Crypto Mining News, Fraud and Scams, News & Updates

Criminals’ New Way to Launder Money

September 7, 2020

“Exclusive mining” can now be used by criminals to pass off their money laundering activities as Bitcoin mining income.

The Blockchain Research Lab in Hamburg has drawn a new way to launder money on the blockchain: “Exclusive mining.”

According to the paper published by Dr. Elias Strehle of the Blockchain Research Lab and Lennar Ante of the University of Hamburg, the exclusive mining works:

A transaction through a private channel is placed by someone and gives a single miner, or a mining pool, the exclusive right to verify a trade and then earn cryptocurrency as a reward. Afterward, these will be added to the blockchain, just like regular transactions.

Compared to what commonly happens, this is a bit different: if someone makes a Bitcoin transaction, everyone on the same network can take a mining shot to earn Bitcoin reward.

Strehle stated that he is not the first to discover the concept, but his research is the first that described it in an academic paper.

How can criminals use exclusive mining?

For example, a darknet drug baron needs to launder millions of Bitcoin. He sends some Bitcoin to an exclusive miner – which he controls – then charges the miner an expensive transaction fee.

As a reward for processing the expensive transaction to a cryptocurrency exchange, the exclusive miner takes the Bitcoin and then swaps it for fiat currency. Since its income came from Bitcoin mining, the trade seems legitimate. After that, the exclusive miner gives the fiat currency to the mafia boss.

The money trail that happened suddenly disappears after that.

The researchers say that exclusive mining is pretty challenging to detect and can’t easily be solved—it is here to stay.

The researchers mentioned that exclusive mining is challenging to detect and cannot be easily solved – it is going to stay for an extended period.

Is it possible to be used by money launderers?

“I have not come across it,” The CEO of CipherBlade, a blockchain investigations firm, Rich Sanders, noted.

“I’ve come across mining services as a laundering methodology, but it is FAR less technically complex—it’s more like a deposit to [mining pool] NiceHash, which, from a functional perspective, will be equivalent to a deposit at an exchanger (trading one coin for another for chain-hopping),”

He said, further adding that it’s an “interesting” method but one more likely to be hired by sophisticated users.

“This isn’t going to be a route, say, a divorcee is going to use—at least, not now. It’s way too technical, so unless someone makes a turnkey solution, I doubt we’ll see much of it.”

Exclusive mining’s legitimate uses

Strehle says that there are other legitimate uses for premier mining. A whole new market has been opened for private mining: if someone paid a miner a fee to process a transaction to get around unpredictable mining costs or guarantee that no miners will go scoundrel and mess with the blockchain.

“My gut feeling is that this will become more and more important as block rewards go down on Bitcoin and Ethereum and miners will increasingly have to find other ways of securing their income,” said Strehle.

It is suitable for the business if the owner itself is the exclusive miner of the exchange.

Leave a Comment

Leave a Reply