Pentagon launches effort to assess crypto’s threat to national security

The Army Innovation Bureau is launching a major cryptocurrency review.

The Army Innovation Bureau is launching a major cryptocurrency review. (Facebook)

WASHINGTON – The Army’s Bureau of Innovation is launching a broad cryptocurrency review to assess the national security and law enforcement threats posed by increased digital assets.

The Defense Advanced Research Projects Agency – better known as DARPA, the office that developed the first technology behind the internet – hired crypto intelligence firm Inca Digital to lead the year-long project. The company will develop tools that will provide the Pentagon with a detailed insight into the inner workings of cryptocurrency markets, in part to help authorities crack down on illicit uses of digital assets.

“The ongoing program here is about mapping the cryptocurrency universe in detail,” said Mark Flood, a program manager at the agency, in an interview with the Washington Post. In addition to fighting illicit finance, the office aims to use data to gain insight into the dynamics shaping traditional financial markets, where it is more difficult to gather insights.

The deal is the latest evidence that federal agencies are stepping up efforts to thwart rogue regimes, terrorists and other criminal actors using cryptocurrencies to fund their operations.

Last month, the Treasury Department issued its first sanctions against software code to target Tornado Cash, a service that has helped North Korean hackers and others launder stolen cryptocurrencies. This week, the department issued a request for public input on cryptocurrency national security and illicit financial risks. Separately, this month the Justice Department announced it is launching a nationwide network of 150 prosecutors to coordinate investigations and prosecutions related to cryptocurrencies.

Flood noted that hackers affiliated with the North Korean government carried out digital robberies and obtained billions of dollars for the regime’s weapons program. And the Ukrainian government reported Russian attacks on its financial industry shortly before the invasion this spring.

“We just need to recognize that the financial sector may be a component of modern warfare in the future, and everything we can do to strengthen and protect the US financial sector and our allies’ financial sectors is beneficial,” said Flood, a former senior official. Treasury that studied systemic financial risk.

However, governments have struggled to control the cryptocurrency. The industry’s lack of regulatory barriers has allowed the industry to transform into a shadow financial system that sophisticated criminals have found ample opportunities to exploit.

Adam Zarazinski, CEO of Inca Digital, said his company’s work for DARPA will be “broad enough”. Among other objectives, the project aims to help the government understand how money flows in and out of blockchain systems or public records maintained on a distributed network of computers. It also aims to distinguish true cryptocurrency trading from bot-driven activity and hunt for cryptocurrency-based scams.

“There is a lot of concern about crypto scams right now,” said Zarazinski, an Air Force veteran who also worked in criminal intelligence for Interpol. He said the organizers of the schemes are often “well-organized transnational criminal networks, often explicitly supported by contradictory countries or with tacit approval to carry out these operations, and billions of dollars are stolen from Americans and Europeans.”

The project is not DARPA’s first foray into blockchain technology. The agency released a report in June commissioned by cybersecurity firm Trail of Bits that found that blockchains often contain vulnerabilities that undermine their security claims. But Flood said the agency’s goal with its latest project isn’t to track individual cryptocurrency users. “DARPA is not involved in surveillance,” he said. “I will emphasize that we are careful in this research not to get involved in personally identifiable information.”


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