For the purpose of assessing the threats to national security and law enforcement posed by the proliferation of digital assets, the military's innovation section is now conducting a comprehensive study of cryptocurrency.
DARPA, the organization responsible for creating the original internet infrastructure, has hired crypto intelligence firm Inca Digital to conduct the study for a period of one year.
In order to help authorities crack down on illegal use of digital assets, the business will develop tools to give the Pentagon a bird's-eye view of how the crypto market really functions.
Mark Flood, a CIA program manager, explained to The Washington Post that the agency is "mapping the cryptocurrency ecosystem in some depth" through this operation.
The government plans to use the information for more than only fighting illegal funding; it will also be used to better understand the mechanisms at work in the more opaque traditional financial markets.
The accord is the most recent example of federal agencies working together to stop criminal organizations from using cryptocurrencies to finance their activities.
Last month, the United States Treasury Department imposed the first-ever sanctions against software code, aimed at Tornado Cash, a company that helped North Korean hackers and others launder stolen cash.
This Monday, the government put out a call for public comment on the potential risks of bitcoin to national security and illegal finance. Earlier this month, the Justice Department also announced the establishment of a nationwide network of 150 prosecutors to coordinate the prosecution of crypto-related crimes.
Flood claimed that hackers working on behalf of the North Korean government stole data worth billions of dollars to fund the country's nuclear program. And the Ukrainian government had already detected Russian strikes on its financial sector prior to the invasion this spring.
Cryptocurrency's history is a house of cards, from Bitcoin to Stablecoin and beyond.
"We simply need to admit that the financial sector may become a component of modern warfare in the future," said Flood, a former Treasury official who has studied systemic financial risk.
However, governments have had a hard time figuring out how to control bitcoin. A lack of governmental control has allowed the industry to develop into a shadow financial system, which provides many opportunities for organized crime groups.
Adam Zarazinski, CEO of Inca Digital, has said that the agency's work will be "quite diversified." The goal of the project is to help the government learn about the monetary transactions occurring in blockchain systems. Blockchains are public ledgers stored on a decentralized network of computers.
Its other purposes include spotting crypto-based scams and differentiating between human and automated bitcoin trading.
Zarazinski, a former Air Force officer who worked in criminal intelligence for Interpol, said, "There's a lot of worry right now about crypto scams." It is usually "well-organized, worldwide criminal networks, either overtly backed by opposing countries or given tacit authority to conduct these activities," he said, and they steal billions of dollars from people in the United States and Europe.
The disgraced pioneer of the bitcoin industry insists he is not hiding. But no one has any idea where he might be.
DARPA has experimented with blockchain technology before. According to a report published in June by the government and authored by the cybersecurity firm Trail of Bits, blockchains typically contain weaknesses that render their security claims useless.
But Flood stressed that the current operation is not geared toward tracking individual cryptocurrency users. He emphasized that "DARPA does not conduct surveillance," and that's what the agency always says. In order to protect the privacy of our participants, I would like to stress that we take great precautions to ensure that none of the information we collect can be traced back to any specific individual
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