We had an Interview with the World-wide famous Anti-Money Laundering (AML), Cryptocurrencies Forensics and Blockchain Threat Intelligence company, CipherTrace. Mike Cowans shares his thoughts about Cryptocurrency and Money laundering, regulation and much more. Please have a look.
Mike Cowans (Regional Director at CipherTrace)
Interview Date :10th January 2020
The company was established startup 5 and half〜6 years ago, founded by David Jevans, and our COO Stephen Ryan. It was based around important incidents in the crypto world in 2012 and 2013. At that time, one of the biggest incident that happened which was the incident of Mount Gox. So, CipherTrace founders started to develop a solution for trace that transaction in order to recover some of that lost money. So other platform continued to develop from there. By reacting to and wanting to prevent incident like from occurring again, we started working with the government and and investigation, so that’s how it developed. And the platform also continues to grow.
Money Laundering in The Year 2019
It was a big year. When you look at money laundering, there were all kinds of different aspects. However if we look at the first 9 months, we saw that there was a 150% growth in money laundering activities compared to 2018. In 2018 there was 1.7 billion US dollar lost due to money laundering, and this went up by 150 % in the first 9 months in September which is equivalent to 4.4 billion US dollars of 2019 in digital currency crime. The reason behind that were 2 very large incident last year that drove those crimes. That was the 2.9 billion US dollar PlusToken scam and Quadriga’s $195 Million Crypto collapse that happened early in April in 2019.
Influence of Money Laundering in the overall Cryptocurrency market
As an individual, those money laundering increase rates do seem like very big numbers. But when you look at the amount of currency in the market on a daily basis, it is relatively only a small part of the overall picture. And frauds are worrisome to some extent, but I am not overly worried, because that amount of growth of cryptocurrency is huge and the industry is going to continue on developing and growing. I might be more worried about if there weren’t actions taken concerning it.
We are now able to witness global regulators coming together and work into the issue creating policies in order to protect the cryptocurrency ecosystem from different types of fraud by introducing regulations into the market. Also, when we see global law enforcement becoming more active investigating in cryptocurrency crimes, that keeps me from being concerned. Moreover, the kinds of issues CipherTrace is involved with, helping to trace and follow the flow of money, it clears those types of concerned. With the nature of blockchain, it’s actually a positive thing. With blockchain, you can’t change a transaction that has been done and you cannot change the information on it either, so it is easier to trace where money is transferred to than the fiat market.
Trace Stolen cryptocurrency and Identified Cyber Attackers
Again that is something that is difficult to do, but there is a number of methodologies into figuring this out. However, on a basic level it’s about having an accurate view of the whole picture and being able to process the data with our technology, its possible. It’s hard to follow transactions and link different entities trying to figure out if there is a trend. How we identify cyber attackers does not only interrelate with community information, but also is due to the traces the cyber attackers leave behind, like making their cryptocurrency addresses known.
Some more illicit criminals in the dark web make themselves known in the dark market by posting and sharing they bitcoin addresses and cryptocurrency addresses making it known so they can do businesses. It that way it can be very easy to identify them. In other cases it can be very difficult, so we have to trace different transactions and follow patterns that can be concerning. If we know that one entity is a criminal, and another person transacting to this very one person, this could means that the transactor is also another criminal, and helps us to trace them.
Truth of actions behind the Data
We don’t just build a big data platform. We have to have the engines needed to figure out the algorithm in order to process the data in a very accurate and efficient way. It does require a lot of data from a lot of data sources. When you start to take in and adjust that amount of data and try to get some perspective of, it becomes a challenge. Every week CipherTrace is taking in 1.5 to 2 million data points, and this has been going on for the past 5 and half years. The data is still accumulating and piling up as we are talking now. The data will continue to compile, so you really get an idea of how much there is to process.
In order process that, we have built an AI machine learning on top of that data, and developed algorithms that process through all the data from different sources in an accurate and efficient way. Any solutions of CipherTrace will be as good as the data that has to efficiently and accurately be processed through AI and the validity of the data information. The more accurate the data the more powerful the outcome will be. That’s really how we have designed our system ; big data processed through artificial intelligence machine learning algorithms coupled with some of the industries most qualified data analyst.
Increase of Cryptocurrency Value
Everybody has their favorite type of coin, but I think whether it’s going to determine how any cryptocurrency grows is going to have use-cases behind it, and the use-cases that are built around it. The reason I am focused on use-cases is because that drives it to mainstream adoption. Obviously, that will also drive more demand for the coin. Bitcoin, Ethereum, XRP, Litecoin and others are assets that have a number of use-cases around and with time have had a number of valid use-cases . I am quite sure we are going to see many tokens and cryptocurrency to disappear, and some already have due to not having any use-cases and no demand. However where there is demand and valid use-cases, the value of that coin will definitely increase.
A Year of Development and growth
2019 was an interesting year of continued development and growth. 2017 and 2018 were referred to as Crypto winter by a lot of people, but last year the market really opened up. In the past years there was uncertainties, and lack of regulations. We were still trying to figure out things like “What is a Security?” “are regulations needed?” etc. So if you have uncertainty in the market you will have volatility as well. However, we have seen regulation and regulators have become more active making the market to some extent more stabilized. Regulators are more active, and we have seen global regulatory bodies focus on cryptocurrency which the focus had not been there before. We also saw an increase in different type of cryptocurrency businesses as well as new use-cases. So, I think all in all I would call the year 2019 of development.
The most developed Country in terms of Regulations in Cryptocurrency
Which one is the most developed is hard to say. I think there are different approaches. The US and Japan are obviously very developed in terms of cryptocurrency regulations. I absolutely think that regulations are good thing, because you can’t have an asset of value without legitimacy. So, without regulations you basically would have chaos, so it is much needed. Without regulations you cannot have legitimacy on a global scale, so it has been need for a while even though there are some critics about whether it should be or shouldn’t. So I believe that any asset of value of any kind should have some kind of regulations.
Decentralization and Regulation hand in hand
I believe that decentralization and regulation can be symbolic and go hand in hand. Decentralization helps solve issues of centralized systems and one party mindsets. So when you start to go away from single party controls, you starting moving away from single party failures, and this is what the cryptocurrency industry is very focused on. However, I don’t think that this alone should be the reason for us to move away from regulations. It just requires a new perspective on cryptocurrency and other new systems. We start to see regulators notice those things and develop regulation policies that fit this industry.
Kind of coins used for Money Laundering
Any coin or token could potentially be used for fraud. However, the principle here is “ the more utilized the coin, the higher the risk” for it being used for cyber fraud activities. We can see that with an incident that Ethereum had not so long ago, about 4 million dollars were lost due to illicit activity. As with most money laundering incidents, if there is no demand for it and if people are not invested in it, there is no point in laundering that exchange. However, If there is demand and also volume in the market for it, this will make it easier for criminals driving them to money laundering.
Anonymity is personally identifiable information. In other words, having those more intimate details around transactions are not visible and cannot be identifiable. I think that this would be the definition for mainstream anonymity. If we look at the information on a ledger, we can all agree that a transaction happens but we would not be able to know between who it happened. So, having security and transparency around the transaction but not the exact details between the individuals is very special feature of cryptocurrency. This is also something that intrigues people into this industry because they have their little space of privacy without any centralized body invading our privacy. I think everybody is entitled to it.
The need for travel rules
If we look at FATF, more than whether they accept new memberships or form some kind of an union with another party, that it’s more about the function that they provide. That will continue to be important and it is very much needed. Leading the global regulators and examining cryptocurrency market specifically on how travel rules work, and making recommendation to global regulators on the types of laws that should be issued are only some of their function. That I think is a important functionary. FATF has done great work in the last years. There are a lot of discussions around travels rules, but travel rules are not something new to cryptocurrency at all. It’s been there for decades in the more traditional financial ecosystem like in the fiat currency. If we look at in the fiat world, we cannot trace any transactions or the flow of money without the travel rules. So, we can make it easier for both the fiat ecosystem and cryptocurrency as it does make it easier for entities to transfer money and trace transactions. Thus, without travel rules in place, it will just erase the legitimacy of cryptocurrency.
Decentralized by design
Functional aspects of decentralization will always remain. That’s going to be by its design from a functional standpoint. There always will be some people who will argue that with more regulations developed it will remove some aspects of anonymity making it less decentralized. But I personally disagree with that and hope it remains. Decentralization in it self is not a bad thing, and people know that there are some disadvantages and problems happening, however points of failure are certainly found with centralization as well. So, I think that the good aspect of decentralization will always remain with a balance of regulations.
Cryptocurrency is definitely regulated and its continuing to develop. Regulations are coming in more and more frequencies. We can see with the travel rules, it has been very clear that there is a demand for it. Every country has a different idea concerning having regulation or not in terms of cryptocurrency whether its Japan, US, or Singapore. There is no right way of regulation or no regulation as the solution. I think those are things in the past and regulations are going to be implemented and develop even more from now on.
The challenge of making annual reports
It definitely is a challenge. That’s something that we are constantly doing. The reports are usually about 40-50 pages. By the time we released Q4 2019, we were already working on the Q1 2020, so it never stops. This is due to the market changing and growing very fast so we have to be aware of what is happened in present times in the ecosystem. It is not just a matter of what exchanges are doing, but it’s also a matter of what regulators, retail investors, criminals, institutes are doing, and accurately analyze these activity data to make clear what is happening. Thus, we produce it quarterly and it is challenging but we feel it provides an important service since cryptocurrency regulations are moving extremely quickly.
I have been with CipherTrace for not too long. The company itself is just a little over 5 years old, and my personal encounter with CipherTrace was only 4 months ago. Prior to that, I was working for ripple in the Sales and Marketing department. With CipherTrace, I was impressed with their technology, their view of the market and the solutions the company offers around helping to break legitimacy and make regulations work, and obviously AML and KYC and compliance monitoring are all very key things to effectively meet regulations. I wanted to see the cryptocurrency ecosystem grow and be embraced.
I got excited with what CipherTrace was able to do and how powerful CipherTrace’s solution is in terms of being been able to trace cryptocurrency transactions, categorize difference entities on various blockchains, be able to look at different entities, cryptocurrency business and exchanges that are on the blockchain, be able to look at their profile and to really get an determination of the type of activities the entities they work with are doing on the blockchain: whether they are legitimate actions, or high risk exchanges. Researching on those subject is extremely powerful. With seeing those actions and understanding what they bring to the cryptocurrency ecosystem, they are actually generating a big demand on the industry for solutions. This is what really brought me to CipherTrace.
Interviewer , Editor : Lina Kamada
The Article published on this our Homepage are only for the purpose of providing information. This is not intended as a solicitation for cryptocurrency trading. Also, this article is the author’s personal opinions, and this does not represent opinion for the Company BTCBOX co.,Ltd.