Finance

Cofounder and COO Jonathan Levin stops by to announce new product features, and talk in-depth about current trends in crypto crime.