Can Technology Regulate the Blockchain Space?

Governments and regulatory agencies are trying to figure out how to regulate the cryptocurrency market. Blockchain technology shouldn’t be difficult to regulate. Blockchain transactions in specific networks can be monitored and analyzed by technology. Indeed, there are several companies that are requesting regulatory agencies to regulate the market.

As cryptocurrencies grew all over the world, criminals and fraudulent actors have also tried to increase their presence in the market. Back in 2016, the WannaCry ransomware affected several individuals all over the world. Hackers were demanding payment in Bitcoin for ransomed files.

Cash is still more anonymous than Bitcoin (BTC) and other virtual currencies. Thus, the company Chainalysis emerged in order to help governments monitor blockchain transactions and find criminal activity. Thus, Bitcoin might provide more anonymity than banks and centralized financial solutions but it is far from being anonymous.

Chainalysis and similar companies are currently offering software that allows cryptocurrency exchanges, law enforcement agencies and other companies to have a larger knowledge regarding transactions that take place on specific blockchains. This can help with compliance and risk evaluation recognizing and flagging illicit trades and suspicious activity.

Bitcoin and Litecoin (LTC), for example, have public blockchains that everyone can analyse and check. Companies do not have to ask for the approval of any organization or individual to have access to transaction data and funds that are being moved on the network.

In most of the blockchains, just transaction data is stored. However, it might be possible for regulators to find some useful information regarding users’ identities. It is possible to learn a lot of monitoring nodes. This is why regulators are collecting information from full nodes around the world, to have better knowledge about transactions’ IPs.

Using nodes it is possible to gather information regarding miners that broadcast transactions on the blockchain. Some of the information that is collected with nodes are IP addresses. Using an algorithm it is possible to build mathematical models and discover the client that is in charge of the node. In this way, experts can have an idea about the distribution and the traffic of digital currencies.

Clearly, criminals could simply use a mixer to avoid providing information to the network regarding the transactions they do. Thus, it is more complicated to know the number of counterparties that participate in every single trade.

One of the most popular sites that helped users mix their coins is Bitmixer, that has already been shut down. It mixed around 65,000 Bitcoins each month on average.

These mixers provide privacy to the network and to users that want to remain anonymous. Due to government pressure that these mixers could be used by criminals, they had to shut down. However, there are several other websites that offer mixing services.

It is possible for current algorithms to label coins that were mixed as suspicious. Thus, a transaction could be considered risky if it contained coins that were mixed. A team at the LongHash Tokyo Hackathon 2018, made an interesting prototype that uses artificial intelligence algorithms for anti-money laundering.

Now, criminals are moving towards other virtual currencies that offer better privacy options such as Monero (XMR) or ZCash (ZEC). These coins are very difficult to be tracked. However, Bitcoin is becoming increasingly easy to be monitored and tracked.

Bitcoin (BTC), Ethereum (ETH), XRP (Ripple), and EOS Price Analysis Watch (Feb 19th)

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