Weekend Bonus: Crypto IRL, Episode 8, with Tim and Katie

dot com, slash qt or check it out on YouTube. So, Katie, anything going on in the world of crypto over the last week. There's a life altering event in the world of crypto this past week. You're talking about f t X. It's bankruptcy. I am huge, it is huge. Well, we

got Bloomberg TV for all the breaking news. But we want to talk about crime, and it's not necessarily crime associated with the downfall of f t X. Innocent until proven guilty, it is being investigated, but a different type of crime when it comes to crypto, specifically bitcoin and crime and whether or not bitcoin is actually good for crime and whether it needs to be for thinking about money laundering. 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 happens 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 his 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.

Joe wasn't all of the odd lots podcast. We're not going to get into the f t X collapse, but you wrote back in February that it's time for bitcoin and crypto in general to get better at crime, and we're talking about a different type of crime that f TX is being investigated for, potentially more along the lines

of money laundering. So way out your case for us, Well, you know, one of the core arguments that like bitcoiners 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 called 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. They 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, 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 implicated 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 some 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 that 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 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 considered 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 a narrow which is a 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 ground up. Wait, so if you're a criminal and you want to do some crime, which is 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 instant tuitions 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 defactive 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 enforcement and private software companies are getting 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. Anything really well,

that's that's it. It's a whole different episode the Philosophy Show. A delight. Thank you for having that. I'd love to be back. Beth Bisbee from Analysis, Sugit Raman 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. It's like when you investigate a crypto in the digital world. This is exactly what it's like with all the coins, all the coins, the yellow you know, we're going for

something that's really authentic. So that's some good feedback. Um, Hey, Beth, 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 enforce and 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 in their parents basement, um,

selling drugs on the internet. So those are shocking in the in the 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 bitcoin, 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, anytime 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 movement of large qs of drugs um individuals can still accept payment with that through crypto suggets. Same question was shock and crime using Bicklin, 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 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 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 foreign 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. This is something that criminals often don't realize is that the bitcoin network itself is quite traceable, and folks like my team at Tierra 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 darknet markets and drug trafficking or even um the aspects of child exploitation sites that are also being leveraged on that, um, the

other type of crime is not necessarily financially driven. So we've 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 either's bot 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. I means something we noticed just 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 elicit 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, But 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 I mean 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 sending 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, know 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, illicit 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 s, you now have all of the defied toekens 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're 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 I 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 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 a 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 RM, 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 and fund 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, cause 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 and criminals and what to do or what not to do. Best.

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 as by rogue individuals with no connection to a state. Yeah, So what we were able to identify is that for nation state actors there, it's over four d million dollars that we have been able to tie

to UM North Korea for instance. Right. However, if you look at just individual elicita 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 on look at our individuals that are still soliciting UM illicit means, but they're doing it in a larger, smaller scale, but a higher transaction rate, so that actually supersedes the amount

that's actually being moved on the elicit 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 me that is the best way, right, so um, being so in a traditional financial aspect, right, there's reporting requirements in order to for 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 lot of specifics. This special audio only episode of Crypto I r L will be right back with more from Katie Greifeld and Tim Stenovic. If you want the full video experience, head

to Bloomberg dot com slash qt. You know, in all seriousness, um, all this talk of state actors kind of has me think 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 sent 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 aligned 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 purely 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 transparent 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 U S. Doller. I could see a world in which if there was more expansional 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 prosecutor. So if you watch Law and Order, yes, I always a

nified 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 rist of Hart Days character. I like a lot Olivia Benson. There is Beth. What about you? So mine? It's not a TV show, but it would be clares from Silence of the Lambs. Yeah, do you identify with the 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 grant. I thought you were a grizzled old cop with a heart of gold. Things change. 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 Vergolina. Our senior producer is Janet Babin. Our producers are Mohammed Faruke and Sharon Barriro. Our associate producers are Hi 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.