Blocking Out Money Laundering: How AI Detects Illicit Activities
Blockchain is often criticized as a solution in search of a problem. However, a British firm, Elliptic, has discovered significant value in the technology: money launderers. Unfortunately, their crimes cause tremendous problems for financial institutions, crypto businesses, legitimate law enforcement agencies, and cryptocurrency regulators, all of whom must tackle illicit activity on blockchains.
Finding a Solution
Enter Elliptic, a company that specializes in cryptocurrency forensics and has developed a new method for detecting money laundering on the Bitcoin blockchain using artificial intelligence. Elliptic’s latest safeguard, which applies machine learning to transaction data, has already identified proceeds of crime sent to a crypto exchange, novel patterns of money laundering, and previously unknown illicit actors.
A New Model Approach
The company’s research involves focusing on “subgraphs,” which represent Bitcoin transaction chains. By applying this technique, Elliptic’s model can analyze the broader “multi-hop” laundering process. This approach allowed the company to train its model on over 200 million transactions and identify patterns previously unknown to law enforcement and financial institutions.
Finding Crooks with AI
In a test of their technology, Elliptic applied its technique to real transactions on an unnamed cryptocurrency exchange and found 52 suspicious subgraphs that ended with deposits. The exchange reviewed the findings, confirming that 14 of the 52 accounts were previously flagged for links to money laundering.
Larger Implications
The model’s outputs have already been integrated into Elliptic’s products, and the company hopes to continue refining the technology. With its advancements, Elliptic plans to expand its toolset to identify other laundering patterns and become more effective in detecting illicit activity across blockchains.
Conclusion
Elliptic’s development of an AI-powered method for detecting money laundering on the Bitcoin blockchain marks a significant advancement in the fight against financial crime. The technology’s ability to identify novel patterns and previously unknown illicit actors has the potential to disrupt and dismantle criminal networks. As blockchain adoption continues to grow, the need for innovative and effective anti-money laundering solutions becomes increasingly important.
FAQs:
Q: How does Elliptic’s AI model work?
A: Elliptic’s model uses machine learning to analyze transaction data and identify patterns associated with money laundering.
Q: What does Elliptic’s model analyze?
A: The model analyzes Bitcoin transaction chains, or “subgraphs,” to identify the broader “multi-hop” laundering process.
Q: How effective is Elliptic’s model?
A: Elliptic’s model has already identified proceeds of crime sent to a crypto exchange, novel patterns of money laundering, and previously unknown illicit actors.
Q: Can Elliptic’s model be applied to other blockchains?
A: Yes, Elliptic plans to extend its technology to other blockchains in the future.
Q: Will Elliptic’s model flag every illicit transaction?
A: Not yet, but the company hopes to further refine its technology to achieve this goal in the future.
