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Dirty Bitcoins: How to Conduct an Anti-Money Laundering Check on Your Crypto

What is a dirty bitcoin? A coin is considered “dirty” if it’s been involved in any illicit activity such as: Crypto crimes like wallet or exchange hacks; Money laundering, which includes criminals trying to hide the proceeds of their illegal activities by converting them into crypto (spoiler: it doesn’t work); Scams such as fraudulent schemes … Continued

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Some researchers say that over 40% of all bitcoin (BTC) transactions are linked to crime. Owning “dirty” coins can get you in serious trouble, even if you didn’t participate in any illegal activity. Is this something you personally should be worried about, and if so, how can you conduct an anti-money laundering (AML) check on your crypto?

What is a dirty bitcoin?

A coin is considered “dirty” if it’s been involved in any illicit activity such as:

  1. Crypto crimes like wallet or exchange hacks;
  2. Money laundering, which includes criminals trying to hide the proceeds of their illegal activities by converting them into crypto (spoiler: it doesn’t work);
  3. Scams such as fraudulent schemes and projects;
  4. Darknet marketplaces, or hidden sites where users buy and sell drugs, stolen credit card details, and other illegal goods for crypto.
Here’s what a darknet marketplace looks like. Source: AMLBot

Dirty coins can be identified through AML checks. Note that a coin can be considered dirty even if it doesn’t come directly from an illegal or fraudulent source. For instance, BTC coming from unregistered exchanges or mixing services will be flagged by any established crypto AML program.

What are the risks?

The bad news is that even if you have no idea that some of your coins are dirty, you can still suffer some losses. Here are some possible consequences of not running an AML check:

  1. Not being able to sell your coins at current market prices. Reputable exchanges won’t convert suspicious coins into USD and other fiat currency. To sell dirty tokens, you’ll have to use a peer-to-peer (P2P) platform or a minor exchanger that will charge a higher commission. Sometimes dirty bitcoins are even sold at a discount of 10% to 20%, or more.
  1. Getting blocked on an exchange. Most major exchanges – and all regulated ones – use special tracing software to detect dirty crypto. Once you try to deposit suspicious coins, the exchange will stop you from making any new transactions until you can prove the origins of the crypto. This is a real problem that is often discussed on Reddit:
A screenshot of a Reddit post. Source: AMLBot
  1. Losing your crypto. If you can’t provide any supporting documentation in relation to your source of funds, the exchange will not only block the account permanently, but also won’t let you withdraw any of the coins on your balance. Say goodbye to your satoshis!
  1. Dealing with law enforcement. Exchanges can report any evidence of a crime to the financial police that will probably want to question you. Even if you can prove that you didn’t commit whichever crime your bitcoins were involved in, you’ll still lose the coins because normally proceeds of crime are forfeited. 
  1. Serious legal trouble. In the worst-case scenario, you may be prosecuted as an accomplice or accessory to a financial crime.

How does AML software detect dirty bitcoins?

Anonymity and privacy are the two advantages of crypto that people usually get excited about. Indeed, bitcoin is anonymous in the sense that you don’t have to enter your personal information when you create a wallet.

However, bitcoin is also highly traceable – every bitcoin transaction leaves a digital trail, which makes it possible to follow. You can easily trace the majority of coins, except for the privacy-oriented ones like Monero (XMR), although even those aren’t immune.

In case you’re wondering whether you can check the origin of the received coins on your own, without using any dedicated AML software, the answer is no. You can conduct some preliminary research using a blockchain explorer like BTC.com or Etherscan to see the list of all the transactions associated with the wallet address that sent you the coins.

Keep in mind that these tools won’t reveal the person behind the addresses. Also, criminals usually use dozens or hundreds of dummy wallets to cover up their tracks, so you’ll need considerable processing power and special algorithms to track them down. In fact, blockchain analysis software is a booming industry!

Latest crime trends involving bitcoin

Some researchers, such as Foley et al., believe that 46% of all transactions with bitcoin are directly or indirectly linked to some illicit activity. However, judging by more recent data, the situation may not be as grim as it seems.

Crypto crime volumes seem to be decreasing. According to CypherTrace, the total value of crypto crimes in the first ten months of 2020 amounted to $1.8 billion, as opposed to $4.5 billion, in 2019. This includes hacks, theft, and darknet transactions. For instance, in September, 2020, hackers stole $150 million from KuCoin alone. A large percentage of these funds likely went to minor unregulated exchanges, where they were bought by unsuspecting users. 

Darknet marketplace activity is intensifying. A recent Chainalysis report suggests that almost $790 million in crypto was sent to and from darknet marketplaces, in 2019. 

Only a few among the richest bitcoin addresses hold over 1% in dirty or suspicious coins. We’ve conducted a study based on the data from AMLBot, an open crypto tracing software. Instead of trying to go through thousands of random addresses, we looked at the 100 richest BTC addresses, including those belonging to exchanges. 

A fragment from the AMLBot research report. Source: AMLBot

Interestingly, AMLBot flagged only six of the addresses as containing any BTC that came from the darknet. 15 addresses held some coins that came from mixers or scam projects. In total, the software ranked 47 out of the 100 as low-risk, 52 as medium risk, and just one as high risk.

That single very suspicious address is actually a super-whale with over $2 billion in bitcoins.

We concluded that, while quite common, illegal activity involving crypto isn’t something you should lose sleep over. But of course, this doesn’t mean you shouldn’t exercise caution.

How you can protect yourself

There are several efficient ways to avoid legal and other risks associated with dirty and suspicious crypto. Those are:

  1. Avoid using bitcoin mixers, cleaners, and similar services. While they do conceal the origin of the coins, any established tracing software will mark such transactions as coming from a mixer, which is a red flag for many exchanges. 
  2. Channel all incoming crypto funds into two separate wallets: “clean” and “potentially risky.” The first should contain coins coming from reliable business partners, regulated exchanges, mining pools, and services that have Know-Your-Customer (KYC) checks. Use the “clean” wallet only to send money to large trading platforms. By contrast, all the coins you receive from strangers, unofficial over-the-counter services, gambling sites, small exchanges,and others, should go into the “potentially risky” wallet.
  3. Use open crypto tracing software or a wallet that lets you buy bitcoin with a card and do an AML check at the same time. Such services are usually premium and charge either on a per-month or per-check basis. They deploy advanced algorithms similar to those utilized by the police and thus, can detect all or almost all suspicious coins.

Authorities take action to fight dirty crypto

With some help from blockchain analysts and powerful tracking software, the police regularly dismantle money-laundering rings and other crypto criminals. For example, in 2019, US law enforcement took down the world’s largest child pornography site, at the time, by tracking some BTC payments down to its founder. 

Apart from transaction checks, many countries use ever more advanced AML and KYC laws that oblige crypto platforms to verify their users’ identity and report such information to the authorities. The best example is the Fifth Anti-Money Laundering Directive (5AMLD), which came into effect in the European Union in January 2020. 

A combination of blockchain tracing software and AML legislation is making the crypto landscape safer for regular users. If you only use top exchanges and regulated services to buy crypto with a bank card, your risk of stumbling upon dirty BTC is pretty low. Still, it’s not a bad idea to check your crypto holding for “cleanliness:” who knows what you’ll find there?

NOTE: The views expressed here are those of the author’s and do not necessarily represent or reflect the views of BeInCrypto.

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Slava is a сertified AML specialist in the cryptocurrency field and an expert in crypto regulation and transaction monitoring. He has ab education in Information Networks Security, and has completed the course in Anti-Money Laundering Fundamentals in the European Institute of Management and Finance. Slava is the founder of AMLBot, a service for checking cryptocurrencies for connections with illegal activities. Also, he is the CEO of AMLSafe, a non-custodial wallet with an in-built crypto AML module. Since 2013, he has been managing the IT team and developing software for the blockchain market. Besides, Slava is a member of the Blockchain Association of Ukraine (BAU).

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Source: https://beincrypto.com/dirty-bitcoins-how-to-conduct-an-anti-money-laundering-check-on-your-crypto/

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Ripple cites Tetragon verdict to stress XRP’s status has not been determined yet

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A court in the U.S State of Delaware has rejected Tetragon Financial Group Ltd’s request for an order requiring Ripple to redeem the Series C preferred stock held by Tetragon.

“This ruling, coupled with a separate filing the SEC made today, should put to rest any confusion. The SEC has NOT determined that XRP is a security,” said Ripple in an announcement made earlier today, soon after the ruling.

The separate filing made by the SEC was in reference to John E. Deaton’s allegations on behalf of XRP holders. According to Ripple’s legal counsel Stuart Alderoty, the SEC found that the complaints made by the plaintiffs were mere allegations and the court presiding over the SEC’s case is “the exclusive method for testing the validity” of those allegations.

According to the ruling of the judge in the aforementioned case,

“… XRP is no more a security after the SEC filed the enforcement action than it was before it. A determination …resolves the question of whether XRP is a security. The enforcement action, by contrast, asks that question. The question is not yet resolved, so a determination has not yet been made. And when it is made, it will be made by the District Court.”

Here, it’s worth noting that soon after the ruling came out, Ripple went on to call the Tetragon lawsuit an opportunistic move to take advantage of the SEC’s allegations. In fact, Ripple’s lawyers have repeatedly and publicly claimed that the SEC is “dead wrong,” calling the regulator’s actions misguided.

Finally, Ripple’s legal counsel Stuart Alderoty was quick to highlight that today’s actions would put to rest the FUD that the SEC unilaterally determined that XRP is a security.

“We look forward to bringing the SEC’s case to a just and speedy resolution and remove the cloud that the SEC’s misguided actions have cast over the XRP market,” Ripple claimed.


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Source: https://ambcrypto.com/ripple-cites-tetragon-verdict-to-stress-xrps-status-has-not-been-determined-yet

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DeFi will bring a new golden age for the film industry

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With an explosion of video streaming as a result of the COVID-19 pandemic and now around $40 billion locked into decentralized finance protocols, it’s time for decentralized finance and the film industry to meet.

Film financing is a cumbersome and inefficient system. Investors are the first to put their money in but last to see any return. There is no transparency into how funds are being used during production or how profits are allocated after distribution. Investment decisions are generally based on very little data about what people actually want to watch, so the chances of a film’s success are completely unknown until its release. DeFi and blockchain technology can address many of these problems by forming a new realm of decentralized film financing, or DeFiFi.

Related: It’s time for Hollywood to move to blockchain — Yes, you read that right

What is DeFiFi?

Imagine the creation of a decentralized film fund, in which financiers all hold a stake in the success of films that are produced by the platform. Using blockchain technology and decentralization, creators could present their projects to the community, which would vote on what films receive funding. The winning projects would be granted the financing they need from community-managed funds.

The production of the films would happen off-chain, so there would be a need for oversight from members of the DeFiFi community to ensure funds are being used appropriately during production. The completed film could then be distributed on the platform to the built-in audience who voted for it. The accounting process would be completely transparent, as the in-app currency paid to watch the film would flow back into the DeFiFi fund and be distributed to all participating parties per the encoded contract. Since all the transactions would be recorded on the immutable and transparent ledger, there could be no confusion about how profits were being used.

This level of transparency is unheard of in the existing, fragmented processes of financing, production and distribution. In a DeFiFi ecosystem, creators who would otherwise have no access to film financing gain the chance to bring their ideas to life. Regular people who are generally at the whims of whatever Hollywood decides would gain a say in what films are produced. Financiers can make smarter decisions on what films to back based on what real people want to watch.

By harnessing the “wisdom of the crowd,” each film has a built-in audience of supporters who would organically assist in the promotion of the film once released. The unprecedented visibility into the use of funds and distribution of profits could dramatically increase the number of people willing to invest in films, potentially leading to a new golden age for the movie industry.

The golden age of decentralized film

With investing in films made easier and more transparent, more financiers will want to participate. The more capital available for film production, the more films can be produced, supporting more filmmakers with interesting ideas and providing more great content to movie fans around the globe. The dawn of a new era in the decentralized film industry could be upon us.

Other use cases for DeFi and blockchain technology that would help to expand the entertainment ecosystem to further support creators and incorporate fan participation would be digital rights tracking and rewards for engagement. At present, the only recourse for creators whose ideas have been used without credit or payment is to go to court, which is prohibitively expensive for many filmmakers. A digital rights management system would allow artists to register their ideas at any stage of the creative process — i.e., concept, treatment, script, rough cut, final film. Their submission would be recorded on an immutable ledger and timestamped, providing leverage to any creator whose ideas or work has been stolen without compensation.

Related: Circling back to blockchain’s originally intended purpose: Timestamping

Additionally, fans and other ecosystem participants can be rewarded for their participation in building a thriving film community — unlike on social media platforms today, where users are responsible for the billions of dollars made by the platforms but who receive no compensation for their part in these tech giants’ explosive growth.

It’s about time users gain control over their own data, which has become equivalent to currency in the digital realm. In a DeFiFi ecosystem, users could be rewarded for contributing through curating content, promoting posts or performing other tasks essential to the upkeep of the decentralized network, such as running nodes, validating blocks of transactions or identifying bugs in the code.

DeFi is only just getting started

DeFi has contributed immensely to the growth of the entire cryptocurrency economy and will continue to play a pivotal role in drawing users to the space. Many of the most impactful use cases for DeFi have yet to be fully realized, and so the growth we will see in 2021 will well-surpass the surge in 2020. There are opportunities to be leveraged in bringing DeFi to film but also to fundraising, grant issuance, corporate treasuries and hedge fund governance. The possibilities are endless.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Gagan Grewal is the CEO of Mogul Productions and leads the financial vision for the platform, including the development of the Mogul Continuous Organization and Smart Wallet. Prior to joining Mogul, Gagan was the managing partner of a private equity firm, led the private banking team for Scotia Wealth Management, and founded his own recruiting firm with a successful exit.

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Source: https://cointelegraph.com/news/defi-will-bring-a-new-golden-age-for-the-film-industry

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Thailand’s crypto market seeks clearer regulations as industry interest peaks

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Thailand currently lays claim to one of the more regulated crypto trading markets in the world, with exchanges having to adhere to strict regulatory standards. For example, at the start of the year, Bitkub, the country’s largest cryptocurrency exchange, was shut down by regulators after the trading platform faced a series of lengthy service outages. 

Despite these seemingly stringent conditions, the country’s crypto market has continued to thrive. That being said, a tipping point came recently when Thailand’s Securities and Exchange Commission released a statement that it plans to enact a 1-million-baht (about $33,000) annual income minimum requirement for crypto investment in the country.

The decision was met with immediate backlash from the local investor community — as it would potentially exclude low- and middle-income earners from the cryptocurrency market — so much so that the regulatory body had to clarify its above-stated stance within days of making the announcement.

In this regard, the SEC noted that the previous draft document was just a means of gauging investor sentiment, with Ruenvadee Suwanmongkol, secretary-general of the Thai SEC, claiming: “I proposed the criteria that many considered too tough to prompt people to express their opinions on the matter and did not intend to say these are the exact qualifications that will be implemented.”

Providing his thoughts on the matter, Pinpraaj Chakkaphak, CEO of local cryptocurrency exchange ERX, told Cointelegraph that the original intention of the SEC was not malicious but one that sought to create a mechanism that could help protect investors from any unwarranted market risks, adding:

“We understand the good intentions of the SEC. However, many stakeholders in the digital assets market and the majority of the public disagree with the plan. From ERX’s point of view, this protection mechanism should not focus on minimum income; instead, it should come in the form of improved information disclosure by operators and investor education.”

Regulations should not impede market growth

To gain a better overview of the situation, Cointelegraph spoke with Konstantin Anissimov, executive director at CEX.IO — one of the most widely used crypto exchanges in Thailand. In his opinion, by taking a stance that potentially hampers lower-income families from gaining access to a potentially lucrative investment class, the SEC was going against the very fundamentals of a free-market economy and freedom of choice.

However, on the other hand, he did concede that if a majority of the lower-income population did not have any basic financial education and understanding of the risks of such investments, the SEC’s approach may have been the only way to protect the public’s best interests. Anissimov added:

“Multiple approaches can be taken, and minimum income is just one of them. I am sure that the Thai SEC will take on the feedback received from the investment community and act in the interest of its population.”

Additionally, in a statement shared with Cointelegraph, Akalarp Yimwilai, CEO of a local crypto trading platform Zipmex, pointed out that he sincerely believes that the proposed draft law comes from a place of good intent and that it serves to protect investors by minimizing unnecessary risks.

He highlighted that the Thai crypto market is still in its infancy and that regulations around the space have only come into being around three years ago. As a result, the SEC is still looking to craft a legal framework for this asset class that can protect investors from future risks. However, Yimwilai did go on to say:

“The proposed draft aims to protect, but it is important to also see that in doing so, a higher wall is being proposed which limits the opportunity of access to digital assets for many in this country. The key here, I believe, is to work hand in hand with the SEC to ensure the sustainability and height of that wall.”

Lastly, he believes that if the current draft was to get implemented, it could potentially lead to a substantial rise in the number of scams, potentially driving investors into an unregulated market where they could run into uncharted territory. Not only that, it could also lead to a lot of much-needed capital flowing out of Thailand, resulting in the long-term detriment to the country’s development and finances.

The Thai crypto market has been booming

The Thai digital assets industry has grown significantly during recent months. According to the country’s SEC, the number of cryptocurrency trading accounts within the county has risen from 160,000 at the end of 2020 to 470,000 on Feb. 1. Not only that, approximately 50% of these accounts are owned by investors younger than 30 years of age.

Furthermore, Chakkaphak pointed out that crypto trading volumes in November 2020 lay at 18.44 Billion THB, compared to 100.90 billion in February 2021, thus showcasing a staggering increase of 447.18% within a matter of just three months. He went on to add:

“Investors wanting to invest in the traditional stock market or in digital assets should educate themselves and do in-depth research. Our priority is to enable and educate investors to learn and build knowledge about investing in digital assets, as it is a new opportunity for all investors.”

Also, according to Yimwilai, Zipmex traded $1 billion in 2020 in Thailand, with the figure expected to grow exponentially in 2021. Not only that, but the cryptocurrency exchange was also able to raise $6 million in fresh funding from U.S.-based VC firm Jump Capital.

He further highlighted that the assets under the company’s management are currently valued at around $100 million, which seems to back up the notion that the Thai masses are ready to dive head first into the burgeoning crypto sector.

Do things look promising?

Though for now, the SEC seems to be backtracking on its initial outline for market entry requirements. According to the Suwanmongkol, people who are putting their hard-earned money into cryptocurrencies are mostly new investors who may not be fully aware of the risks that come with investing in high-risk, highly volatile assets. “If the SEC just stands by and does nothing, it would be totally our responsibility if investors lose on cryptocurrency,” she added.

Lastly, the SEC reportedly had a dinner talk with representatives from local digital exchanges recently, suggesting that the government agency may still be looking to consult prominent members from within the space. The final hearing, regarding the matter, will take place on March 24 before the survey finally closes on March 27.

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Source: https://cointelegraph.com/news/thailand-s-crypto-market-seeks-clearer-regulations-as-industry-interest-peaks

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