Crypto is tracked ‘easily’ and not as anonymous as you think – Michal Gromek
Cryptocurrencies like Bitcoin are “easily traceable,” said Michal Gromek, co-chair of the Digital Asset Task Force, a committee of the Global Coalition to Fight Financial Crime.
Potential criminals cannot easily escape law enforcement.
“To transact on the blockchain and feel like you will get away with impunity is not true,” he said. “Most suspects can be easily traced.”
Gromek said coin exchanges are typically subject to Know-Your-Customer (KYC) and anti-money laundering regulations. This makes it easier to track down criminals.
“At a global level, there is a Financial Action Task Force… to ensure that cryptocurrency brokers are subject [legislation],” he explained. “When you send money to another wallet, and then to a sanctioned entity, this is still visible on the blockchain … and it can still be reported.”
Gromek spoke with David Lin, anchor and producer at Kitco News, at the Future Blockchain Summit in Dubai.
White collar crime
It’s “not very smart” to use “pseudo-anonymous” cryptocurrencies like Bitcoin or Ether to conduct illegal transactions, Gromek said.
“According to reports, illegal activities on the blockchain are about 0.15 percent of all transactions,” he said. “Transacting on the blockchain with pseudo-anonymous currencies is not smart.”
Since the blockchain stores data about all transactions and wallet addresses, the police can use this data to track down criminals.
“You just enter different cryptocurrency addresses and you can see how the transactions have gone,” he said.
Even cold wallets, which are offline, are not impervious to monitoring, since crypto holders of cold wallets, who want to spend their money, will eventually need a hot wallet, Gromek said.
Hackers and scam artists
To prevent money being stolen from a crypto scammer, investors should “choose partners that are active in a trusted jurisdiction, working with a good regulator,” Gromek said.
“Some regulators, ask you [crypto companies] to distribute your code to them, and then they evaluate your code,” he said. “And then there’s a trust approval that says this code or this token or this solution is approved.”
However, he emphasized that there is always a “risk” when investing in new products.
“You basically have to have some faith that whatever we do at the global level will produce results that are accessible to everyone,” Gromek said, referring to the regulators’ task.
Privacy coins?
Monero, a proof-of-work cryptocurrency that uses complex codes to hide wallet addresses, is a so-called ‘privacy coin’, intended to protect both the anonymity and privacy of users. This is in contrast to Bitcoin, where a wallet address can be used to identify users.
However, even so-called privacy coins like Monero can be tracked by law enforcement.
“There are still tools that we can also use for privacy coins, which are used to identify suspects who are committing certain crimes,” Gromek said.
To find out Gromek’s thoughts on the central bank’s digital currencies, watch the video above.
Follow David Lin on Twitter: @davidlin_TV
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