The implementation of Ethereum’s Shanghai upgrade and deployment rewards had a significant impact on the detection of suspicious behavior by Ethereum (ETH) holders. The upgrade marked Ethereum’s transition to a proof-of-stake blockchain, where validators use their ETH to confirm transactions.
Read more about the Shanghai upgrade and find other important business news with our companion app Born2Invest.
The Shanghai upgrade, implemented in March, allowed stakers to withdraw their locked Ether, giving them more flexibility and accessibility
Several “investment themes” have emerged within the Ethereum ecosystem, including decentralized finance (DeFi), stablecoins, Bitcoin (via packaged versions of BTC), and non-fungible tokens (NFTs). The latest update also introduced fixed-income assets, expanding the ways individuals can make money or use Ethereum.
Yield plays a critical role in traditional finance (TradFi), where changes in yield affect the perceived risk of other financial assets. This relationship between yield and investment decisions can be observed through movements in benchmark interest rates set by institutions such as the Federal Reserve.
Compliance professionals in traditional finance rely on trends in risk-free interest rates to identify irrational money flows in capital markets that may indicate money laundering attempts. Money launderers do not actively seek financial gains like normal investors, as their main goal is to disguise the origin of illicit funds.
With Ethereum’s deployment yield acting as a “risk-free interest rate” for the crypto ecosystem, the Shanghai upgrade may have improved the state of crypto-forensics. In traditional finance, forensic analysis focuses on detecting suspicious activity, while crypto-forensics focuses on identifying entities involved in criminal behavior through the analysis of crypto-wallet networks.
How can the Shanghai upgrade help with money laundering, which typically occurs in three phases:
Placement, Layering, and Integration. For crypto-assets, detecting the placement of illicit funds is relatively easy, as many money laundering cases result from crypto-native crimes such as ransomware attacks, DeFi bridge hacks, smart contract exploits, and phishing attacks. The addresses associated with such crimes are often known, allowing investigators to monitor asset flows.
In contrast, traditional forensic experts lack insight into the crime itself when proceeds of crime enter a bank’s ecosystem. This makes detection much more difficult. As a result, most anti-money laundering (AML) solutions in traditional finance focus on identifying layering techniques.
Ethereum’s deployment premiums provide the ability to detect unusual activity by examining asset movements. Since AML is more about hiding the trail of money than making a profit, investigators can identify financial behavior that runs counter to benchmark interest rate trends. For example, persistently risky activities with returns below the risk-free rate may arouse suspicion and trigger investigations.
This approach can be applied to detect activities such as wash trading of NFTs, in which multiple participants collude to manipulate prices or pool criminal assets. Similarly, irregular asset movements in DeFi logs could indicate revenue sharing from terrorism. By identifying such anomalies, investigators can gather clues without first knowing about the specific criminal activity.
The rise of decentralized exchanges and the ability to use blockchain technology to move large amounts of assets between jurisdictions make DeFi ecosystems attractive targets for financial crime. Criminals, driven by increased compliance controls implemented by centralized crypto service providers, may seek new channels for money laundering. Therefore, layer type detection becomes critical to compliance efforts, especially as blockchain interoperability progresses.
Detecting suspicious activity in the crypto space is challenging due to extreme price volatility. Static risk thresholds are ineffective and leave money laundering undetected. Establishing reference rates within Ethereum would provide a basis for rational money flows, help identify outliers, and potentially improve the detection of illicit activity.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in COIN KURIER, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.
How Institutional Investors Feel About Impact Investing
Investors continue to face greenwashing when implementing impact investing. Among their key concerns are misleading or exaggerated impact claims (60%),...
GoodNews Launches a Crowdfunding Campaign on Crowdcube
In addition to the physical points of sale, GoodNews sells coffee online and has also launched a B2B division, i.e....
Coinbase Now Holds as Much Bitcoin as Satoshi Nakamoto, Arkham Reveals
Coinbase specifically holds a total of 947,755 BTC, according to Arkham's recent disclosures, which represents nearly 5% of all Bitcoin...
PharmaMar Increases Investment in R&D for Oncology by 23%
The company has confirmed that, as a result of its commitment to R&D in oncology, it has achieved a success rate...
What Is the Role of Fintech Companies in the Payments Ecosystem
The CEO of BIT2ME referred to the future of fintech as "good". However, he stated, "We live in a society...
Crowdfunding1 week ago
Out Of Raises €2.4 Million Through Equity Crowdfunding, in 2 Weeks
Africa2 weeks ago
African Climate Summit: Solutions to the Global Climate Change
Impact Investing5 days ago
Rooftop Solar Photovoltaic Market to Reach $84.2 Billion by 2030
Fintech2 weeks ago
The Turnaround in Interest Rate Will Create Winners and Losers in the Fintech Sector