Weekend Bonus: Crypto IRL, Episode 7, with Tim and Katie

slash qt or check it out on YouTube. What cop are you? I think I'd be the grizzled veteran with a heart of gold, grizzled veteran with the heart of a Clint Eastwood type, you know. Yeah, Like at the end of the day, I'm you know, hard on the outside, but I just want the best for my colleagues, my rookies, such as yourself. I'm a rookie, I think in this situation. Yeah, I like to think of myself as the good cop. Alright, that's pretty vanilla, but it's fine. Good cop, Okay, you

can be the bad cop. We should probably explain why we're talking about cops. The entire episode is about crypto and crime. Tim If I can't use my crypto to fund activities that other people might think are illegal, what are we even doing here? That's the question. Bitcoin has been closely associated with crime since pretty much the beginning. In the early days, it was the currency of choice on the dark wet, used in drug deals and even

a murder for higher plot. In more recent years, it's been what hackers have demanded when they've held pipelines, hospital systems, and met packing plants hostage, And then there's been the hacks. October two is on track to see more crypto stolen and hacks than any other month this year is on

pace to be a record according to chain analysis. But as bitcoin actually good for crime, since all transactions are public on the blockchain, everyone can see bitcoin move on the blockchain, and governments and other organizations are getting better at recovering stolen bitcoin. Plus it's not actually that easy to launder bitcoin to turn lots of it into real,

usable money. This raises an important question. If bitcoin isn't good at crime, then how can it live up to its promise as a stateless currency that could allow people in impressed areas to transact with one another without a regulator seeing what they're up to. Tell as at all the podcast in February, you wrote that it's time for bitcoin to get better at laundering money, and I have been thinking about it since then. I pushed to get stuck. Did it really made an impression on me? Um? I

find it a very compelling argument, But lay out your case. Well, you know, one of the core arguments that like biitcoiners make is that it's like separation of money and state, right, and that it's a sort of form of money that doesn't rely on the government, it doesn't rely on traditional

banking system, etcetera. And when I wrote the piece, it was if you were calls like during the Canadian trucking protests and there was that big convoy and sitting aside what one's view of the protest work, which I think is like kind of irrelevant to the question. The point is, if there's going to be a moment where people needed a form of money that could like they could transact without censorship, that was it. And it didn't really work

for that. They were able to like very easily track the transactions that were able to like freeze wallets from like interacting with banks. So it's like, if bitcoin is going to live up to its promise of being a means of transaction that is separate from the states, separate from the financial institutions, I don't think it's there yet in terms of whether it's privacy or obfuscation or things

like that. So you're essentially saying that if bitcoin is to live up to its promise of being this stateless currency, yea something that could help and oppressed people, Yeah, then it actually needs to be something that would also be good for criminals. I think that, Yeah, that would be the implication because again, like what's what's a criminal in one country one city could just be a protest or

somewhere else. So to some extent, like this distinction is going to be very like vagable, like yeah, some places like protest is crime, someplace free speeches crime. And so the point is that for it to like, yeah, fulfill its mission, then on level, there has to be a way to transact with it without the state being able to say, you got these coins, and now these coins if they ever go to an exchange, if they ever go to like a fiat off ramp, they'll be frozen.

What is the point then? I think part of the reason I've been thinking about this column that you wrote for I don't know, eight nine months is that it kind of made me think that crime is really subjective. Crime to one person, to one government, is not a crime to another government. Yeah, right, Like there are all

there are. There are certain categories of crimes that everyone would find to be like absolutely, shouldn't people absolutely, But there are other yeah, in different situations, like you know, sending someone or selling a copy of the Bible might be a crime in some countries, or a different religious text or any other sort of like protest or whatever

it is. And so yeah, that's exactly right. Like, how would you even begin to conceive of a currency that would work for what we would call like legitimate crime or legitimate dissidents within a country if it didn't work for things that we would consider to be reprehensible. But it works to a certain extent, And that's what it seems like, at least because we are seeing still ransomware attacks that are you know, essentially say pay us x

bitcoin else. Yeah, although even even ransomware attacks, there's a pretty big loss of market share by bigcoin that we've seen to like some of the privacy coins, like I think like if you look around like Manarrow, which is much smaller, less liquid, less market kept point is still popular among ransomware in tax and part because of this reason.

It's like has privacy built into it from like round up. Wait, so if you're a criminal and you want to do some crime, which is would never never suggest, but I do think that it speaks to again like ransomware is

really bad. So this is not about that. The point is like, well, then if if it doesn't work for these, then what I like to sort of like freedom, sort of like outside the state, outside the financial institutions, use cases that it does work for because the point that I see is like, Okay, they say it's like no one can block a bitcoin transaction, no one can censor it.

But isn't it a defective form of censorship if an entity can say these wallets can no longer move to an exchange, And I think that's an important sort of set up there that you can do pack and get

bitcoin in exchange. It's just you can't really do anything with the bitcoin that you write, and you know there's all kind of like train analysis is getting better and better, so it gets it becomes easier to like connect an individual to a wallet and so forth, and like law enforcements and private software companies are getting like really good

at this. But if there's a point where it's like really hard to disassociate a coin from a human name from someone that is known to officials, then you start to, I think, lose some of the promise of the currency of anything. Really well, that's that's it. It's a whole different episode the Philosophy Show to delight. Thank you for having me. I'd love to be back. Beth Busbee from Analysis, Sugit Rahman from TRM Labs. It's good to have you both here with us. How are you great? Thanks for

having us. What do you think of the crime scene? It's great, very realistic. You know what it's like when you investigate a crypto in the digital world. This is exactly what it's like. All the coins, the yellow you know, we're going for something that's really authentic. So that's some good feesback. Um, hey, I want to start with you. Just give us an idea of the most shocking crime

you've ever seen. Committed with crypto. So if I go back to my days when I was with the Drug Enforcement Administration, um, it was with drug traffickers and anywhere from drug trafficking with money laundering using crypto for drug cartels or your running the mill, individuals that were down on their g parents basement, um, selling drugs on the internet. So those are shocking and the of themselves and like how the individuals actually like benefited from it and leveraging

crypto for that. When I think about drugs and I think about bit colin and I think about them both together, I think about silk Road, Like is that the sort of stuff that we're talking about? Yeah, so kind of both. Right, So the very first really play of drugs and crypto is silk road. Right, that was one of the most innovative spaces for somebody to be like how do I get this onto the black market without being detected by

law enforcement? And then this was the generation of leveraging tour and the digital realm of what payment system was, which was crypto, and that's what created silk road. So for the traditional sense of the digital aspect for drug trafficking, yes, that would be what it is. However, um. Any time you have a type of crime, you can leverage crypto

for that. So drug trafficking and the traditional sense where you have the actual bulk move of large quos of drugs UM individuals can still accept payment with that through crypto suggets. Same question was shock and crime using Bicklins. They weren't necessarily shocking to me because criminals often go

where the sort of technology is. But the first time I was really struck by how interesting crypto really could be was when I read the indictments charging those Russian intelligence officers with interfering in the elections in because if you read those indictments, you'll see that intelligence officers were using crypto to buy servers within the United States to try to sort of you know, obscure their tracks and use that to basically purchase the infrastructure that they then

used to launch the hacks into the DNC emails and all that. And they even hosted the website that you know, sort of hosted all that information through the payment of crypto. So when I was in a senior role the Justice Department, that's what the first time I realized, Wow, I mean, crime is very important, and all the stuff we're doing on sort of dark webs really important. But there's a for an intelligence component to this, there's a defending democracy

component to this. But ultimately those individuals were indicted. They were indicted, and the allegations are in the indictment right and in the in the indictment you see the evidence of them using what was it, bitcoin correct various types of crypto. So the question, well, we'll keep the question a bitcoin for now and then take it out to other types of crypto, but does it does that mean that it is or is not an effective means to

essentially commit crime with? So it you know, it can be traced, right, And this is something that criminals often don't realize, is that the bitcoin network itself is quite traceable and folks like my team at r M labs bets team of chain analysis have become very good at tracing those payments. So it's just dumb criminals at this point then, because I feel like at least I don't know, maybe I spend too much time in my own bubble, but I feel like it's pretty well known that you

can track things on the blockchain by now. Well, I think a lot of people maybe don't realize that the other thing is it still takes time. Right, You've got technology like mixers and other types of technology that will help you sort of you know, mix up the transactions a little bit. Um even that capability is something law enforcement can see through using the right and the effective tools. But there's a lot of crime out there and there's

limited resources for law enforcement. This special audio only episode of Crypto I r L will be right back with more from Katie Greifeld and Tim Stanovic. If you want the full video experience, head to Bloomberg dot com slash qt. Okay, so we talked about shock, let's talk about scale because when I think about Silk Road, uh, that was a long time ago. Where does the state of crime using crypto stand right now? So if you look past like Silk Road, that was one marketplace. One Silk Road was

taken down. It kind of like did this whackable type of thing where it dispersed and criminals were like, oh, that's a really ingenious idea in order for me to actually do my criminal activities. So you see this mold that then is being expanded within that. But if you go past just like darkner markets and drug trafficking or even UM the aspects of child expectation sites that are also being leveraged on that UM. The other type of

crime is not necessarily financially driven. So we have seen individuals that have taken advantage of the Bitcoin blockchain and UM have been able to put messaging within the transactions so that it's encrypted, and there's blotton nets that then crawl the block blockchain in order to decrypt that to then infortrate different aspects. So what we saw with US was a bunch of crypto dracking that was actually occurring.

So rather than just seeing the transaction that was occurring on a financial aspect, this is now being deployed for a cyber component as well. Makes something we noticed just the a few weeks ago is ices is trying to raise funds through the use of n f t s, completely novel application of the technology. The technology is amazing, it's great, but illicit actors can also use it in novel ways that are actually pretty concerning. How are they

trying to do that? So basically, you know, you create sort of an n f T and use that as a means of collecting funds, and so our team at TRM was able to identify that in advance and essentially notify you know, law enforcement and has since been taken down. It doesn't look like, uh, you know, they had actually mobilized the n f T yet they were basically doing the preparatory work. I assume those n f T s weren't.

Like I wish you you bring up Actually my next question, which is like I actually just don't get how isis would do this with an n f T, Like, explain how this would work. Well, essentially, you would, you know, send funds to that n f T, right, you would use that digital representation to store value and and I mean so that n f T would be not associated

officially with a terrorist organization. Correct. You wouldn't realize that at the time that you were setting it, though people in the know would know to send and it would evade detection. So you're essentially setting up a bank account that is unlinked to any entity in order to raise

funds for terrorists. Right. Essentially would be receiving funds in a digital manner that's not tied to any particular KYC information right now your customer, no, your customer, and you would then use that and sort of move it off, you know, move it to other chains or other areas and then try to turn it into cash. So to that point, I feel like ISIS wouldn't have been using n f t s. I don't know three four years ago.

I know you both have been involved in the space for a long time, Beth, I know that you've been looking at, you know, elicit activities using crypto since we've touched on some of this, But tell me how the use case has evolved since then? Has it gotten more creative?

How has it changed? Oh, it's definitely more creative. So I like to always think back, like back in the good old days with bitclin, because it's no longer the good old days, where like the technology has advanced and all of these different aspects of cryptocurrency have popped up. So you have n f t is, you now have all of the defy tokens that are available and the platforms that are operating in that manner that it's hard

to keep up with all of that. So not only are you having individuals that are still in the bitcoin realm, but they are now transitioning into the DeFi space. And um, there's so many advancements with that with blockchains on top of other blockchains and UM just being able to understand what that technology represents as well as how criminals are using that technology for what it does not necessarily represent, right, And to me, that's the evolution that will always continue.

UM and being able to understand how it's being leveraged is one of the most um interesting things for the evolution of what cryptocurrency is. Is it kind of easy to make money as a criminal using crypto? I would say there are ways to take advantage of the systems,

for sure. So you have platforms now where you can stake funds, right, and you can stake that with criminal funds, and so like you actually are earning money and interest on all of these different things that are actually illicitly earned. I'm wondering if what you heard from Joe Wisenthal makes sense that this stuff in order for it to actually serve its promise as stateless currency and help people who

are oppressed, it has to become better at crime. Because what you guys do trm at at analysis, Like you track this stuff something that we know can be tracked now, but people have this idea that it was untrackable. Well, look, I think privacy is very important, right, and so you know, at t RAN, for example, we don't touch personal sensitive data.

It's all the blockchain information is publicly available. It's on a public blockchain and you can trace it over time, which is what Joe was saying, is why it's not good for crime. Right. But you know, just because something isn't necessarily good for crime doesn't mean that it's it's a it's a bad thing. Right, there's a lot of positive use cases for for crypto generally, or for distributed ledger technology, which is what all of the stuff is

based on. That. You know, often people are are overlooking, right, I mean think about you know, the last time you try to send funds. So if you've got relatives and other parts of the world, you know, in the traditional banking system, it takes days. There's fees everywhere, and it takes forever, costs a lot of money, and it cost

a lot of money. And with crypto and you need a bank account on both sides, if you were a criminal, would you use crypto or would you put the cash in a suitcase and sort of try to travel around that way? So can I give you my honest answers? I am not a criminal, This is a brain exercise, though it requires us to suspend reality. I mean, look, cash is still king when it comes to illicit activity. Right. Crypto is certainly a means of doing illegal things, but

there are aspects that are more traceable. But there are aspects that make it more obfuscatable, like mixers and other kinds of technology. So you know, I certainly wouldn't be in the business of advice criminals and what to do or what not to do. This special audio only episode of Crypto I r L will be right back with

more from Katie Greifeld and to Centevic. If you want the full video experience, head to Bloomberg dot com slash qt That students talked a lot about state actors, and I'm wondering in your work if you have any data that shows to what extent the crime is being committed by state sponsored actors versus by rogue individuals with no connection to a state. Yeah. So what we were able to identify is that UM for nation state actors there, it's over four million dollars that we have been able

to tie to UM North Korea, for instance. Right, However, if you look at just individual Elica actors within that um, although the hacks are very large, so six hundred million dollars at a time for a hack, right, it makes

and grabs attention for headlines. However, what is not being um, look at our individuals that are still soliciting um elicit me, but they're doing it in a larger, smaller scale, but a higher transaction, right, so that actually supersedes the amount that's actually being moved on the list of scale for that.

That's really interesting and I swear I'm just curious. So if you were committing a crime, it sounds like just a series of smaller transactions makes a lot more sense in any type of movement for financial means that that is the best way, right so um being so in a traditional financial aspect, right, there's reporting requirements in order to transactions that hit a banking system, right and so um and those are the suspicious activity reports that financial

institutions and money service businesses are actually supposed to report. So if you're underneath that threshold, like you're not going to be able to be reported on as easily ten thousand dollars for funds that are going on a specifics you know, in all seriousness, um, all this talk of state actors kind of has me thinking about whether or not all of this is actually a good development or not.

And I'm wondering, you know, North Korea recently launched a missile over Japan and said, you know, shock ways throughout the world, and they do this every once in a while. And I'm wondering, student, if you think North Korea would be as powerful as it is today and as much of a menace to the rest of the world if there was no such thing as crypto. Yeah, I think you can strip the crypto conversation out of that, because North Korea has been engaging in this kind of maligned

cyber activity for years. They tried to steal I think it was a billion dollars from the Bank of Bangladesh a few years ago, but basically hacking into the Federal Reserve New York's account that the Bank of Bangladesh was using and siphon that money out. Nothing to do with crypto, right,

it was just a cyber hack. So crypto certainly makes it, you know, a more interesting conversation because there are certain things that nation state actors can do that they couldn't do more, you know, as easily in a in a pure kind of analog world, do you guys like crypto? I mean, do you see, you guys look at the worst side of crypto when you zoom out from that? I mean, do you see this is a net positive or what are your feelings? All Right, It's definitely a

net positive. Like it's innovation at its finest, and it's really fascinating to be able to watch um being able to step back and see that individuals that maybe in underprivileged areas that have access to financial means through crypto is fantastic. And just being able to leverage that in a way that makes it where almost everybody can be on the same playing field, to me, is one of

the most rewarding things within this space. Would you agree with Stugent that we have to strip crypto out of the conversation there, because even if there were no crypto, these sanctioned countries would still be able to access funds to fund whatever they're doing. Yeah, And like, I would actually say that the crypto aspect is actually a positive

thing with it. And I say that because it is trans parent for us to be able to actually track those funds and actually see what is going on within those different countries, which is, if you took the crypto out of it, like completely, we would lose insight into what's actually going on and we wouldn't be able to tie that back to US. Does it stugent undermine American

foreign policy at all? So look, that's a really interesting question. Obviously, certain countries are trying to use crypto to kind of evade the international, you know, global financial system, which is very much US led, or at least led by kind of Western countries and Western values. But here's an interesting kind of other side to it. You talk about stable coins, right,

which are basically tied to the US dollar. I could see a world in which if there was more expansion of stable coins, that actually promotes the growth of the US dollar into areas where it maybe doesn't exist now. So, you know, crypto again cuts both ways. You've got to really understand it and then you can make good policy. Who's your favorite TV cop? Like, who do you model yourself after? Well? I, uh, I was not a cop.

I was a pro secuter. So if you watch Law and Order, yes I always identified with the lawyers, but I did like the guys in Law and Order. You gotta be honest it's for you. Yeah, it's a risk Harte Days character. I like a lot Olivia Benson there is Yeah, Beth, what about you so mine? It's not a TV show, but it would be clarice from the silence of the Lambs. Yeah, do you identify with their Yeah? So my whole dream job right was to actually be a profiler, and that's what I wanted to do, and

then I got sidetracked with Crypto. So here I am Raman, Beth Bisbee. Good to see you guys. Thanks for joining us. It's it kind of seems like you're ready for a life of crime. I don't know. After listening to this episode, we mapped a pretty good blueprint, but not using bitcoin. Maybe ma Narrow definitely a mixer and I would keep it under ten grants. I thought you were a grizzled old cop with the heart of gold. Things change. Yeah. I want to see these episodes of Crypto I r

L in video. Check them out on Bloomberg Quicktake at Bloomberg dot com, slash qt, or find Katie and Tim Over on YouTube. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The

supervising producer of Bloomberg Crypto is Vicky Very Galina. Our senior producer is Janet Babin. Our producers are Mohammed Faruk and Sharon Rio. Our associate producers are Ty Butler and Moses on Them. Desta wonder At is our engineer. Original music by Leo Sidron. I'm Stacy, Marie Ishmael. Have a great weekend.