DOJ Crypto Enforcer says blockchain is everywhere in crime, clashing with industry self-perception

In retrospect, the US Department of Justice (DOJ) appointing veteran cybersecurity expert Eun Young Choi in the winter of 2022 as the first director of the agency’s National Cryptocurrency Enforcement Team (NCET) may have been the first harbinger of the US government’s recent and decidedly antagonistic approach to the industry this year . The NCET enforcement team, which is now targeting cyber and money laundering crimes in crypto, was tasked with ensuring users stay safe “as the technology around digital assets grows and evolves,” according to Choi, who previously worked as a federal prosecutor at Southern District of New York, said at the time.

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Little did anyone know exactly what type of crimes would be exposed when the financial tide poured out of crypto and exposed all those who were “swimming naked” (as Warren Buffett likes to say). Instead of big headline scandals like FTX and 3AC, Choi’s department seems primarily focused on relatively smaller issues like social media fraudsters, darknet abuse and online scammers – activity that is rarely discussed openly but exists as a kind of background hum to anyone who spends money. time on Crypto Twitter and Discord. (Paul Dylan-Ennis, a frequent contributor to CoinDesk, calls this crypto’s “trash pit,” which seems to fill in wherever crypto is discussed online.)

Although scams like this often only hurt a single victim at a time, it can still be big money. NCET, along with other agencies, ordered upwards of $112,000,000 from stopping six such US-based scams. The Federal Bureau of Investigation (FBI) estimates that $3.31 billion was stolen from people in 2022 through investment fraud, with crypto-related fraud accounting for more than a third (~$2.57 billion) of this figure. Worse than just lost money, the proliferation of trust games—which require bad actors to cultivate long-term relationships and build trust with their characters—has tarnished crypto’s reputation.

Any conversation about crypto and crime needs to reveal that less than 1% of total crypto transactions, according to the people with the data, can be linked to illegal use – at least that’s what Chainalysis reports. It’s a notable point, and one that industry advocates won’t let you forget. Most people using crypto trade, with increasing adoption in “inflation-weary” countries such as Turkey and Argentina, Reuters reported. But as much as people want to believe that Chainalysis has a God’s eye view of crypto and crime, it’s more likely that the number it cites is a conservative estimate based on the limited number of blockchain addresses it can actually link to known individuals.

In fact, at a conference hosted by the Financial Times, Choi recently said that “We [the NCET] sees cryptocurrency and digital assets really touching every aspect of criminal activity we investigate.” This includes things like ransomware exploitation, confidence games and even sanctions evasion, Choi said, according to Decrypt.

Considering that the US Treasury Department has said that it is not too concerned about blockchain being used to, say, avoid the economic blockade against Russia, and that an immutable ledger of transactions (ie a blockchain) is indeed a terrible tool for crime, perhaps this should be taken with a grain of salt. After all, Choi’s agency was founded to study crypto-related crime, so it shouldn’t be too surprising that it finds crypto-related crime — but the statement is a reality check.

All of this is worth talking about because there is often a disconnect between the promises made about crypto and the reality on the ground. The statistic may be “only 1% of crypto use is illegal,” but anecdotal experience would say otherwise. I know people who have been SIM swapped, and who have been hooked and bought drugs with bitcoin – and chances are you do too. Choi said part of the reason people fall victim to crypto scams is because of the cloud of misinformation surrounding the technology — such as “FOMO” and the hype, but also, possibly, the pretense blockchain isn’t being used for crime.

Yet, the very reason crypto attracts scammers and hype men is why the technology is so necessary. Crypto, being open source, is open to abuse. Bitcoin is powerful because it is “money for your enemies,” and if it wasn’t, it wouldn’t be revolutionary. I’m of the opinion that it’s a good thing that companies like Chainalysis shattered the illusion that bitcoin is somehow private, because it brings expectations closer to reality. Likewise, it’s hardly a bad thing that in a world of cops, at least some of them turn their attention to monitoring the chain. It’s open, it’s public, it’s going to happen.

All that remains is for crypto insiders to wise up, and perhaps come up with a plan to dredge the moat.