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Crypto criminals laundered more than $500 million via cross-chain bridges
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Crypto criminals laundered more than $500 million via cross-chain bridges

Cross-chain bridges can hold hundreds of millions of dollars of assets in escrow. Plus, because they multiply their possible vectors of attack by operating across two or more blockchains, they become prime targets for hackers.

September 6th, 2022

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New research has revealed that criminals in the crypto world are laundering money by sending digital assets across blockchains. In doing so, they are bypassing a centralized service that can trace and freeze transactions. 

To facilitate this process, criminals are using so-called cross-chain bridges. One of these bridges has been used to launder at least $540 million in crime-related crypto cash since 2020. Included in this amount is $153 million in ransomware payments.

What are cross-chain bridges?

Although they’re now being exploited by criminals, these cross-chain bridges have become important crypto tools in the past couple of years. This is because they help expand the market by giving people more ways to pay and transact. In particular, cross-chain bridges are vital to the development of decentralized finance, which is crypto’s alternative to the banking system.

Developers built cross-chain bridges to allow users to send tokens from one chain to another. These transfers rely on darknodes, or networks of thousands of pseudonymous validators. This has allowed cross-chains to become a prime tool for obfuscating crypto cash.

Similarly, because they’re effectively ungoverned, cross-chain bridges are also vulnerable to attacks. Cross-chain bridges can hold hundreds of millions of dollars of assets in escrow. Plus, because they multiply their possible vectors of attack by operating across two or more blockchains, they become prime targets for hackers. In particular, ransomware gangs, fraudsters, and even North Korean hackers are shifting from regulated crypto exchanges to cross-chain bridges.

What will regulators do?

Due to the negatives associated with cross-chain bridges, it’s widely expected that governments will start to focus on how they can be regulated over the next six to 12 months. This is because the bridges act a lot like crypto exchanges, which are already regulated. In the US, the Treasury Department has already begun to blacklist crypto mixing services over fears they’re being used to launder virtual currencies.

At present, cross-chain bridges effectively act as a loophole in the regulatory regime. Although they can currently be used to launder assets originating from theft, fraud, ransomware, and various other types of criminal activity, governments will undoubtedly look to close the loophole as soon as possible.

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