Cross-chain bridges have emerged as a pivotal battleground in the ever-evolving war against crypto asset laundering, according to a recent report by crypto analytics firm Elliptic.
In a dramatic shift, the study reveals that the value of illicit crypto assets laundered through cross-chain bridges has skyrocketed in recent months, overshadowing the conventional use of mixing services.
This seismic change in laundering methods has left authorities grappling with the challenge of keeping pace with the evolving strategies of nefarious actors.
Cross-Chain Crime: A Shapeshifting Challenge
Cross-chain crime, the act of anonymously swapping crypto assets across different blockchains, presents a formidable challenge for those tasked with tracing the origins of illicit funds.
This seamless transfer of value between disparate blockchain networks has created a veritable labyrinth for law enforcement agencies, as they grapple with the intricate web of transactions. The resulting opacity makes it exceedingly difficult to pinpoint the genesis of these ill-gotten gains.
The surge in cross-chain crime has been closely correlated with the explosive growth of decentralized finance (DeFi) since its inception in 2021. The allure of DeFi’s borderless and decentralized ecosystem has provided an ideal breeding ground for money launderers, who exploit the lack of centralized intermediaries.
Elliptic’s Alarming Findings
Elliptic’s data has revealed a staggering $4 billion worth of illicit or high-risk crypto assets were laundered using cross-chain methods in 2022, highlighting the ever-increasing sophistication of these criminal networks.
Elliptic’s data paints a vivid picture of the transition from traditional mixers to cross-chain bridges, with the trend intensifying following the sanctioning of Tornado Cash in August 2022 and the subsequent shutdown of RenBridge—an influential bridge once backed by the now-defunct Alameda Research.
Elliptic’s findings underscore a concept known as “crime displacement,” wherein criminals adapt their tactics in response to increased scrutiny and preventive measures. As the United States-led enforcement actions targeted mixers and non-compliant crypto exchanges, particularly those based in Russia, offenders swiftly pivoted towards cross-chain solutions as a means of circumventing the ever-watchful eye of regulatory authorities.
In parallel to these developments, US Senator Elizabeth Warren has taken a proactive stance against crypto-related crime. Her ambitious creation, the Digital Asset Anti-Money Laundering Act, introduced in July, has garnered significant support. This comprehensive piece of legislation aims to extend anti-money-laundering requirements from the Bank Secrecy Act to encompass a broad spectrum of crypto players.
Warren’s bill casts a wide net, encompassing digital asset wallet providers, crypto miners, validators, and network participants.
Senator Warren’s history of skepticism toward cryptocurrencies and digital assets positions her as a formidable force in the push for tighter regulations and enhanced transparency in the crypto space. The senator’s legislative efforts may serve as a crucial tool in curbing the proliferation of cross-chain crime and preserving the integrity of the burgeoning crypto ecosystem.
Featured image from Wealth Management