With the cryptocurrency landscape continually evolving, the strategies employed by criminals are also taking a new turn. A recent shift has been observed from mixers to cross-chain solutions for advancing illicit activities, predominantly money laundering. This move has given rise to a new form of digital criminality – cross-chain crime.
Understanding the Shift from Mixers to Cross-Chain Solutions
The battle between law enforcement and criminals often feels like a never-ending race, requiring each party to continually adapt their tactics to outsmart the other. This is particularly true in the world of cryptocurrencies, where stringent regulations in one area can trigger a shift in criminal operations to another, less regulated area. This phenomenon, known as ‘crime displacement,’ is increasingly evident in the crypto ecosystem.
Previously, criminals predominantly used mixers for their activities. However, following enforcement actions and sanctions led by the US, there has been a noticeable migration towards cross-chain solutions. The cross-chain crime involves swapping assets across different blockchains to conceal their tracks, a method that has become particularly popular with the advent of decentralized finance.
The Rise of Cross-Chain Crime in the Crypto World
Data from Elliptic reveals that nearly all laundered crypto was conducted via cross-chain bridges in June and July, signaling a complete deviation from 2022 when mixers were primarily utilized. One such example is the Lazarus group, a cyber-hacking organization linked to North Korea, known for its notorious activities in the crypto sphere. This group, once known to use the Mixer Tornado Cash, has now turned to the Avalanche Bridge following the US government’s crackdown on Tornado Cash.
The surge in cross-chain crime can be traced back to the clampdown on Tornado Cash mixer in mid-2022. There was a brief return to mixers following the RenBridge shutdown, which was funded by the now-defunct Alameda Research along with FTX. However, the shift to cross-chain bridges resumed in earnest in early 2023 after the EUROPOL-led seizure of Bitcoin ChipMixer. This move has led to a significant decline in Mixer use for crypto laundering as criminals now favor cross-chain bridges.
Why are Criminals Opting for Cross-Chain Solutions?
The shift to cross-chain solutions can be attributed to several factors. Firstly, the enforcement actions against Mixers by the US government have made cross-chain solutions the preferred choice for criminals. Secondly, criminals are aware that blockchain analytics solutions struggle to track illegal activity across different blockchains effectively.
Cross-chain solutions are primarily designed with a single asset in mind, like Ether, making them an attractive option for criminals. Furthermore, the shift in crypto crime to newer assets, such as DeFi protocol-specific assets, which can only be exchanged on cross-chain solutions, is another contributing factor. The lack of Know Your Customer (KYC) requirements on decentralized exchanges, coin swap services, and cross-chain bridges further facilitates crypto crimes by allowing users to hide their identities.
Despite the increasing prevalence of cross-chain crime, law enforcement is not powerless. Holistic blockchain analysis is a promising method for tracking cross-chain crimes on a large scale. Several companies are already developing such solutions that can identify crypto assets on multiple blockchains simultaneously.
For instance, platforms like cryptoview.io provide comprehensive insights into different blockchains, making it easier for law enforcement to trace illicit activities. Start now using our tools for free.
