Crypto's Bad Child Narrative: The True Crime Story You’re Not Being Told

The transparency of blockchain can be further enhanced by coupling it with AI – I wrote a piece on Finextra that goes a little deeper on the potential synergies between AI and blockchain. Machine learning algorithms excel at detecting anomalies in vast datasets—something even the most robust blockchain analytics tools can’t always do alone.

• AI can flag suspicious transaction patterns that mimic known laundering tactics.
• Machine learning models can evolve to identify new laundering techniques as criminals adapt.
• Predictive analytics can help institutions anticipate potential risks before they materialise.

By integrating AI with blockchain analytics, institutions can bolster their AML efforts, improving efficiency and reducing the staggering costs associated with compliance.

Why is this important? Let’s look at FTX, Tornado Cash and Luna as examples. 

Critics often point to the collapses of FTX, Luna, and the sanctioning of Tornado Cash as proof of crypto’s risks. But these cases illustrate the opposite: how blockchain transparency enables swift accountability, in stark contrast to traditional systems where financial crimes can remain hidden for decades. 

• FTX and Sam Bankman-Fried:
  The collapse of FTX revealed staggering mismanagement and fraud involving billions of dollars in customer funds. Yet, thanks to blockchain’s transparency, investigators were able to track the movement of funds within days. Forensic tools from Chainalysis and Elliptic provided real-time insights into wallets and transactions, enabling regulators to begin freezing assets and holding individuals accountable almost immediately.
• Luna and Do Kwon:
  The implosion of the Terra ecosystem similarly demonstrated blockchain’s ability to expose malfeasance. Investigators traced wallet addresses linked to Do Kwon and tracked the movement of funds following Luna’s collapse. This transparency stood in stark contrast to traditional financial crimes, where tracing funds across multiple institutions often proves prohibitively difficult.
• Tornado Cash:
  Tornado Cash, an Ethereum-based mixer, aimed to obscure the origins of transactions. Despite this, blockchain analytics firms like Chainalysis quickly uncovered links between the platform and activities by the North Korean Lazarus Group. Transactions that passed through Tornado Cash were mapped, wallets were clustered, and funds were traced back to illicit activities—exposing bad actors in ways legacy systems could never replicate.

While crypto cases are rapidly exposed due to blockchain’s transparency, traditional systems provide a starkly different story. High-profile figures have been able to launder money or hide illicit undertakings for years because of the opacity of financial institutions.

• Howard Wilkinson:For nearly a decade, Wilkinson, working with an Estonian branch of a European bank, facilitated $230 billion in suspicious transactions linked to Russian oligarchs and other illicit activities. The lack of communication between banks and jurisdictions allowed this activity to persist unchecked.
• Drug Cartels: Cartels laundered hundreds of millions of dollars through a global financial institution. Their methods, which included depositing large sums of cash and routing it through multiple branches, were undetected for years until a U.S. investigation uncovered the scheme. 

Had these transactions occurred on a blockchain, the immutable and public nature of the ledger would have exposed irregularities far sooner, sparing years of damage. The odds of finding these folks leveraging blockchain technologies would be exponentially higher, at a fraction of the cost we are currently paying to try and identify them through legacy means. 

Final Thoughts

When it comes to money laundering, crypto isn’t the problem—it’s the spotlight. FTX, Luna, and Tornado Cash are not examples of blockchain’s failure but of its success in exposing financial wrongdoing. 

Tools like Chainalysis, Elliptic, and CipherTrace, amplified by AI, ensure the blockchain ecosystem is more accountable than ever. But here’s the challenge: we need to look past the smoke and mirrors of sensational headlines that portray crypto as the villain. It’s time to examine the evidence critically, to dispel the myths, and to understand the transformative power of blockchain technology.

This isn’t just about defending crypto; it’s about rethinking how we tackle financial crime. The chain doesn’t lie—but it’s up to us to look past the noise and see the truth. It is too simplistic to band every illicit activity with a specific asset class or technology, we certainly don’t ban the internet more broadly because bad actors exist, I am curious why this the case with blockchain technology more specifically. Will you take up the challenge to learn, explore, and engage with the tools that can genuinely reshape financial accountability?