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

The Army’s Office of Innovation is launching an in-depth review 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 office that developed the first technology underlying the internet — hired cryptographic intelligence firm Inca Digital to carry out the year-long project. The company will develop tools that will give the Pentagon a granular view of the inner workings of crypto markets, in part to help authorities crack down on illicit uses of digital assets.

“The current program here is to map the cryptocurrency universe in detail,” Mark Flood, program manager at the agency, said in an interview with The Washington Post. Beyond tackling illicit finance, the office aims to use data to better understand the dynamics that shape traditional financial markets, where detailed information is more difficult to gather.

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

The Treasury Department last month issued its first-ever penalties against software code to target Tornado Cash, a service that has helped North Korean hackers and others launder stolen crypto. This week, the department released a request for public input on national crypto security and illicit financial risks. Separately, the Justice Department announced this month that it was launching a nationwide 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 earning billions of dollars for the regime’s weapons program. And the Ukrainian government reported Russian attacks on its financial industry just before the invasion this spring.

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“We just need to recognize that the financial sector can be a component of modern warfare in the future, and anything we can do to strengthen and protect the American financial sector and the financial sectors of our allies is beneficial,” said Flood, a former Treasury official. who has researched systemic financial risk.

Yet governments have struggled to control cryptocurrency. The industry’s lack of regulatory safeguards has allowed it to become a parallel financial system that sophisticated criminals have found plenty of opportunities to exploit.

Inca Digital CEO Adam Zarazinski said his company’s work for DARPA will be “quite extensive.” Among other goals, the project aims to help the government understand how money flows in and out of blockchain systems, or public ledgers maintained on a distributed network of computers. It is also intended for distinguish real crypto trading from bot-driven activity and unearth crypto-based scams.

“There’s 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 masterminds of the schemes are often “well-organized transnational criminal networks, often explicitly supported by adversarial 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 foray into blockchain technology. The agency published a report in June ordered from the cybersecurity company Trail of Bits which found blockchains frequently contain vulnerabilities that compromise their security claims. But Flood said the agency’s goal with its latest project is not to track individual crypto users. “DARPA is not engaged in surveillance,” he said. “I will emphasize that we are careful in this research not to involve ourselves with personally identifiable information.”

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