Tracing transactions | #cybersecurity | #cyberattack


The debate around cryptoassets and their regularisation has gathered immense steam. Particularly in Pakistan, which has emerged as the country with the third largest crypto investor base globally, the subject is drawing attention from a variety of stakeholders.

However, one of the most pertinent objections raised against legalisation of cryptoassets in the country is the use of digital tokens in illicit activities like money laundering and terror financing.

Pakistan has been on the Financial Action Task Force’s ‘gray list’ since June 2018 for deficiencies in its anti-money laundering and counter-terror financing regimes. The decision to keep Pakistan on this list was retained after a four day summit of the global body that was held between March 1 and 4, 2022. With plans to complete compliance requirements by January 2023, authorities in the country are still divided regarding the issue of legalising cryptoassets for trade and other financial activities.

The preconceived notion that underlying concepts behind digital currencies like decentralised control and absence of regulatory authorities’ make it vulnerable to exploitation has come under the spotlight numerous times. Blockchain, the technology that forms the basis of cryptoassets, is created to ensure transparency and traceability.

Blockchain, the platform that powers Bitcoin and almost every other crypto asset, consists of individual blocks that require validation from each participant in the chain for editing. Any unauthorised alteration would be automatically opposed by the participants or nodes as they also know. Any hacker would not be able to obtain control of 51 percent of the nodes on the network, which would require a supercomputer that does not yet exist.

It is widely believed that crypto networks are the easiest channels to conduct illicit or illegal activities but this couldn’t be further from the truth. Despite being operated through Decentralised Ledger Technology (DLT), cryptoassets and their transactions can easily be traced with date, time, origin and other relevant details being publicly available.

There have been numerous instances in the past where illicit transactions carried out in cryptoassets have been tracked and the amounts recovered successfully. In 2015, the creator of a Bitcon market named ‘Silk Road’ was sentenced to life in prison for facilitating the trade of illegal drugs worth $1 billion. In 2021, the US Department of Justice (DoJ) was able to successfully track and seize $2.3 million paid against a ransomware attack by oil pipeline giant Colonial Pipeline. More recently, in 2022, the DoJ was able to retrieve 94,000 BTC of 119,756 BTC after being stolen from Bitfinex.

At present, global statistics show that nearly $1 trillion is laundered each year in fiat currencies mostly through cash transactions. Although paper currencies are traceable through serial numbers, the absence of live-tracking makes it impossible to determine the exact location of a bill at any given moment. This makes cash the preferred medium for illegal activities.

People compare the potential of money laundering through cash to be similar to cryptoassets. The ground realities though, present an extremely different picture. Since its inception in 2009, a relatively smaller amount of $2.5 billion has been laundered through Bitcoin, a significant chunk of which has been tracked and recovered.

—The writer is a technology researcher who closely follows developments in the fintech space



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