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

The Office of Military Innovation has launched an in-depth review of cryptocurrencies to assess the national security and law enforcement threats posed by the rise of digital assets.

The Defense Department’s Advanced Research Projects Agency — better known as DARPA, the office that developed the earliest technology that enabled the Internet — hired crypto-intelligence firm Inca Digital to conduct 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 the illicit use of digital assets.

“The program that’s going on here involves mapping the cryptocurrency universe in some detail,” said Mark Flood, a program manager at the agency, in an interview with The Washington Post. In addition to fighting illicit financing, the office aims to use the data to gain insight into the dynamics shaping 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 using crypto to finance 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 national security and illicit financing risks. Separately this month, the Justice Department announced it was launching a nationwide network of 150 prosecutors to coordinate crypto-related investigations and prosecutions.

Flood noted that hackers linked to the North Korean government have carried out digital thefts, making 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 have to recognize that the financial sector could be a component of modern warfare in the future, and anything we can do to strengthen and protect the U.S. financial sector and the financial sectors of our allies is beneficial,” Flood said. a former Treasury official who researched systemic financial risk.

Still, governments are struggling to control cryptocurrency. The industry’s lack of regulatory safeguards allowed it to grow into a shadowy financial system that sophisticated criminals found ample opportunity to take advantage of.

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

“There’s a lot of concern right now about crypto fraud,” said Zarazinski, an Air Force veteran who also worked in criminal intelligence for Interpol. He said the masterminds of the schemes were often “well-organised, transnational criminal networks, often supported explicitly by hostile countries or with tacit approval to carry out these operations, and billions of dollars were stolen from Americans and Europeans”.

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The project is not DARPA’s first foray into blockchain technology. The agency issued a report in June commissioned by cybersecurity firm Trail of Bits that discovered blockchain 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 in the surveillance business,” he said. “I will emphasize that we are careful in this research not to interfere with personally identifiable information.”

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