Blockchain analytics provider Chainalysis held its annual Links conference in New York City earlier this week, focusing on crypto and blockchain regulation, the challenges of crypto-based crime, how the public and private sectors should work together in terms of adoption, and the innovations likely ahead.

Keynote speaker Michael Granger, CEO of Chainalysis, talked about the decade-long journey and how much the industry has changed. He said crypto is not about disrupting finance, but about building new financial infrastructure. “Crypto will look more like finance before finance looks like crypto,” he said.

Spot bitcoin ETFs

Granger spoke of the significance of the $12 billion of net inflows to bitcoin ETFs in just a few months. And he said “crypto crime” is actually best labeled “crime”. He noted that just 0.34% of cryptocurrency transaction volume was confirmed illicit in 2023; but the “ubiquity” of the currency “has made it a tool for all forms of crime”. What can help, he said, is the transparent blockchain, which offers “a silver platter” of opportunities for investigation and resolution.

Underscoring that sentiment, speakers at the event all said the launch of spot bitcoin ETFs in the US was a hugely pivotal moment, especially given the collaboration required for its success. “Don’t underestimate the power of a common language around digital assets. That is going to progress the pathway,” said Samara Cohen, BlackRock’s Chief Investment Officer of ETF and Index Investments.

Yevhenii Panchenko of the Ukranian Cyberpolice mentioned in a panel session that blockchain analytics have played an important role in combating modern warfare, with the National Police of Ukraine using Chainalysis over the last five years.

Crypto-based crime

Despite Granger’s and Panchenko’s more upbeat assessment, a session on crypto-related crime featuring speakers from Customs and Border Protection (CBP), Homeland Security Investigations and Queens County discussed how cryptocurrency has financed violent crimes like ghost gun sales and murder-for-hires, and how crypto can complicate the fight against traditional crimes.

The agencies emphasized how they are enhancing crypto literacy among their law enforcement personnel so everyone knows how to navigate the landscape.

“Our settlement, with a massive fine and the requirements coming from that, probably is a model for others in the industry and will be an opportunity for us to continue to uplift the [compliance] program.”

Noah Perlman, chief compliance officer, Binance

Speakers from the Department of Justice talked about North Korea’s extensive use of crypto in hacks and extortion – such as the Axie Infinity bridge hack, which claimed over $60m – describing it as “the largest heist of all time that’s not internal embezzlement”. North Korea has further used crypto to fund its weapons program.

But the situation is not dire, the speakers said, again pointing to the importance of enhanced literacy and understanding of cryptocurrency. Alvin Bragg, Manhattan’s District Attorney, said blockchain analysis as used by the New York Police Department has enabled law enforcement officers to weed out wrongdoers so they can no longer hide behind cryptocurrency.

And greater expertise in blockchain analytics has enabled law enforcement offices around New York City to unearth instances of crime and better understand how crypto is used in terrorist financing and other cases, for example.

Crypto firm compliance officers speak

At the event, chief compliance officers from three top cryptocurrency exchanges – Coinbase, Kraken and Binance – said they continue to make additional investments in compliance controls and staffing after reaching recent settlements with US regulators over their respective compliance failures.

Compliance chiefs at crypto exchanges Binance, Coinbase and Kraken said they also hope lessons from these settlement agreements could help improve compliance programs within the wider industry. 

“In a sense, our settlement, with a massive fine and the requirements coming from that, probably is a model for others in the industry and will be an opportunity for us to continue to uplift the [compliance] program,” Noah Perlman, Binance’s chief compliance officer, said during a panel discus.

Kraken Chief Compliance Officer CJ Rinaldi said one lesson his company has gained from the experience is to build trust with regulators by quickly identifying problems and then going directly to them with the issues found, avoiding any surprises.

Forecasting compliance needs that could come with increasing transaction volume and building up capabilities to address them are some of the top priorities for Coinbase and Kraken. A part of Kraken’s 2024 planning is modeling its transaction volume and its compliance response to such scale, including figuring out what kind of reporting is needed, according to Rinaldi.

Coinbase has been focusing for the past few years on clearing a substantial amount of compliance-related backlogs, according to Valerie-Leila Jaber, the company’s global head of financial crime compliance. This included a backlog of unreviewed alerts that were key to investigating and reporting suspicious transactions in a timely manner, an issue that was identified in its consent order with the New York Department of Financial Services. 

As Coinbase continues to focus on investing in core compliance controls, including customer risk assessment, Jaber said its compliance team has been working on its ability to respond quickly and effectively to an increase in transaction volume, including by partnering internally with technology teams.