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

The military’s innovation agency is launching a sweeping assessment of cryptocurrencies to assess the 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 agency that developed the earliest technology to power the Internet — has hired crypto intelligence agency Inca Digital to run the year-long project. The company will develop tools that will give the Pentagon a detailed picture of the inner workings of crypto markets, in part to help authorities tackle the illicit use of digital assets.

“The program underway here involves mapping out the cryptocurrency universe in great detail,” said Mark Flood, a program manager at the agency, in an interview with The Washington Post. In addition to fighting illegal financing, the firm aims to use the data to gain insights into the dynamics that shape traditional financial markets, where detailed information is more difficult to collect.

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

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The Treasury Department first issued sanctions last month against software code to target Tornado Cash, a service that helped North Korean hackers and others launder stolen crypto. This week, the department requested public input on the national security and illicit financial risks of cryptocurrencies. 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 made billions of dollars for the regime’s weapons program. And the Ukrainian government reported Russian attacks on its financial sector just before the invasion this spring.

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“We just need to recognize that the financial sector can be a part of modern warfare in the future, 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 official. who examined the system’s financial risk.

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Still, governments struggle to control cryptocurrency. The industry’s lack of regulatory guardrails has allowed it to grow into a financial shadow system that sophisticated criminals have had ample opportunity to leverage.

Inca Digital CEO Adam Zarazinski said his company’s work for DARPA “will be fairly broad.” The project aims, among other things, to help government understand how money flows in and out of blockchain systems, or ledgers maintained on a distributed network of computers. It is also intended to distinguish between genuine crypto trading and bot-driven activity and detect crypto-based scams.

“There is a lot of concern about crypto scams right now,” said Zarazinski, an Air Force veteran who also worked at Interpol for criminal intelligence. He said the organizers of the plans are often “well-organized, transnational criminal networks, often explicitly backed by hostile countries or tacitly authorized to conduct these operations, and billions of dollars are stolen from Americans and Europeans.”

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

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