How to unlock the secrets of cryptocurrency flows

If you think of national security as the combination of functions in a variety of domains, the domains themselves have something recent and disturbing in common. Namely, the adversaries’ use of cryptocurrencies to finance their activities.

What characterizes cryptocurrency operations is dependence on blockchains, encrypted ledgers to keep track of crypto transactions. According to Derek Claiborne, the director of national security initiatives at Chainalysis, deciphering blockchains leads to better understanding of threat actors – where they’re operating and what they’re doing.

As its name implies, Chainalysis provides tools to do so.

Claiborne names six of what he called “main domains” that constitute the national security enterprise: military, intelligence, diplomacy, economics, law enforcement and cybersecurity. Whether funding illicit weapons, terror groups, mercenary forces, counterintelligence, cyber-based extortion or any other adversarial activity, understanding crypto currency flows “really serves to supercharge your ability to understand the domain,” Claiborne said in the series The Nexus of Cryptocurrency and National Security.

For example, “you can employ blockchain analytics to track individuals using cryptocurrency and then gather intelligence on potential threats,” he said.

The cybersecurity domain, Claiborne added, “in many ways is a kind of tipping point for the rest of the domains. It truly impacts all other domains.” One reason is that ransomware attacks, which demand payment in cryptocurrencies, ultimately finance many of the other activities around the world.

Federal agencies trying to follow money can use blockchain analysis to detect “offramps” – the points at which cryptocurrencies convert to hard currencies subject to seizure, Claiborne said.

Blockchain entries, regardless of what type of transactions they represent, don’t appear to be fundamentally decipherable. They’re simply long strings of integers resulting from sophisticated encryption.

On the other hand, blockchains are generally open source.

“You and I could sit here and download the Bitcoin blockchain,” Claiborne said. “We could read it out here for the Federal News Network.”

Intelligence surrounding them is also open source. That, Claiborne says, requires a lot of curation and the computing capacity to deal with it, something Chainalysis has been doing for a decade. He said that, plus the addition of artificial intelligence, enables the company to work with federal national security and law enforcement agencies to deal with threats and criminal activity using evidence from cryptocurrency blockchains.

Sheer volumes of data alone won’t cut it, Claiborne added. “It’s important to have this data from a known and legitimate source, and also vetted and audited.” He said Chainalysis has hundreds of employees doing just that, daily.

“Chainalysis does a lot of work to put the AI, machine learning and heuristics behind [data],” he said, “to cluster this information and be able to tell agencies who’s who on the blockchain and identify patterns. That’s really the essence of it.”

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