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INDUSTRY UPDATES & INSIGHTS

November 25, 2020

CipherTrace Monero Patents | DeFi Protocols Hacked | I Screen My Bitcoin | Crypto Takes Hold in New Countries | Millions Seized in Brazil

  • CipherTrace Announces Patent Filing for Monero Tracing Techniques
  • Fresh Rounds of DeFi Hacks Continue to Plague Booming Industry
  • Blockseer Announces Plans to Pre-Screen Bitcoin Blocks
  • Cryptocurrency Regulatory Updates in Kyrgyzstan, Pakistan, and Belarus
  • $24 Million Has Been Seized from Brazilian Fraud Scheme  
  • Partner Success Story: XREX Investigates a High-Risk Withdrawal

CipherTrace Files Second Monero Cryptocurrency Tracing Patent

We announced Friday the filing of our second Monero tracing patent application: Techniques and Probabilistic Methods for Tracing Monero. This filing follows on our first XMR-related patent application, Systems and Methods for Investigating Monero. Together, these patents cover:

  • Forensic tools to explore Monero transaction flows to assist in financial investigations.
  • Development of original tracing methodologies based on simulation techniques and Bayesian approaches.
  • Statistical and probabilistic methods for scoring transaction and clustering likely owners.
  • Decoy reduction and probabilistic approaches to Monero AML controls.

CipherTrace has been developing these tools since early 2019 within the scope of a Department of Homeland Security project. This project lays the groundwork for future implementation of entity transaction clustering, wallet identification, exchange attribution, and other functionality that will provide law enforcement with even more tools for investigating Monero transactions and addresses related to criminal activity.

Read more about the filing and CipherTrace’s dedication to privacy:

https://ciphertrace.com/ciphertrace-files-two-monero-cryptocurrency-tracing-patents/

DeFi Platform Cheese Bank and Stablecoin Project Origin Dollar Hacked

The red-hot DeFi industry suffered two more multi-million-dollar hacks this month.

Origin Dollar, a yield-generating stablecoin project created by the Origin Protocol in late September, was hacked and drained of $7 million, founder Matthew Liu announced on November 17. The Origin Dollar team pointed to a flash-loan transaction as the likely provenance of the attack. In response, Origin Dollar disabled deposits and requested that traders not purchase the OUSD token.

Cheese Bank likewise suffered an attack on November 6, in which hackers used a flash-loan to steal $3.3 million in USD Coin, Tether, and Dai.

Origin and Cheese Bank bring the total of multi-million-dollar flash-loan hacks on DeFi in the past month to five. Nevertheless, the sector continues to grow.

Read more about the Origin Dollar attack: https://cointelegraph.com/news/yield-generating-stablecoin-project-origin-dollar-exploited-for-7m

Read more about the hack of Cheese Bank: https://cointelegraph.com/news/cheese-bank-s-multi-million-dollar-hack-explained-by-security-firm

Read more about how DeFi hacks make up more than half of 2020 crypto thefts (so far): https://ciphertrace.com/half-of-2020-crypto-hacks-are-from-defi-protocols-and-exchanges/

Will Predictive Screening Become the New Normal?

The mining group known as Blockseer announced recently that it will begin pre-screening blocks for links to blacklisted wallets, using Treasury’s Office of Foreign Asset Control (OFAC) blacklist and its own Walletscore tool to evaluate.

The COO of parent company DMG, Sheldon Bennett, said in a press release, “Blockseer’s pool brings a new compliance-focused standard to the industry, not only in the data the pool provides to its users, but also in the Bitcoin blocks it mines on the network. The pool is focused on being devoid of transaction from known nefarious wallets.”

The group will also require all miners to pass KYC checks.

Blockseer’s announcement sparked fears in some crypto quarters that the filtering of transactions will lead to censored future. Juraj Bendar laid out his concerns on his website, suggesting that the outcome of such actions could lead to a Bitcoin split.

Why It Matters: In July, we announced real-time predictive risk scoring that allows exchanges, ATMs, OTC desks, hedge funds, custody solutions, payment processors, and financial investigators that use CipherTrace to ensure compliance with Anti-Money Laundering (AML), Counter-Terrorist Financing (CTF), and sanctions requirements. The impact of Blockseer’s predictive “Know Your Transaction” (KYT) actions will only be as effective as the quality of their underlying attribution data.

Read more on Blockseer’s announcement and reactions: https://cryptobriefing.com/new-bitcoin-mining-pool-says-it-will-censor-btc-transactions/

Read Juraj Bendar’s response:

https://juraj.bednar.io/en/blog-en/2020/11/12/how-could-regulators-successfully-introduce-bitcoin-censorship-and-other-dystopias/

Read more about CipherTrace Predictive Risk Scoring: https://ciphertrace.com/ciphertrace-introduces-cryptocurrency-real-time-predictive-risk-scoring/

Kyrgyzstan, Pakistan, and Belarus Explore Cryptocurrency Laws and Frameworks

Three countries across Asia and Europe have begun to explore new laws and regulatory frameworks for cryptocurrency.

The National Bank of the Kyrgyz Republic is developing a draft law that would give them the jurisdiction to regulate crypto sales and purchases in order to better track fraud and protect consumer rights.

Meanwhile, Pakistan’s Security and Exchanges Commission is working to create a framework for cryptocurrency regulation in the country. Pakistan sees the adoption of digital currency as a chance to present a “robust regulatory regime at par with the World for regulating Digital Assets.” The country hopes to have its own central bank digital currency in full use by 2025.

Belarus announced the launch of its first legal cryptocurrency exchange service in partnership with crypto firm White Bird. As of now, only citizens of Belarus and Russia can participate, but the state-owned bank behind the exchange is hopeful that they will soon be able to expand, allowing residents of more countries to use the firm for exchanging cryptocurrencies into fiat.

Why it Matters: Though regulatory change happens faster in some countries than others, these developments in Kyrgyzstan, Pakistan, and Belarus demonstrate that regulatory progress is being made. That said, the differing rates of adoption of crypto regulations creates challenges for VASPs needing to comply with varying laws in each jurisdiction. Universal cryptocurrency regulations would be a vast improvement for cryptocurrency providers as well as regulators.

Read more in Cointelegraph here: https://cointelegraph.com/news/kyrgyzstan-s-central-bank-developing-draft-law-for-cryptocurrency-industry

Read more in Finance Magnates here: https://www.financemagnates.com/cryptocurrency/news/pakistan-exploring-crypto-regulations-secp-publishes-exploratory-report/

Read more in AMB Crypto here: https://eng.ambcrypto.com/belarus-now-has-its-own-first-legal-cryptocurrency-exchange/

The US Department of Justice Seized $24 Million from a Brazilian Cryptocurrency Investment Scheme 

“Operation Egypto,” the code name used for the joint US-Brazilian effort to recover funds stolen from a cryptocurrency fraud scheme, resulted in the seizure of $24 million earlier this month. Brazil reached out to the United States for help in the investigation, as the scheme targeted US residents, among others, by encouraging them to invest in fake investment opportunities that involved depositing either Brazilian currency or cryptocurrency in accounts controlled by the perpetrators.

Marcos Antonio Fagundes, the mastermind behind the scheme, is charged with “illegal operation of a financial institution, fraudulent management of a financial institution, misappropriation, violation of securities law, and money laundering.” Brazilian investigators say that the money that has been recovered will be returned to the victims.

Ilia Kolochenko, the founder of Immuniweb, a Swiss AI Online Protection Program, mentioned that for crimes like these, it is of utmost importance that multiple countries get involved so that the scheme does not have a viral effect, taking off across the web.

Why it Matters: Investment scams continue to be the most widespread cryptocurrency-related crimes, serving as a reminder of the need for vigilance on the part of users not to be duped into participating in any type of investment that lacks the proper licenses. If an opportunity seems too good to be true, then it probably is.

Read more in CPO Magazine:

https://www.cpomagazine.com/cyber-security/us-authorities-seized-24-million-in-cryptocurrency-obtained-from-brazilian-online-fraud-scheme/

XREX Stops a High-Risk Withdrawal with CipherTrace

XREX published the results of a recent investigation that originated with the detection of a withdrawal request flagged as high-risk by CipherTrace. Read the full report: https://medium.com/xrexio/disclosing-the-nigerian-crypto-scam-operation-fiverr-6eab2cf3bc55

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