AI Could Detect Money Laundering on Bitcoin Blockchain: Elliptic Report
Blockchain forensic firm Elliptic, in collaboration with IBM Watson and MIT, has made significant progress in using artificial intelligence (AI) to identify money laundering activities on the Bitcoin blockchain, according to a recent report released by Elliptic. The researchers utilized a deep learning model to successfully detect crypto crimes, with the aim of helping customers assess the risks associated with crypto assets more accurately.
The deep learning AI model is capable of detecting patterns of money laundering and identifying crypto wallets used in these illicit activities, the report stated. Unlike traditional finance, where transaction data is often siloed, making it difficult to apply such techniques, blockchain provides transparency that enables the application of AI in this area.
Elliptic emphasized that their machine learning model is trained to detect “subgraphs” or chains of transactions, which are commonly associated with Bitcoin money laundering. This approach allows them to focus on the overall money laundering process, rather than the specific behavior of individual actors on the blockchain.
In simple terms, the researchers analyzed patterns of Bitcoin transactions that originated from bad actors and led to crypto exchanges. They used these patterns to train an AI model that can identify similar movements of suspected money laundering behavior.
To test the effectiveness of their AI tools, Elliptic applied them to a dataset containing over 200 million transactions.
According to a report by Chainalysis, $22.2 billion worth of cryptocurrency was laundered in 2023, which is a decrease from the $31.5 billion recorded in 2022. The drop in money laundering activity was more significant, at 29.5%, compared to the 14.9% drop in total transaction volume.
The tactics used for crypto laundering have evolved, with sophisticated criminals increasingly utilizing bridges and mixers.
Governments around the world have been emphasizing the importance of increased vigilance in enforcing anti-money laundering (AML) rules. Recent cases, such as the sentencing of Binance’s former CEO Changpeng Zhao to four months in federal prison for money laundering violations, highlight the growing seriousness with which authorities are addressing these issues. In another case, the founders of Bitcoin mixer Samourai were arrested on money laundering charges after allegedly executing over $2 billion in unlawful transactions and laundering over $100 million in criminal proceeds.
The advancements made by Elliptic, IBM Watson, and MIT in using AI to detect money laundering on the Bitcoin blockchain could play a crucial role in combating illicit activities within the crypto space.