Cryptocurrency may feel like the Wild West of the financial world, but bad actors in the blockchain space are still bound by law.
Blockchain analytics firms like New York-based Elementus analyze blockchain transactions for evidence of malintent. According to the company’s blog, it’s analyzed suspicious activity, potential hacks or missing assets involving exchanges like Cryptopia, CoinBene and PlusToken.
While cryptocurrency has been widely lauded as a private way to store and exchange assets, it’s not actually private at all. Funds are coded as strings of numbers, and these numbers are available to whoever wants to look. A really smart algorithm, like the one Elementus created, can track transactions and look for patterns to guess at the entities behind the funds or flag shady dealings.
Elementus announced today it raised $3.5 million to continue its work with law enforcement clients and forge partnerships with government agencies and financial institutions, Fortune reported.
The round was led by Morgan Creek Digital, a venture fund that focuses on the blockchain space. Avon Ventures, a distant cousin of Fidelity Investments, also participated. Fidelity is the first mainstream Wall Street firm to offer cryptocurrency trading and holding to large customers.
Confused by crypto? Here’s how it works, in human words:
With traditional money, banks are the central authorities that approve transactions and ensure money doesn’t get spent twice. To create a decentralized, peer-to-peer digital currency, something has to function in place of that central authority to make sure transactions aren’t fraudulent.
Cryptocurrency relies on a technology called blockchain to accomplish that task. The blockchain is a string of transactions, encoded using cryptography, viewable to every person in the world. When cryptocurrency changes hands, that transaction is added to the blockchain, but first it must be verified by a member of the peer network.
To verify a transaction, a “miner” must solve a cryptographic puzzle that requires a lot of computing power. Only then can she officially tack on the transaction to the existing blockchain for all to see. This process keeps transactions transparent and secure, and the miners get to deposit some cryptocurrency into their own coffers as they add new links to the blockchain.
While cryptocurrency theoretically has built-in fraud protection, hackers and scam artists still put users at risk. For companies like Elementus, savvy data science is the best weapon against blockchain shenanigans.
