Elliptic Taps Artificial Intelligence (AI) to Crack Down on Bitcoin Money Laundering (2024)

Blockchain analytics company Elliptic said that its researchers have made progress in leveraging artificial intelligence (AI) to detect money laundering in Bitcoin.

A recent paper detailing this research was co-authored with researchers from the MIT-IBM Watson AI Lab. Elliptic revealed a successful identification of illicit proceeds deposited at a cryptocurrency exchange, new patterns of money laundering transactions, and previously unidentified illegal wallets upon utilizing a deep learning model.

The firm said that findings are already being used to improve its products.

Exposing Hidden Money Laundering Patterns

The underlying data has been released to the public. With more than 200 million transactions, this dataset will allow the community to create new AI methods for identifying illegal cryptocurrency activities, Elliptic said in a statement this week.

Instead of identifying transactions made by criminals, a machine learning model is trained to recognize “subgraphs” – which are essentially chains of transactions indicating Bitcoin laundering. This method concentrates on identifying these subgraphs rather than illicit wallets, allowing Elliptic to concentrate on the broader “multi-hop” laundering process instead of the specific on-chain actions of individual criminals.

Elliptic said that it tapped an undisclosed cryptocurrency exchange to test if this technique could detect money laundering attempts through it. Out of 52 predicted “money laundering” subgraphs ending with deposits to this exchange, 14 were confirmed by the exchange to be linked to flagged users. On average, less than one in 10,000 accounts are flagged, indicating the model’s strong performance.

“We have barely scratched the surface of what is possible in this domain, but this work has already led to benefits for Elliptic’s users. Further collaboration and data-sharing will be key to advancing these techniques further and combating financial crime in cryptoassets.”

AI’s Role in the Blockchain Sector

AI tools are slowly showing exceptional capability in analyzing extensive data sets to flag patterns beyond human perception, such as identifying illegal money movements within the Bitcoin economy.

Therefore, it’s not surprising that VC investment in Web3 and AI startups exceeded $637 million in 2023.

In fact, AI agents are projected to dominate the blockchain sector in 2024 to establish a more secure and efficient ecosystem, as stated in a report by Nansen.