So what does a blockchain intelligence company do?

“Basically we add advanced analytics on top of the raw blockchain data to help answer key questions about what’s happening on blockchains. Right now a lot of those questions relate to fraud and financial crime on blockchains, where it’s happening and how we can prevent it.”

“In terms of how we help answer those questions, it starts with public blockchains — the open ledgers on which cryptocurrency lives and moves — on which each transaction that occurs is verified and logged by an immutable record, along with the timestamp of the transaction and the addresses involved. Blockchain analytics is the practice of organizing that massive amount of raw ‘on-chain’ data to map trends or patterns of activity, detect links to off-chain data points, or surface other attributes that might indicate the transaction is linked to illicit activity like money laundering.”

“As an example, as part of a recent announcement by the Office of Foreign Assets Control, the US sanctions regulator, a Bitcoin address was sanctioned and attributed to a terrorist financier, who is also sanctioned. Through blockchain analytics, TRM was able to identify additional addresses connected with the sanctioned address and surface any exposure to them to users of the TRM platform.”

Who uses this analytics and intelligence?

“If we come back to the example above, you can see how important these insights are to crypto exchanges, financial institutions and regulators, and law enforcement.”

“TRM’s customers include financial institutions and cryptocurrency businesses that need to monitor the risk of on-chain activity they are facilitating or participating in. This is done through our Transaction Monitoring and Wallet Screening tools. Blockchain intelligence tools like TRM can also be used by law enforcement to build investigations into crypto-related crime, such as a recent $45m crypto scam or the Colonial Pipeline hack– in which the ransom was paid in Bitcoin by the victim, then traced as the funds moved across the blockchain in an obfuscation attempt before ultimately being recovered by law enforcement.”

“Finally, we have a tool that allows users to assess and monitor the risk profile of a Virtual Asset Service Provider based on the entity’s on-chain activity – this is used by financial institutions and fintechs as they onboard crypto businesses as customers or partners.”

Has there been a big uptick in interest from the public in the last 18 months?

“Yes, much more interest- the biggest drivers being the exponential growth in ransomware attacks and taxation revenue interests, especially in the US since the Infrastructure Bill calls for increased reporting of crypto-related Form 1099 income by brokers, which in turn would increase taxation revenue due to the required reporting. There has also been an uptick in online scams and ransomware, also called cyber-enabled fraud, since 2020 – the year many of us went online/remote. Since many of these scams and ransomware attacks leverage crypto as a preferred method of payment, it has featured heavily in those news reports.”

“Most recently, in the wake of Russia’s invasion of Ukraine, we’ve fielded a lot of questions about the potential for Russia to use crypto to evade sanctions. We’ve put out some interesting resources on this here.”

Where does crypto regulation go in this new complex world?

“I have my own personal views, but luckily they coincide with TRM’s mission to make the blockchain space safer overall for anyone transacting there, which ultimately helps unlock and enable the technology’s potential to change lives. To accomplish this, you need mechanisms to prevent fraud and scams and the most heinous activities, like child exploitation. To the extent that regulation can help normalize those safety mechanisms and promote their consistent use across the industry – while also maintaining space for innovation and independence – I think there’s potential there.”

Let’s say you have a traditional asset manager or investment adviser and they have clients that think they now need a percentage of their portfolio in crypto as an asset class – how would you advise then to get their heads around compliance, control, and risk for those starting out?

“I think it’s important for firms to start by thinking through their level of engagement with crypto in really practical terms, because those decisions have an impact on the risks they need to manage.”

“For example, they might evaluate if they want to take custody risk, which means actually holding cryptocurrency assets like bitcoin on behalf of clients. If so, do they hold the passwords or the private keys to a bitcoin or blockchain address for investor funds or do you give that duty to a trusted third party? If you hold the private keys, there are cyber and tech risks that come with that responsibility.”

What assets are their customers interested in and how would they like to interact with these assets?

“Once they gain an understanding of the common ways their customers want to be supported in the cryptocurrency space, there are some really great resources to consult in terms of understanding regulatory obligations – FATF guidance, enforcement actions, and our own TRM Talks to name a few.”

“I will say that as a solution provider in this space with solutions that plug into all kinds of compliance stacks, we answer a lot of questions about the nuts and bolts of a crypto compliance program from a workflow and training perspective. It’s a new space and everyone is eager to learn, which makes for some really great compliance and law enforcement communities.”

How would you describe TRM Labs and its mission?

“It’s a pretty special place! We were founded out of Y Combinator in 2019 and since then have been fortunate to partner with investors like Bessemer Venture Partners, Tiger Global, and a host of leading financial institutions as we grow, most recently including JP Morgan. Our mission is to build a safer financial system for billions of people by blending blockchain data with advanced analytics to help financial institutions and governments to combat fraud and financial crime in digital assets.”