The military's innovation division is conducting a thorough examination of cryptocurrencies in order to analyze the vulnerabilities to national security and law enforcement presented by the rise of digital assets.
The Defense Advanced Research Projects Agency, also known as DARPA, which built the original technologies supporting the internet, has engaged the crypto intelligence business Inca Digital to carry out the one-year experiment.
The startup will build technologies that provide the Pentagon with a granular picture of the inner workings of crypto markets, in part to aid law enforcement in preventing the illegal usage of digital assets.
In an interview with The Washington Post, Mark Flood, a program manager at the agency, stated that the cryptocurrency universe is being mapped in considerable depth as part of a program currently ongoing.
In addition to combating illicit money, the agency intends to use the data to get insight into the processes that shape traditional financial markets, where precise information is more difficult to obtain.
The agreement is the most recent indication that federal agencies are intensifying their efforts to prevent rogue regimes, terrorists, and other criminal actors from adopting cryptocurrency to finance their operations.
Last month, the Treasury Department slapped its first-ever sanctions against software code to target Tornado Cash, a service that assisted North Korean hackers and others in laundering stolen bitcoin.
This week, the agency published a call for public input on crypto's threats to national security and illegal funding. Separately, this month, the Justice Department announced the formation of a national network of 150 prosecutors to coordinate crypto-related investigations and prosecutions.
Flood stated that hackers linked with the North Korean government committed digital heists that netted billions of dollars for the regime's armament program. And just prior to this spring's invasion, the Ukrainian government claimed Russian strikes against its financial sector.
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Flood, a former Treasury official who has studied systemic financial risk, stated, "We simply need to acknowledge that the financial sector may become a component of modern warfare in the future, and anything we can do to strengthen and protect the U.S. and our allies' financial sectors is beneficial."
Nevertheless, governments have struggled to regulate cryptocurrencies. The industry's absence of regulatory boundaries has allowed it to develop into a shadow financial system that sophisticated criminals have many possibilities to exploit. Adam Zarazinski, CEO of Inca Digital, stated that his company's work with DARPA will be "quite extensive."
Among other objectives, the project seeks to help the government comprehend how money flows into and out of blockchain systems, or public ledgers maintained by a distributed network of computer nodes. It is also meant to discern real crypto trade from bot-driven activity and uncover crypto-based fraud.
"There's a lot of fear about crypto scams right now," said Zarazinski, a former Air Force veteran who worked in criminal intelligence for Interpol.
He stated that the schemes are typically orchestrated by "well-organized, international criminal networks, frequently backed explicitly by antagonistic nations or given tacit approval to carry out these operations, and billions of dollars are stolen from Americans and Europeans."
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This is not the first time that DARPA has explored blockchain technology. In June, the government released a research commissioned from the cybersecurity firm Trail of Bits, which concluded that blockchains usually contain weaknesses that invalidate their security claims.
However, Flood stated that the goal of the agency's most recent project is not to track individual crypto users. He stated that DARPA does not conduct surveillance. I will highlight that we are careful not to collect personally identifying information in the course of our research.
