One of the biggest problems facing the global crypto industry is that the practical and legal uses of cryptocurrencies have struggled to outpace illegal activity or clearly unethical activity. As the popularity of the decentralized finance (DeFi) sector rises, it is fast emerging as a hotbed for crypto Ponzi schemes.
Blockchain analysis company Elliptic recently published a bombshell report, turning the spotlight on an alarming new trend of “cross-chain” crime. Here, criminals swap crypto assets within and across blockchains to obscure the trail of their crime. Using cross-chain or cross-asset swapping techniques, criminals laundered illicit cryptocurrencies worth about $4 billion in 2022, according to the report.
“Cross-chain crime – which denotes the often-anonymous swapping of crypto assets within and across blockchains to obfuscate their trail – has increased rapidly since the rise of decentralized finance (DeFi) in 2021,” said the report. It also shed light on the concept of “crime displacement”, which refers to criminals shifting their strategies in response to countermeasures.
In the last few months, the crypto sector has been plagued by this particular trend. For instance, North Korea-based cyber hacking group Lazaruz began using the Avalanche Bridge for laundering the ill-gotten gains from their crypto thefts after the US imposed sanctions on their previous tool, Tornado Cash, in August 2022.
The report also highlighted the reasons why criminals find the allure of cross-chain crime promising. A significant chunk of the crypto crimes proceeds now come from lesser-known digital assets, which can only be exchanged via cross-chain or cross-asset services. Moreover, these platforms, including decentralized exchanges and coin swap services, don’t always require identity verification. Additionally, traditional blockchain analytics tools often find it difficult to track unlawful activities across different blockchains or tokens.
The frightening trend of cross-chain crime has wide-scale implications, as highlighted by the recent $55 million hack of crypto exchange CoinEx, suspected to have been perpetrated by Lazarus Group. Lazarus is also suspected of being behind the heist of roughly $200 million in a hack last month of Euler Finance, a DeFi platform on the Polygon network. Not only has these incidents triggered concerns about the stability and security of online crypto platforms, but they could also prompt calls for stricter regulatory policies to fight the wave of cross-chain crime.
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