The Pentagon launches efforts to assess national security threats posed by crypto

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The Military Innovation Bureau launches a comprehensive 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 bureau that developed the earliest technology to underpin the internet — has hired crypto intelligence firm Inca Digital to conduct the year-long project. The company will develop tools that will give the Pentagon a detailed view of the inner workings of crypto markets, in part to help authorities crack down on the illegal use of digital assets.

“The program underway here involves the detailed mapping of the cryptocurrency universe,” said Mark Flood, a program manager at the agency, in an interview with The Washington Post. Beyond fighting illicit financing, the office hopes to use the data to gain insights into the dynamics shaping traditional financial markets, where detailed information is more difficult 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 fund their operations.

The Treasury Department last month imposed its first-ever sanctions on software code targeting Tornado Cash, a service that has helped North Korean hackers and others launder stolen cryptos. This week, the department issued a call for public comment on national security and the risks of crypto illicit finance. Separately, the Justice Department announced this month that it is establishing a national network of 150 prosecutors to coordinate crypto-related investigations and law enforcement efforts.

Flood found that hackers linked to the North Korean government have been conducting digital heists that raked in 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 have to recognize that going forward, the financial sector can be a component of modern warfare, and anything we can do to strengthen and protect the US financial sector and our allies’ financial sectors is beneficial,” Flood said , a former Treasury Department official who has researched systemic financial risk.

Still, governments have made efforts to monitor the cryptocurrency. The lack of regulatory guard rails has allowed the industry to evolve into a shadow financial system that sophisticated criminals have found ample opportunities to exploit.

Adam Zarazinski, CEO of Inca Digital, said his company’s work for DARPA will be “quite far-reaching.” One of the aims of the project is to help the government understand how money flows in and out of blockchain systems or public ledgers maintained on a distributed network of computers. That is also intentional Distinguish real crypto trading from bot-driven activities and spot crypto-based scams.

“Right now there are a lot of concerns about crypto fraud,” said Zarazinski, an Air Force veteran who also worked in criminal intelligence for Interpol. He said the schemes’ organizers are often “well-organized, transnational criminal networks, often either explicitly backed by opposing countries or tacitly authorized to conduct these operations, and billions of dollars are stolen from Americans and Europeans.”

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

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