Cryptocurrency Is Harder to Launder Than Fiat Currency

Bitcoin is a tool for terrorists and money launderers. At least that’s what your elected officials believe. When western leaders are pressed for their thoughts on cryptocurrency, that’s invariably the first sound bite to leave their lips, followed, occasionally, by a begrudging acknowledgement that “the underlying blockchain technology has potential”. But as the case of the $400 million of NEM stolen from Coincheck last week shows, laundering huge amounts of cryptocurrency is surprisingly hard. Laundering fiat currency, on the other hand, is extremely easy when you know how.

Coincheck, NEM and the Curse of the Tainted Crypto

Coincheck’s glum president at a press conference on Friday.

After successfully extracting over $400 million of NEM from Coincheck’s hot wallet last week the hackers must have been ecstatic. In a single transaction they had pulled off the biggest digital heist of all time. Those smug grins swiftly gave way to frowns however as the thieves pondered the best way to offload their ill-gotten gains.

In the real world, there is no blockchain to monitor the movement of U.S. dollars in real-time. Laundering cash in small amounts is as easy as walking into a casino, and in larger amounts easier still if you have a cash-based business for that express purpose. But on the web, the blockchain sees and records everything, making it easy for observers to monitor the movement of stolen funds as they are disbursed. In the last few days, the NEM hackers have started moving their haul, but are encountering major difficulties in finding an exchange that will accept it.

Blacklisted on the Blockchain

In the wake of the Coincheck hack, NEM elected not to issue a hard fork to isolate the stolen coins and render them worthless. Instead it began contacting exchanges with the wallet address the stolen currency was sitting in, seeking to have it blacklisted. With 33 exchanges accepting NEM deposits, the hackers shouldn’t be short of options in theory. However, only eight of these recorded NEM trading volume of over $1 million in the last 24 hours. Laundering the proceeds, even if the hackers are able to find an exchange that will take them, could take some time. NEM’s Jeff McDonald told Reuters: “[The hackers are] trying to spend them on multiple exchanges. We are contacting those exchanges”.

 

In an effort to avoid scrutiny, the hackers have begun breaking the coins down into 100 XEM batches (currently worth around $55) in new wallets. Dividing 500 million coins into 100-coin bundles – even if automated – is a laborious process. It’s likely that some of the stolen NEM will enter circulation one way or another, but the chances of even 1% of the proceeds being laundered in such a manner seem remote. “I would assume that they are going to get away with some of the money,” conceded McDonald…

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