Illicit Crypto Assets Laundered Through Cross-Chain Services: A Landmark Report
A recent report from Elliptic has revealed that $7 billion in illicit crypto assets has been laundered through cross-chain services. Criminal organizations are taking advantage of decentralized exchanges, cross-chain bridges, and coin-swapping services to hide the origins of funds obtained illegally.
The Blind Spot in Stamping Out Money Laundering
This $7 billion figure highlights a significant blind spot in decentralized financial frameworks when it comes to preventing money laundering. It also suggests that criminals have moved on from using crypto mixers and are now utilizing bridges as a legitimate tool for financial crimes.
The Misuse of Benevolent Services
While these tools were not built with criminal activity in mind, their misuse demonstrates how a service designed to preserve privacy and streamline transactions can be weaponized. Criminals can easily move funds from a known address on one chain to a new address on another chain, effectively making the funds untraceable.
No ‘Passport Control’ for Bridges
Similar to crypto exchanges in the past, cross-chain bridges lack proper regulatory measures. There is no system in place to ensure that illicit activities do not occur through these bridges. While it is possible that bridges may phase out like centralized exchanges did, the extreme use of bridges for money laundering cannot be ignored.
Buffing Up AML Practices for Cross-Chain Bridges
To address this issue, anti-money laundering (AML) protocols must be implemented within cross-chain frameworks. These protocols should focus on preventing illicit transfers without imposing heavy know-your-customer (KYC) barriers. Technical solutions could involve implementing permission levels and anomaly detection while preserving trustlessness and privacy.
The Need for Technical Solutions and Controls
Developers of cross-chain bridges must take the necessary steps to implement AML capabilities into their frameworks. Real-time on-chain AML protocols, such as sanctions, fraud detection, and prevention checkpoints, can help deter illicit activities while maintaining user safety.
Ensuring Crypto’s Frameworks Are Not Exploited
If blockchain and crypto are to be widely adopted, it is crucial to prevent their frameworks from being used for illegal purposes. Pressuring bridges and cross-chain services to enhance their AML and fraud prevention practices will ultimately benefit everyone and allow crypto to fulfill its potential as a secure financial ecosystem.
Hot Take: Strengthening AML Practices in Cross-Chain Bridges for a Safer Crypto Landscape
The report from Elliptic highlights the significant issue of money laundering through cross-chain services. Criminal organizations have found ways to exploit the decentralized nature of these bridges to launder billions of dollars in illicit assets. To combat this problem, it is essential to implement anti-money laundering (AML) protocols within cross-chain frameworks without imposing heavy know-your-customer (KYC) barriers. By incorporating real-time on-chain AML measures, such as sanctions and fraud detection, developers can ensure the safety and credibility of their protocols. It is crucial for the crypto community to address this issue promptly and work towards creating a secure and trustworthy financial ecosystem.
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