Why Intel Exchanges Raise a Dilemma for Compliance

Intel exchanges have arrived — and with them, a dilemma for compliance.

This summer, a $670 bounty was placed on information identifying Elon Musk’s personal crypto wallet. The reward is offered through Arkham’s Intel Exchange launched in July, which critics have nicknamed “DOX-to-Earn.” The platform encourages users to reveal the identities behind otherwise anonymous blockchain addresses, with crypto payable in Arkham’s native token (ARKM).

Marina Khaustova is the CEO of Crystal Blockchain. Prior to Crystal, Marina was CMO and co-founder of Element Capital Group, a digital finance-focused investment bank and asset manager for emerging blockchain industry capital markets.

While all on-chain information is visible, public forums can be a questionable source for data, and will require multiple verifications, including off-chain methods. Wrong conclusions can be drawn otherwise, putting the integrity of blockchain analytics, and even legal systems, at risk.

As the blockchain industry matures alongside institutional adoption and regulatory clarity, analytics providers need to ensure investigations are done carefully and with even more integrity. With consumer-focused analytics tools allowing any Twitter sleuth to play detective, the stakes are higher for those actors entrusted by public authorities to investigate money laundering, fraud, and criminal activity with real national security implications.

All Eyes on Blockchain’s Surveyors

In a twist of irony, forensics firms — the teams tasked with silently ensuring the integrity of decentralization — have been thrust into the spotlight. In April, a Dutch court allowed Alexey Pertsev, the developer of the Tornado Cash mixer who was sanctioned by the U.S. government last year, to cross-examine Chainalaysis at trial later this year.

Pertsev’s lawyers have argued that on-chain Ethereum transactions cited in evidence did not exist, setting a blockchain analytics company up for a grueling back-and-forth in which even one inconsistency can derail the state’s case, even if all other facts are ironclad. Furthermore, a hypothetical inconsistency can also be used in future legal defenses to undermine an entire process and industry.

Read more: Arkham CEO Defends ‘DOX-to-Earn’ Program, Says Public Blockchains ‘Worst’ for Privacy

Companies or individuals relying on public forums like intel exchanges with opaque verification techniques. The industry should not be using public boards with public wallet addresses for compliance decisions.

Blockchain analytics providers carry a tremendous weight of responsibility in ensuring their data is credible. All analysis carries potential legal outcomes, and the ability to alter someone’s life in the case of criminal indictments by law enforcement. Just because blockchain transactions are public does not mean it is easy to make real-world connections. Accepting any claim of ownership is not enough: Thorough vetting, both on and off-chain, is required.

Inflection Point

The blockchain industry is at an inflection point. The rise of intel exchanges and “crypto bounties” has the potential to bring a surge of digital withhunts, and even accelerate L2s and privacy coins. The issues intel exchanges  face are human rights issues, wherein their service  bears more semblance to a publisher than a blockchain startup, and leadership will inevitably have to arbitrate what should and should not exist on their platforms.

Forensics firms can correct this course by ensuring audit trails are unquestionable in accuracy and integrity, reaffirming the public’s faith in legal institutions and cryptocurrency as a tool for social good.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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