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Cryptocurrencies can be both an innovation and a tool for illegal transactions.
Blockchain technology is a powerful tool for innovation. Cryptocurrencies, which are the most well-known applications of blockchain, allow for fast and low-cost transfers of funds, increase access to financial services, and even introduce new ways to support charitable initiatives through transparent and verifiable donations.
As with many new technologies, attackers have found ways to exploit the same traits of cryptocurrencies that make them useful. For example, North Korean hackers use the decentralized and pseudonymous nature of digital currencies to generate revenue, launder money, circumvent sanctions, and other illegal transactions.
Many believe that blockchain-based transactions are outside the control of government agencies, as they are carried out outside the verification and supervision system of traditional financial institutions. However, in fact, the opposite is true. Homeland security agencies and law enforcement agencies around the world are using blockchain analytics technologies to track and disrupt the flow of illicit funds, which previously seemed impossible.
What is blockchain analytics?
Blockchain analytics involves associating cryptocurrency addresses made up of random sequences of characters with real organizations or people with a certain level of confidence.
Blockchain analytics companies combine blockchain data with additional information, such as open sources or intelligence, to create highly authoritative information linking certain addresses to real-world entities, such as cryptocurrency exchanges or cybercriminal organizations. Next, data analysis techniques are used to further attribution of information at scale.
The result is a huge database that security professionals can use to identify patterns in criminal activity, link those patterns to real-world entities, and create a complete understanding of their activity over time.
A new threat landscape
As Western security services regularly remind, "the governments of China, North Korea and Iran [...] aggressively use advanced cyber capabilities to achieve goals that run counter to our interests and generally accepted international norms." Despite their shared goal of destabilizing the world order, each of these states has its own cyber threats and strategic goals on the world stage.
North Korea: Financing the Regime Through Cybercrime
North Korea's cyber capabilities pose a serious threat. The fully sanctioned regime has partially turned to cryptocurrency theft to fund its ambitions. Since 2017, hackers linked to Pyongyang have stolen nearly $3 billion in cryptocurrencies. In 2023, North Korean cyber activists stole about $700 million worth of digital assets, accounting for more than a third of all stolen funds in cryptocurrency attacks worldwide.
A specialized hacker unit is targeting the cryptocurrency industry using highly sophisticated methods. The main goal is simple: to support North Korea's missile and weapons programs.
Blockchain analytics not only identifies this complex criminal activity, but also helps to stop it. For example, our analysis of North Korea's June 2023 attack on users of Atomic Wallet, a non-custodial crypto wallet provider, showed surprising twists, mixes, and transitions across various blockchains after hackers stole about $100 million in cryptocurrency. After bringing in blockchain analysts to investigate, Atomic Wallet announced that it had frozen $2 million of stolen funds — a small fraction but more than is usually recovered in real-world thefts. Thanks to blockchain analytics, some major cybercrimes related to North Korea have indeed led to significant cryptocurrency returns.
China: Fentanyl and Espionage
China is using digital assets, as well as blockchain technology in general, to expand its influence abroad. Officially, the ownership and trading of cryptocurrencies in mainland China is severely restricted (although, unlike cryptocurrency mining, they are not banned, as is sometimes mistakenly assumed), which is in line with Beijing's goal of maintaining internal stability. At the same time, the government allowed cryptocurrencies to develop in Hong Kong in order to "stay in the game while minimizing risks." The use of the digital yuan in cross-border transactions is also expanding and the launch of new public blockchain infrastructures to support the country's geopolitical goals.
A similar approach can be seen with regard to the global fentanyl trade. Although fentanyl trade and dependence do not pose a major problem within China, Chinese manufacturers play a key role in the production and distribution of fentanyl precursors. The study found that 97% of more than 120 Chinese precursor manufacturers accept payment in cryptocurrency, and in 2023 alone, these companies received more than $26 million in crypto payments.
Blockchain analytics show that from 2022 to 2023, the volume of cryptocurrencies that entered wallets associated with Chinese precursor manufacturers increased by 600%. In the first four months of 2024, this figure more than doubled compared to the same period in 2023. The use of cryptocurrencies in espionage activities adds another layer of complexity to the digital realm. Government payments have played a prominent role in recent espionage cases involving Taiwan and the United States. These incidents, among others, highlight how states use digital assets not only for financial crimes, but also to achieve geopolitical advantages.
Iran: International Trade and Transnational Terrorism
Iran is also one of the countries that initially sought to suppress the domestic use of cryptocurrencies but later changed its policy in response to the changing global environment. According to blockchain analytics, the volume of cryptocurrency transactions in Iran reached almost $3 billion in 2022. Notably, about 90% of the volume of cryptocurrency transactions was processed by exchanges that apply user verification (KYC) requirements, which is in stark contrast to the lack of such measures in other countries. This may explain why the share of illegal transactions linked to Iran is only 0.08%, which is below the global average.
This data is in line with the Central Bank of Iran's recent efforts to normalize blockchain-based projects and develop a more structured approach to digital assets. Among the important events are the use of cryptocurrency for an international transaction in August 2022, as well as a joint statement with Moscow in January 2023 on the issuance of a gold-backed stablecoin for use in international settlements. In June 2024, Iran officially launched the Central Bank's digital currency.
As with other sanctioned countries, Tehran is using cryptocurrencies to circumvent financial restrictions. Similar moves are also seen in Venezuela, where cryptocurrency is being used for trade transactions and bypassing the dollar in the global financial system. In addition, Iranian hackers continue to attack countries that are in confrontation with Iran. In some cases, the government has worked directly with international groups to achieve its goals.
An example of the use of blockchain analytics was the tracking of a payment network after the attacks on Israel on October 7, 2023. The United States, the United Kingdom, and Australia have imposed new sanctions on intermediaries involved in the transfer of funds, including cryptocurrencies, from the Iranian government to terrorist organizations in Gaza.
The Future of Blockchain Analytics
Blockchain analytics provides national security and law enforcement agencies with a new level of transparency regarding financial transactions. This not only enhances their ability to monitor and disrupt illicit operations, but also deepens their understanding of the current and future threat landscape.
As criminal tactics evolve, governments will be able to use blockchain analytics to stay one step ahead of their opponents and enforce the law in digital economic ecosystems.
Source
Blockchain technology is a powerful tool for innovation. Cryptocurrencies, which are the most well-known applications of blockchain, allow for fast and low-cost transfers of funds, increase access to financial services, and even introduce new ways to support charitable initiatives through transparent and verifiable donations.
As with many new technologies, attackers have found ways to exploit the same traits of cryptocurrencies that make them useful. For example, North Korean hackers use the decentralized and pseudonymous nature of digital currencies to generate revenue, launder money, circumvent sanctions, and other illegal transactions.
Many believe that blockchain-based transactions are outside the control of government agencies, as they are carried out outside the verification and supervision system of traditional financial institutions. However, in fact, the opposite is true. Homeland security agencies and law enforcement agencies around the world are using blockchain analytics technologies to track and disrupt the flow of illicit funds, which previously seemed impossible.
What is blockchain analytics?
Blockchain analytics involves associating cryptocurrency addresses made up of random sequences of characters with real organizations or people with a certain level of confidence.
Blockchain analytics companies combine blockchain data with additional information, such as open sources or intelligence, to create highly authoritative information linking certain addresses to real-world entities, such as cryptocurrency exchanges or cybercriminal organizations. Next, data analysis techniques are used to further attribution of information at scale.
The result is a huge database that security professionals can use to identify patterns in criminal activity, link those patterns to real-world entities, and create a complete understanding of their activity over time.
A new threat landscape
As Western security services regularly remind, "the governments of China, North Korea and Iran [...] aggressively use advanced cyber capabilities to achieve goals that run counter to our interests and generally accepted international norms." Despite their shared goal of destabilizing the world order, each of these states has its own cyber threats and strategic goals on the world stage.
North Korea: Financing the Regime Through Cybercrime
North Korea's cyber capabilities pose a serious threat. The fully sanctioned regime has partially turned to cryptocurrency theft to fund its ambitions. Since 2017, hackers linked to Pyongyang have stolen nearly $3 billion in cryptocurrencies. In 2023, North Korean cyber activists stole about $700 million worth of digital assets, accounting for more than a third of all stolen funds in cryptocurrency attacks worldwide.
A specialized hacker unit is targeting the cryptocurrency industry using highly sophisticated methods. The main goal is simple: to support North Korea's missile and weapons programs.
Blockchain analytics not only identifies this complex criminal activity, but also helps to stop it. For example, our analysis of North Korea's June 2023 attack on users of Atomic Wallet, a non-custodial crypto wallet provider, showed surprising twists, mixes, and transitions across various blockchains after hackers stole about $100 million in cryptocurrency. After bringing in blockchain analysts to investigate, Atomic Wallet announced that it had frozen $2 million of stolen funds — a small fraction but more than is usually recovered in real-world thefts. Thanks to blockchain analytics, some major cybercrimes related to North Korea have indeed led to significant cryptocurrency returns.
China: Fentanyl and Espionage
China is using digital assets, as well as blockchain technology in general, to expand its influence abroad. Officially, the ownership and trading of cryptocurrencies in mainland China is severely restricted (although, unlike cryptocurrency mining, they are not banned, as is sometimes mistakenly assumed), which is in line with Beijing's goal of maintaining internal stability. At the same time, the government allowed cryptocurrencies to develop in Hong Kong in order to "stay in the game while minimizing risks." The use of the digital yuan in cross-border transactions is also expanding and the launch of new public blockchain infrastructures to support the country's geopolitical goals.
A similar approach can be seen with regard to the global fentanyl trade. Although fentanyl trade and dependence do not pose a major problem within China, Chinese manufacturers play a key role in the production and distribution of fentanyl precursors. The study found that 97% of more than 120 Chinese precursor manufacturers accept payment in cryptocurrency, and in 2023 alone, these companies received more than $26 million in crypto payments.
Blockchain analytics show that from 2022 to 2023, the volume of cryptocurrencies that entered wallets associated with Chinese precursor manufacturers increased by 600%. In the first four months of 2024, this figure more than doubled compared to the same period in 2023. The use of cryptocurrencies in espionage activities adds another layer of complexity to the digital realm. Government payments have played a prominent role in recent espionage cases involving Taiwan and the United States. These incidents, among others, highlight how states use digital assets not only for financial crimes, but also to achieve geopolitical advantages.
Iran: International Trade and Transnational Terrorism
Iran is also one of the countries that initially sought to suppress the domestic use of cryptocurrencies but later changed its policy in response to the changing global environment. According to blockchain analytics, the volume of cryptocurrency transactions in Iran reached almost $3 billion in 2022. Notably, about 90% of the volume of cryptocurrency transactions was processed by exchanges that apply user verification (KYC) requirements, which is in stark contrast to the lack of such measures in other countries. This may explain why the share of illegal transactions linked to Iran is only 0.08%, which is below the global average.
This data is in line with the Central Bank of Iran's recent efforts to normalize blockchain-based projects and develop a more structured approach to digital assets. Among the important events are the use of cryptocurrency for an international transaction in August 2022, as well as a joint statement with Moscow in January 2023 on the issuance of a gold-backed stablecoin for use in international settlements. In June 2024, Iran officially launched the Central Bank's digital currency.
As with other sanctioned countries, Tehran is using cryptocurrencies to circumvent financial restrictions. Similar moves are also seen in Venezuela, where cryptocurrency is being used for trade transactions and bypassing the dollar in the global financial system. In addition, Iranian hackers continue to attack countries that are in confrontation with Iran. In some cases, the government has worked directly with international groups to achieve its goals.
An example of the use of blockchain analytics was the tracking of a payment network after the attacks on Israel on October 7, 2023. The United States, the United Kingdom, and Australia have imposed new sanctions on intermediaries involved in the transfer of funds, including cryptocurrencies, from the Iranian government to terrorist organizations in Gaza.
The Future of Blockchain Analytics
Blockchain analytics provides national security and law enforcement agencies with a new level of transparency regarding financial transactions. This not only enhances their ability to monitor and disrupt illicit operations, but also deepens their understanding of the current and future threat landscape.
As criminal tactics evolve, governments will be able to use blockchain analytics to stay one step ahead of their opponents and enforce the law in digital economic ecosystems.
Source
