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

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

The Defense Innovation Office is launching a comprehensive review of cryptocurrencies to assess threats to national security and law enforcement posed by the rise of digital assets.

The Defense Advanced Research Projects Agency – better known as DARPA, the office that developed the earliest technology underpinning the internet – has hired crypto-intelligence firm Inca Digital to carry out the year-long project. The company will develop tools that give the Pentagon a detailed view of the inner workings of crypto markets, in part to help authorities crack down on illegal use of digital assets.

“The program that’s going on here involves mapping the cryptocurrency universe in some detail,” Mark Flood, a program manager at the agency, said in an interview with The Washington Post. Beyond combating illicit finance, the office aims to use the data to gain insight into the dynamics that shape traditional financial markets, where detailed information is harder to gather.

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

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

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

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“We just need to recognize that the financial sector may be part of modern warfare going forward, and anything we can do to strengthen and protect the US financial sector and the financial sectors of our allies is beneficial,” said Flood, a former Treasury secretary. who has researched systemic financial risk.

Still, governments have struggled to control cryptocurrency. The industry’s lack of regulatory guardrails has allowed it to grow into a shadow financial system that sophisticated criminals have found ample opportunities to exploit.

Inca Digital CEO Adam Zarazinski said the firm’s work for DARPA will be “quite extensive.” Among other things, the project aims to help the authorities understand how money flows in and out of blockchain systems, or public accounts that are maintained on a distributed network of computers. It is also meant to distinguish genuine crypto trading from bot-driven activity and root out crypto-based fraud.

“There’s a lot of concern about crypto fraud 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 either explicitly supported by adversary countries or given tacit approval to carry out these operations, and billions of dollars are stolen from Americans and Europeans.”

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The project is not DARPA’s first attempt at blockchain technology. The agency released a report in June commissioned from cybersecurity firm Trail of Bits that found blockchains often contains vulnerabilities that undermine their security requirements. But Flood said the agency’s goal with the latest project is not to track individual crypto users. “DARPA is not engaged in surveillance,” he said. “I want to emphasize that in this research we are careful not to get involved in personally identifiable information.”

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