WEBVTT
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Welcome to Drilling into Crypto. I'm your host, Mohammad al MASRII.
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Every week I speak to the leaders that are driving
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the global financial revolution. Drilling into Crypto puts the spotlight
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on the importance of crypto assets on energy markets and
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on global monetary policy.
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Great, I have Michael Pearl here from Cybers. Thank you
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Michael for joining Drilling into Crypto.
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Hey, mol, thank you so much for having me.
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My pleasure.
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So please, I'd like to start off by asking you,
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you know, to introduce yourselves to the audience and more importantly,
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tell us about your journey. I mean, what were you
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doing before cybers before getting into crypto and how you
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got into crypto? What was the turning point that made
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you say crypto is my life's task.
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Sure, So, first of all, again, thank you so much
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for having me. I'm Michael Pearl. I've been in the
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crypto space since twenty thirteen. Currently I'm the VP go
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to Market and Strategy for Diverse and I guess we'll
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talk about severs a little bit later. So just to
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follow up on your question, I started off my journey
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as a lawyer. Nobody's perfect, but that's what I decided
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to learn, and you know, very quickly I figured out that,
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you know, it's not for me, and I wanted to
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go into a kind of other realms. And I started
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off as a correspondent and an editor. I was in
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the in the financial media, and back then, I remember
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that I was exposed to to crypto first. First I
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was exposed to fintech, which was kind of the buzzword
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back then. But then, you know, I started seeing some
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meetups on bitcoin and it was fascinating because you know,
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it was a novel thing and I wanted to learn more.
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And I remember going to you know, meetups and you
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had like four people in the room trying to give you,
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you know, paper ballets of of bitcoin. I should have
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gotten more back then. Maybe, you know, maybe I would
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hold much more bitcoin right now. But it was very interesting.
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It was really hard to grasp, you know, you know,
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digital decentralized money and so on. And I kind of
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saw the evolution of crypto, you know, in the beginning,
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only bitcoin and then ethereum, and then you know, all
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the the idea of the centralized applications, you know, ethereum
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based smart contracts and so on. So I kind of
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saw the entire revolution, you know, going to NFTs and
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DeFi and I kind of grew my my career along
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with that. First I was involved kind of from the outside,
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you know, covering this space, and then gradually I became
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more involved. So I was involved in several projects. I
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was working with Chirobo, which is now called Intentable, And
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about two years ago I joined cybers because I really
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wanted to kind of see the intersection between AI cybersecurity
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and crypto and blockchain. And I'm really happy I did
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so because now I have kind of a unique perspective
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on you know, how this industry looks like, you know,
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on all facets, but also the weak points of this industry,
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which is cybersecurity and fraud and scams. And I guess
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we'll talk about it in a second.
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That's really interesting transition from actually it's pretty uh synergistic,
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you know, from from legal to security because you know
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that consists of compliance regulations. And I guess you got
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the backbone from from you know, law school, right and
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and and working in in in the legal uh sector.
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But did you actually practice law or was it just
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a shift after university.
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Yeah, I did a practice law for a while, but
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I think you're right at you know, the perspective is
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something that is very helpful because at the end of
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the day, I always say that, you know, if you
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want to succeed and if you really want to understand
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this world of blockchain and crypto, at the end of
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the day, you need to be you know a little
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bit of a lawyer because you know, there's heavy regulation
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or lack of and you need to also understand the
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financial side of things, which I learned while while I
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was covering you know, the fintech space. And then you
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also need to understand the technology, and that is something
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that I've kind of you know, taught myself and learned
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from kind of mentors that I had. So the combination
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of three is something that gives you the right perspective
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on this industry.
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Yeah, I can.
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I can relate to that one because coming from a
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corporate finance regulations background, you know, you see a thin
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line between what's compliant and what's not. You know, it
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could be a very small thing that you do or
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do not do that puts you offside of the regulatory
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frameworks or you know, puts you on side. So that's
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that's really interesting transition. And then you said, you guys
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entered into focus for security on AI, crypto and blockchain. So,
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you know, how where do you see this market going
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in terms of the cybersecurity requirements and even the overall
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security requirements of crypto and crypto fraud and you know,
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in the early days, there was always a lot of
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talk that cryptocurrencies and bitcoin are only used for illicit
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purposes or illegal activities.
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Now the narrative has.
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Completely changed, you know, from where we were five six
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years ago to where we are today with institutional backing
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and institutional involvement from the likes of government, sovereign wealth funds,
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financial institutions, even private and public corporations adopting crypto as
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treasury optimization strategies. Like you know, now, now that you
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see this happening within this space, you know, where do
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you see that you know, the most of them or
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most of the participants within the crypto industry are lacking
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in terms of security and fraud detection.
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Yes, I think it's a very good question. I think
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that what I see is kind of two processes that
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are not really going at the same pace. So, on
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one hand, everything that you've mentioned I totally agree with that.
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You know, In the beginning, people were asking questions like,
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so what do you do with crypto? And you know
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it's only for criminals and so on, And gradually you
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saw that, you know, the usability of crypto is becoming
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much much more first of all mature, but also widespread. Right,
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So we went from you know, being a very niche,
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kind of anarchistic way of you know, exchange in value
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and storing value and so on, into stuff that are
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very tangible. Right, the fact that you have let's say,
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credit card issuers that allow you to spend your crypto
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for day to day and in some places, you know,
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you reside in Dubai, so you can even buy a
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house for you know, for bitcoin. And gradually you see
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the institutionals kicking in. So you also have regulated and
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heavily you know, supervised financial vehicles that allow you to
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to gain yields and allow you to to trade in
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a much more significant way. All this is great, but concurrently,
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the evolvement of the cybersecurity space within crypto is much
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more stagnant and much more kind of slow and gradual.
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So what I saw is that you know, you can
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have crypto for good and I really believe in that
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and I think that again this is only growing and evolving.
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But in order for crypto to become mainstream, in order
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for the institutionals to feel comfortable with crypto, you need
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to have the proper guard rails. And by the way,
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you also need that with respect to the regulators. Right,
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we were just talking about the legal set of things,
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and in order for the regulators to feel comfortable with
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the crypto the way they feel comfortable with money in
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the bank, you eventually need to have the proper tools
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and to have the proper processes to protect crypto because
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even if you have the technology and the capability of
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doing all those great things with crypto, if your assets
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can just disappear in a heartbeat. And I mean, we're
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finishing this year. This year started with the biby tack, right,
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one point five billion dollars stolen and by the way,
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this is what you hear in the news, but actually
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the bigger part is crypto fraud, where thirty billion dollars
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were stolen this year as per sever's data. And this
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is not sustainable. You know, at the end of the day,
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if you if you want to have a real economy,
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if you want to draw drag the you know, the
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moms and pups, but also the golden and taxes of
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the world. You need to have some some more safety
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and security in the crypto space.
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Definitely, But that's that's also on the.
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Like the crypto startups, you know, and the and at
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that point, at this point, the large crypto companies, you know,
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the likes of you know, Tether, the likes of Finance,
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the likes of you know, these big crypto companies, they
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also have that you know, duty to the market in
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order to make sure that it's safer and safer. Uh
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And and you know, companies like cybers comes in and
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provides you know, these these advanced security and fraud detection solutions.
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But also you know, the large players have a role
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to play in how secure and how safe this industry is.
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I think.
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Also, you know, there's another thing that came up that
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I learned about this year on honestly, flash USDT you
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know and address poisoning for example, and stuff like that,
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which you know, I only learned about this year. And
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you know, I'm trying to wrap my head around this
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type of fraud, like what is flash us d T
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and how do people fall victim to have you.
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Have you looked into that, So I haven't looked into
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flash USDT as much, so I cannot comment on that.
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But I can tell you about address poisoning, which is
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something that we see a lot in Cyrus and we're
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combating it along with our clients. So just a quick
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explanation on what this is. Essentially, given the fact that
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most of us when we send crypto, what we do
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we usually go to ether scan, we see the last
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Let's say, if you send frequently to a certain address,
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so you go on ether scan and you just copy
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the address and you just, you know, send it to
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the same place. What usually those perpetrators do. They are
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sending you very small amounts or they can send you
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even big amount with some coins that have no value
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at all, some tokens that they created on their own.
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And eventually you see in your log you see multiple
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transactions to sorry from that address. And the thing is
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that this address is generated in a way that it
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looks exactly like the address that you frequently send funds to.
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Because obviously, first of all, because of the string that
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you see on the screen, it's usually cut off right,
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so you see the beginning and the end and when
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you look at it, you know, prima facie it looks
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exactly the same. So what you do You copy the
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last address because again it sent you funds. And then
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when you want to send I don't know, ten thousand,
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fifty one hundred thousand dollars worth of let's say USDT,
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you send it to the adverse and then you know,
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let's say, if you send it to your family member
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or to a vendor that you're working with, then eventually
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you find out that you know, they didn't receive the funds.
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Then you start checking and you figure out that it
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wasn't the right address. So this is extremely frequent. It
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is something that we see in our feed and our
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system every single day. And I think that what's more
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interesting is the fact that most people have been address poisoned.
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So most wallets right now already have this in them
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in terms of the potential because you know, these sending,
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the sending part, the preparation part is happening obviously on
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a march larger scale than you know people were actually
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falling for that. So almost everyone, and I urge you
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to go and check your wallet, almost everyone has the
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potential of falling victim to that. And that is something
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that we're combating. Obviously, it is advice as a private
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user to always make sure that you send to the
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right address, But from the more kind of systemic point
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of view, we are working with multiple wallets and exchanges
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on helping them to prevent it because you can actually
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see when a person was address poisoned and you can
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warn them, and you can blacklist some of the addresses
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that have address poison them to basically prevent it even
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before it happens.
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And how do you prevent it before it happens?
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Okay, so let's say that MOE has received, you know,
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fragments small fragments of ethereum from a wallet that poses
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as the wallet that you usually send funds to. Right,
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So what we can do is, first of all, we
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can identify that right, we can identify wallets that are
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affiliated with the address poisoning networks, and we can just
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block this wallet. So let's say, if I am working
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with your wallet provider, we can just black lie this
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wallet and then you will not be able to send
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funds to it. So even if you make the mistake
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and you copy that address, you will be i don't know,
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either blocked or advised not to send funds to that wallet,
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and even before that, if you were address poisoned, I
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can tell you that listen, these small amounts that you
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just received, those are not real transfers. Do not engage
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with this wallet, right, So eventually you can have the
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proper tools to refrain from losing your funds in that way.
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Is that a simple integration on your exchange account or
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is it a separate solution that have to be taken
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on by the client.
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So it's a good question. So from our side as
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cybers we can identify those wallets very easily, and if
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an exchange or wallet wants to integrate with us, they
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can have this feed of basically alerts in a matter
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of five minutes. Now what they choose to do with that,
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obviously if they have to build some sort of a
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logic on top of it and to integrate this into
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the system, and you know, to to have this in
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a user friendly way, because they obviously they want to balance.
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You know, exchanges are are supposed to provide you with
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with the liberty to you know, to to to engage
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with any wallet that you want. So I guess it
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is sensitive and they need to figure out some sort
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of a policy. Uh, but technology wise, the integration is
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something that can happen in five minutes.
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There's there's been recently a lot of.
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I think mainly in North America, a lot of news
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on retail for close camps, like because of ATMs.
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I'm not sure you have any insight on that, like
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you know at of course.
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Yeah, yeah, of course. So first of all, obviously an
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ATM is at the end of the day, you know,
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it can serve as a as a mean to allow
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you to buy crypto onto cell crypto. But obviously if
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the ATM is tricked, you know, in some way, either
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by the operators, which is obviously not very likely because
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they do want to continue to operate, but if somebody
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managed to hack into the ATM, you know, whether from
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the Web two side of things, because what you see
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when you engage with the ATM, you know, the front
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end is essentially a Web two application, and if you
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can trick it, you know, just to give an example
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in the Biby tech just to simplify it, at the
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end of the day, what the signers saw was not
281
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what really happened on the blockchain, and this discrepancy between
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the front end because that's what we see with our
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own eyes and what's happening on the blockchain, because presumably
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you need to have a connection between the button that
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you hit on the front end and what actually happens
286
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with your funds on the blockchain level. But in many ways,
287
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hackers can detach from that, right, they can detach between
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the two, and then obviously your funds can go elsewhere.
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But I think the more interesting and kind of the
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more frequent thing that we see right now with respect
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to scams by the way, with ATMs or on other
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methods like on actual exchanges, is all these types of
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what we call authorized fraud. Right, So authorized fraud means
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that I haven't you know, hacked into your wallet and
295
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stole your funds or you know, tricked you in some
296
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way to sending your funds without knowing it. You are
297
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sending your funds knowingly to an address. But what you
298
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don't know that the person on the other side is
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not who you think he is or she is. Right,
300
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So the background of that and there are many juicy
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stories which are very unfortunate. It can vary between kind
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of on the low level. It can be just you know,
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Roman scams and small investment scams where you know, a
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beautiful girl approaches you on telegram and you know, quote
305
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unquote by mistake, you start the conversation, the relationship evolved.
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Sometimes it can last for months and then eventually she
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tricks you into sending funds. In other cases, it might
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be someone that approaches you and offers you a very
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lucrative investment scheme and by the way, at first you
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might actually get yield from them. That's the interesting part.
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You know. It's sometimes referred to as pig butchering.
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Yeah.
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Sorry, I've seen that with some people. Happened a lot.
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I was almost a victim of that, but you know,
315
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I realized, even like you know, with email phishing and scams,
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there's some simple logic things that you know, we as
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00:18:47.400 --> 00:18:51.000
consumers forget about. Is check the domain name, for example,
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where this email is coming from. Right, is it really
319
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from DocuSign or is it really from your bank?
320
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Right? Is the email seem fishy? Just by then I
321
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just delete.
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And put the email into spam and block it. Is
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someone offering you high returns and like get rich quick schemes.
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You know, these are things that I think. You know,
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you have to go back to your reasonable and logical
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mind to detect. But beyond that, given where technology is going,
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given where AI is advancing, and how it's being integrated
328
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with crypto, these scammers are becoming more and more sophisticated
329
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that you know, they come to a point where they
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can scam you and doing that pig butchering thing, you know,
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where people offer you yield and you're actually receiving income
332
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from them.
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You know.
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I it's easy to fall victim to that, right.
335
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I totally agree with that. And you got to the
336
00:19:46.240 --> 00:19:49.839
more interesting part because I think that, you know, before
337
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we dive in, I think that it's useful to understand
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what's the kind of the back office of all this operation.
339
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So for the most of it, we're not talking about
340
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in the visuals that are just you know, trying their luck.
341
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We're talking about huge, huge criminal networks. Most of them
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reside in in you know, Southeast Asia, Cambodia, Meanmar, but
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not not only where people live in in you know,
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actual labor camps. Right. People are tricked into into going
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there from many different regions in the world, from India,
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from from places in Asia, and eventually they are living there.
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I'm saddened to say, But as slaves. You know, there
348
00:20:33.839 --> 00:20:36.960
was a great piece in the Economist and the podcast
349
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about it, which you can read. We're talking about billions
350
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and billions of dollars that are being processed by the
351
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way in individual from Cambodia was recently arrested by the
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US federal law enforcement and what they do. Essentially, each
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such person operates several phones and several computers, and they
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converse with several people throughout the day. And they can
355
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be whoever you want them to be, right. They can be,
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you know, a beautiful lady from Germany. They can be
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a successful, you know, businesswoman from you know, Malaysia, whatever, right,
358
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they can have any identity. Obviously AI helps with that
359
00:21:19.480 --> 00:21:22.960
because we read, you know, about deep fake with respect
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to politics and things like that, but we don't think
361
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as much on you know, the other usages of deep fake.
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00:21:29.799 --> 00:21:33.880
And they can you know, generate any domain that can resemble,
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00:21:33.920 --> 00:21:37.640
as you said, to a real domain. In some cases,
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this even involves and I'm talking about kind of the
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higher end of these scams that can even evolve real
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real life actors. Right. So not only you know, individuals
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are being tricked to invest small amounts into that, but
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somebody can approach you know, a successful banker or you
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know a businessman and a lawyer or whatever that has
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sufficient funds to offer them something lucrative and you know,
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to eventually even set up an office in New York
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or you know in London or Singapore, and that is
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all happening. You know, that is not getting the right
374
00:22:17.720 --> 00:22:21.599
news as it should. But eventually, you know what all
375
00:22:21.640 --> 00:22:26.519
this uh sums up to a person hitting a send
376
00:22:26.599 --> 00:22:30.039
button on his wallet and sending the funds willingly and
377
00:22:30.079 --> 00:22:34.599
knowingly to that wallet. Because all the rest is a facade, right,
378
00:22:34.839 --> 00:22:37.160
it's all, it's all, it's all a charade. But at
379
00:22:37.160 --> 00:22:39.799
the end of the day, the person decides to send
380
00:22:40.240 --> 00:22:44.599
his funds willingly. Now, luckily, that is something that has
381
00:22:44.640 --> 00:22:48.799
a solution because even if all your you know checkboxes
382
00:22:48.839 --> 00:22:51.160
that you've mentioned earlier, you know, check this and check
383
00:22:51.240 --> 00:22:54.000
that and having common sense and so on, if you
384
00:22:54.079 --> 00:22:56.720
were tricked throughout the way, at the end of the day,
385
00:22:56.720 --> 00:22:59.440
when you hit that button, if you have the protection
386
00:23:01.079 --> 00:23:04.000
like cybers provides right now, you will see that this
387
00:23:04.160 --> 00:23:06.519
wallet is not who you think they are, right, so
388
00:23:06.599 --> 00:23:09.039
you will have a pop up or this will be
389
00:23:09.079 --> 00:23:12.240
blocked and you will be notified by your let's say
390
00:23:12.279 --> 00:23:15.440
exchange that you should not engage with this wallet because
391
00:23:15.640 --> 00:23:17.960
it is not who you think they are and work
392
00:23:18.440 --> 00:23:22.240
right now working with you mentioned binance and crypto dot
393
00:23:22.279 --> 00:23:26.680
com and a bevy of other exchanges that are working
394
00:23:26.720 --> 00:23:30.119
with us, where if you eventually send the funds and
395
00:23:30.160 --> 00:23:33.400
you want to issue the transaction, you will be stopped
396
00:23:33.400 --> 00:23:36.200
at the last moment thanks to the information that we
397
00:23:36.319 --> 00:23:39.279
provide to them.
398
00:23:39.400 --> 00:23:43.799
Yeah, you also mentioned willingly, you know, willfol conduct, will
399
00:23:43.799 --> 00:23:47.119
fall misconduct. That's a legal term, and it's very hard
400
00:23:47.160 --> 00:23:49.519
to then go into a case and try to prove
401
00:23:49.599 --> 00:23:53.000
that you were scammed into willingly setting funds. Right, So
402
00:23:53.359 --> 00:23:57.359
this is the art of these scams that and especially
403
00:23:57.359 --> 00:24:02.799
crypto and specifically because there's no intermediary, right, So you know,
404
00:24:02.839 --> 00:24:06.720
it's it's a feature, it's good, and it's it's risky
405
00:24:07.000 --> 00:24:09.039
for people who don't know how to use crypto, but
406
00:24:09.400 --> 00:24:13.319
there's no intermediary. So you said it willingly to you know,
407
00:24:13.359 --> 00:24:18.039
from person X to person Y and from a legal
408
00:24:18.160 --> 00:24:21.000
term with your your lawyer hat on. You know, how
409
00:24:21.160 --> 00:24:24.880
how does that wilful sending of crypto to a scammer
410
00:24:24.920 --> 00:24:27.599
look like in a court or in a case spot.
411
00:24:29.599 --> 00:24:31.839
So I think that the first of all, you're right,
412
00:24:32.200 --> 00:24:34.559
But I think the bigger problem is the fact that
413
00:24:35.559 --> 00:24:39.240
even if you know legally you can claim something, you
414
00:24:39.319 --> 00:24:42.200
will never know where the funds went to, right, I mean,
415
00:24:42.640 --> 00:24:45.960
let me let me kind of tone it down. You
416
00:24:46.000 --> 00:24:47.880
for the most of it, you never know, right, And
417
00:24:47.920 --> 00:24:51.680
even if when you know they have, you know, obfiscated
418
00:24:51.960 --> 00:24:55.000
the trail in a way that you cannot really get
419
00:24:55.000 --> 00:24:58.839
to the funds in an effective way, right, because usually
420
00:24:58.920 --> 00:25:02.160
we're talking about jurisdic where you know, you don't have
421
00:25:02.240 --> 00:25:05.640
any power on and eventually they launder the funds and
422
00:25:05.680 --> 00:25:09.680
you cannot really trace them in an effective way, especially
423
00:25:09.720 --> 00:25:13.880
when you know time passes by, because if you act immediately,
424
00:25:14.200 --> 00:25:18.519
then maybe you can you know, freeze the funds through tether,
425
00:25:19.319 --> 00:25:21.799
or maybe you can contact the exchange if you can
426
00:25:21.839 --> 00:25:25.960
trace it to a specifically wallet, but it's very hard
427
00:25:25.960 --> 00:25:28.480
to do that. But you know, what's the interesting part
428
00:25:28.839 --> 00:25:30.960
is not even the legal set of things, it's a
429
00:25:30.960 --> 00:25:35.880
psychological set of things because the majority of the people, sorry.
430
00:25:35.960 --> 00:25:37.880
I'm saying that's detrimental to most.
431
00:25:37.680 --> 00:25:42.680
People, yes, but also the majority of the people would
432
00:25:42.720 --> 00:25:46.200
not admit it, right, So if you were tricked, unless
433
00:25:46.240 --> 00:25:48.319
you lost all your funds, and then I don't know,
434
00:25:48.359 --> 00:25:51.079
you probably cannot hide it anymore. But you know, if
435
00:25:51.119 --> 00:25:53.480
you lost ten thousand dollars and that is something that
436
00:25:53.920 --> 00:25:57.440
you can kind of internalize and handle, then you will
437
00:25:57.519 --> 00:26:00.480
just say, you know, you know that that's life. You know.
438
00:26:00.519 --> 00:26:03.359
I was strict because you will be ashamed to admit it.
439
00:26:03.440 --> 00:26:05.920
Not that you should, right, I'm just saying that that's
440
00:26:05.920 --> 00:26:10.279
what most people do, and that's that's the reason why
441
00:26:10.519 --> 00:26:13.839
you know it is under reported. Right, we don't see
442
00:26:13.880 --> 00:26:16.680
this phenomenon as it should be, which is much much
443
00:26:16.759 --> 00:26:20.000
larger than what we're reading the news. And I know
444
00:26:20.079 --> 00:26:22.799
that because I see the numbers, but you know, people
445
00:26:22.880 --> 00:26:25.400
are not aware of that. It's actually much bigger than hacks,
446
00:26:25.839 --> 00:26:29.200
and it's more painful because it affects you know, the
447
00:26:29.319 --> 00:26:32.240
end users, the small individuals.
448
00:26:34.079 --> 00:26:36.599
Yeah, you said something about you know, once you send
449
00:26:36.640 --> 00:26:38.880
them their funds, it's hard to trace it because by
450
00:26:38.880 --> 00:26:42.759
that time, you know, they've already laundered money.
451
00:26:43.400 --> 00:26:44.799
That's a good segue.
452
00:26:44.400 --> 00:26:47.319
For me to you know, touch on this final topic,
453
00:26:47.359 --> 00:26:53.519
which is AML and terrorist finance, which is a really
454
00:26:53.559 --> 00:26:57.440
sensitive topic in the financial services world, specifically right within
455
00:26:57.480 --> 00:27:03.119
the financial services sector, especially financial regulators that are you know,
456
00:27:03.519 --> 00:27:08.319
building robust frameworks. You know, UH, hats off to you know,
457
00:27:08.480 --> 00:27:11.720
uh the A d g M and Abu Dhabi UH
458
00:27:11.839 --> 00:27:15.799
and and other regulators within the region that have come
459
00:27:15.880 --> 00:27:21.200
up with really robust frameworks for you know, uh, crypto
460
00:27:21.279 --> 00:27:24.920
compliance with with a m L and terrorist financing for
461
00:27:25.160 --> 00:27:29.000
firms who are registering. Where do you see the market? So,
462
00:27:29.079 --> 00:27:32.519
what are the main challenges that financial services companies are
463
00:27:32.599 --> 00:27:35.000
facing right now in terms of anti money laundering and
464
00:27:35.079 --> 00:27:35.880
terrorist financing?
465
00:27:36.160 --> 00:27:38.160
Especially large exchanges.
466
00:27:37.680 --> 00:27:40.039
You know that have large volumes, you know, some of
467
00:27:40.039 --> 00:27:44.759
the largest and we've seen you know, uh stories and
468
00:27:45.079 --> 00:27:50.880
public uh publicity and and and and public issues about
469
00:27:51.200 --> 00:27:56.519
you know, certain exchanges that have based you know, scrutiny
470
00:27:56.599 --> 00:27:59.880
from you whether it's US regulators or otherwise regarding their
471
00:28:00.319 --> 00:28:05.000
AML and terrorists financing policies and procedures in turner, So,
472
00:28:05.720 --> 00:28:10.200
where are the main challenges right now? Are these these
473
00:28:10.200 --> 00:28:15.440
things still happening on exchanges right and how to address
474
00:28:15.480 --> 00:28:18.799
it within the market because some of these exchanges I'm
475
00:28:18.839 --> 00:28:24.480
not I'm not providing any allegations or anything, but I'm
476
00:28:24.519 --> 00:28:27.880
just saying some of these exchanges might turn a blind
477
00:28:27.920 --> 00:28:32.559
eye to certain activities because of the volumes, for example,
478
00:28:32.599 --> 00:28:35.920
because you know, that's where their revenue comes from. Or
479
00:28:36.039 --> 00:28:39.759
some of these exchanges might not even have internal policies
480
00:28:39.759 --> 00:28:43.240
and procedures that are robust enough to detect and support
481
00:28:43.279 --> 00:28:47.720
them with this while maintaining you know, the ability to
482
00:28:47.799 --> 00:28:53.200
scale and offset whatever they lose from these illicit funds
483
00:28:53.559 --> 00:28:57.880
with legal or compliant funds that come into the platform,
484
00:28:57.880 --> 00:28:58.079
you know.
485
00:28:58.160 --> 00:28:59.160
So there is that thin.
486
00:28:59.160 --> 00:29:04.000
Line between integrity, ethics, you know, and and morals of
487
00:29:04.039 --> 00:29:07.720
an exchange and how we funnel money through the system
488
00:29:07.880 --> 00:29:10.200
of you know, cryptocurrency and blockchain.
489
00:29:11.119 --> 00:29:12.519
So I want you.
490
00:29:12.519 --> 00:29:15.359
To give us like at least you know, two to
491
00:29:15.440 --> 00:29:18.240
three minutes on am l and terrorist finance.
492
00:29:19.720 --> 00:29:23.640
Sure, So you know, contrary to what I said earlier
493
00:29:23.880 --> 00:29:25.680
that I think that you know, and you said it
494
00:29:26.200 --> 00:29:29.720
very well, that you know it is the obligation and
495
00:29:29.759 --> 00:29:33.599
the duty of the exchanges to actually be proactive about
496
00:29:33.680 --> 00:29:37.119
security and preventing fraud and so on. I totally agree
497
00:29:37.160 --> 00:29:40.079
with that. I think that with respect to anti money
498
00:29:40.160 --> 00:29:45.279
laundering and terror financing. You know, in an ideal world,
499
00:29:45.519 --> 00:29:47.599
I would love for the exchange to be you know,
500
00:29:47.720 --> 00:29:51.599
proactive about it, regardless of regulation, and you know, to
501
00:29:51.640 --> 00:29:55.160
not want to to funnel these funds through their system
502
00:29:55.279 --> 00:29:59.240
and so on. But first of all, you know, it's
503
00:29:59.359 --> 00:30:02.400
very different. You know, when when an exchange like bibit
504
00:30:02.480 --> 00:30:05.440
loses one point five billion dollars, which is obviously bad
505
00:30:05.480 --> 00:30:09.359
for business. Right, So so even from a pure business logic,
506
00:30:09.880 --> 00:30:12.519
they or you know, any other exchange should be more
507
00:30:12.559 --> 00:30:16.799
proactive about their security. And then when their clients, when
508
00:30:16.920 --> 00:30:20.640
you know, lose an accumulative sum of let's say, one
509
00:30:20.720 --> 00:30:23.759
point five billion dollars together, that's also and that's by
510
00:30:23.799 --> 00:30:26.400
the way, the numbers that we're talking about for the
511
00:30:26.480 --> 00:30:30.279
large exchanges, billions of dollars that are just to give
512
00:30:30.319 --> 00:30:34.839
you one number, we prevented this year six hundred million
513
00:30:34.920 --> 00:30:40.039
dollars in fraud, six hundred million dollars, and obviously we're
514
00:30:40.079 --> 00:30:42.759
serving part of the industry, so that just goes to
515
00:30:42.839 --> 00:30:46.519
show the magnitude of that. Right. So going back to that,
516
00:30:46.799 --> 00:30:51.279
an exchange does have, you know, a responsibility and it's
517
00:30:51.279 --> 00:30:54.000
also in their best interest to protect their assets and
518
00:30:54.039 --> 00:30:58.240
their clients assets. But when it comes to AML, I mean,
519
00:30:58.279 --> 00:31:01.039
both of us can see why it it's not kind
520
00:31:01.039 --> 00:31:05.160
of in their first priority to deal with that, right,
521
00:31:05.240 --> 00:31:08.920
because everything has a cost, right because when they stop funds,
522
00:31:09.480 --> 00:31:14.000
they you know, close wallets, they have less volume, less transactions,
523
00:31:14.079 --> 00:31:17.440
less fees and so on. And also, you know, all
524
00:31:17.480 --> 00:31:21.680
these things are very kind of gray area because oftentimes
525
00:31:21.720 --> 00:31:24.200
you know, things are not like it's kind of a
526
00:31:24.279 --> 00:31:27.759
scale right between zero and one hundred, right, a risk scale,
527
00:31:28.119 --> 00:31:31.559
So you cannot always tell whether the funds are indeed,
528
00:31:31.640 --> 00:31:34.559
you know, ilicit funds, whether it's you know, terror financing,
529
00:31:34.680 --> 00:31:39.160
drug financing, stolen funds from a hack and so on.
530
00:31:39.920 --> 00:31:41.759
So it's very hard to tell. So then you go
531
00:31:41.799 --> 00:31:45.480
into disputes and you need to hire compliance people, and
532
00:31:45.519 --> 00:31:48.279
you go into lawsuits and so on. So it's a
533
00:31:48.319 --> 00:31:51.680
huge headache for them. I'm saying all that just to
534
00:31:51.720 --> 00:31:55.119
emphasize that AML Essentially, if you want to do it
535
00:31:55.119 --> 00:31:58.000
in an efficient way in a society, that is something
536
00:31:58.039 --> 00:32:00.640
that should be regulated. You know, I'm not a big
537
00:32:00.680 --> 00:32:03.680
fan of regulation, but I'm saying that, And again I
538
00:32:03.680 --> 00:32:08.279
would rather, you know, prefer that you know, exchanges are
539
00:32:08.559 --> 00:32:11.920
proactive about you know, security and fraud prevention and so on,
540
00:32:12.160 --> 00:32:14.960
because it's in their best interest. But when it comes
541
00:32:15.000 --> 00:32:17.200
to m l At the end of the day, you
542
00:32:17.240 --> 00:32:20.119
need to incentivize them, you know, you need to. The
543
00:32:20.160 --> 00:32:25.000
regulator needs to set very stringent rules. They need to
544
00:32:25.039 --> 00:32:30.680
have effective ways of monitoring the execution of those rules, right,
545
00:32:31.319 --> 00:32:34.680
And they also need to give the exchanges some some
546
00:32:34.960 --> 00:32:37.839
tools to deal with that, right, because you know, not
547
00:32:37.960 --> 00:32:41.160
everything is so easy to trace. And also they have
548
00:32:41.240 --> 00:32:43.759
to guide them. They have to give them, you know,
549
00:32:43.880 --> 00:32:48.880
firm guidelines. Now let's talk about and by the way,
550
00:32:49.160 --> 00:32:52.559
don't get me wrong, right, I think that money laundering
551
00:32:52.759 --> 00:32:56.799
is a huge problem. It's also part of what is
552
00:32:56.839 --> 00:33:00.680
feeding this nefarious industry that I was talking to talking
553
00:33:00.680 --> 00:33:03.920
about with respect to to fraud, right, because it's all interconnected.
554
00:33:04.440 --> 00:33:09.240
And obviously terror financing is something that we should stop immediately.
555
00:33:09.640 --> 00:33:12.440
But the way to get there is again by by
556
00:33:12.480 --> 00:33:18.880
the regulators being realistic and very involved and very proactive. Now,
557
00:33:19.319 --> 00:33:21.720
let's talk about the tools for a minute, because we
558
00:33:21.759 --> 00:33:24.839
need to understand what's possible and what's not right because
559
00:33:25.319 --> 00:33:30.160
crypto is to some extent anonymized, to some extent decentralized
560
00:33:30.200 --> 00:33:33.720
and so on. We all know that, right, But you
561
00:33:33.799 --> 00:33:37.680
do have amazing tools that can help you to actually
562
00:33:37.720 --> 00:33:41.680
get some context about funds. One of the problems that
563
00:33:41.720 --> 00:33:43.759
we have right now that some of the tools that
564
00:33:44.079 --> 00:33:46.079
and I'm not gonna name names, right, but some of
565
00:33:46.119 --> 00:33:49.480
the tools that we all know and everyone uses, they
566
00:33:49.519 --> 00:33:53.519
are quite static. Now what do I mean by that?
567
00:33:53.720 --> 00:33:56.440
I mean that, you know, how do you label something
568
00:33:56.759 --> 00:34:01.279
as you know, illicit funds? How do you label funds
569
00:34:01.319 --> 00:34:04.559
as illicit? Right? You can say that they originated from
570
00:34:04.559 --> 00:34:07.240
a wallet that was involved in some sort of a
571
00:34:07.319 --> 00:34:11.000
nefarious activity, or they received funds from a wallet and
572
00:34:11.039 --> 00:34:14.320
another wallet, and eventually you can track it back to
573
00:34:14.360 --> 00:34:18.199
some nefarious activity and funds that you labeled as malicious.
574
00:34:18.800 --> 00:34:23.960
The problem here is that these providers, they usually do
575
00:34:24.039 --> 00:34:28.199
it in post mortem way, right. So, yeah, so we
576
00:34:28.639 --> 00:34:31.480
identified someone with you know, the FBI cut a person,
577
00:34:31.559 --> 00:34:35.239
and then they find an address, right, they check and
578
00:34:35.320 --> 00:34:38.039
they see that the address belongs to that person, and
579
00:34:38.079 --> 00:34:41.760
they label the funds as malicious, and then all his
580
00:34:42.000 --> 00:34:45.960
prior transactions are deemed as malicious. Right. And you can
581
00:34:46.000 --> 00:34:50.119
do some tracing, some automated tracing or manual tracing, and
582
00:34:50.199 --> 00:34:53.840
you can see kind of how those funds proliferated. And yeah,
583
00:34:53.920 --> 00:34:55.960
if you catch those funds in some exchange you will
584
00:34:56.000 --> 00:34:59.800
freeze them, right, But this is really too little to
585
00:35:00.519 --> 00:35:03.320
right because at the end of the day, it's only
586
00:35:03.360 --> 00:35:08.199
a small fragment of the actual illicit activity on chain.
587
00:35:08.719 --> 00:35:11.559
So that is why you know you need to be
588
00:35:11.639 --> 00:35:13.519
much more proactive. You know, one of the things that
589
00:35:13.559 --> 00:35:17.719
we do at cybers is essentially all our platform is
590
00:35:17.880 --> 00:35:22.119
real time and dynamic. So if a wallet receives funds
591
00:35:22.159 --> 00:35:25.679
that are deemed as elicit, it is labeled in a
592
00:35:25.719 --> 00:35:28.000
split of a second, right, So then if you as
593
00:35:28.000 --> 00:35:31.679
an exchange engaged with that wallet, you will be worn. Right.
594
00:35:31.760 --> 00:35:34.159
You already have the alert not to not to proceed,
595
00:35:34.679 --> 00:35:37.280
or to cancel the transaction, or however you want to
596
00:35:37.320 --> 00:35:43.360
handle this. So bottom line, dynamic and real time compliance
597
00:35:44.199 --> 00:35:46.519
is what's needed right now for the industry if it
598
00:35:46.559 --> 00:35:49.920
wants to be serious about money laundering and another thing
599
00:35:50.880 --> 00:35:53.000
we talked about AI. Right, So at the end of
600
00:35:53.079 --> 00:35:57.360
the day, you know, manual labeling and even automated labeling
601
00:35:57.800 --> 00:36:00.679
is no longer sufficient. You know, at the pay of things,
602
00:36:00.960 --> 00:36:03.119
you know the amount of transactions that you have on
603
00:36:03.159 --> 00:36:07.039
the blockchain and the speed of things, and the way
604
00:36:07.079 --> 00:36:11.000
that now you can automate transactions to go through multiple
605
00:36:11.000 --> 00:36:14.800
players in one atomic transaction, you need to have a
606
00:36:15.000 --> 00:36:19.119
very proactive but also smart, smart as in AI smart
607
00:36:19.559 --> 00:36:24.159
system that can actually map you know, the relationships between
608
00:36:24.199 --> 00:36:27.960
the wallets and map the sequence and and to trace
609
00:36:28.000 --> 00:36:29.920
the funds.
610
00:36:29.639 --> 00:36:34.039
That's the technology, not for AI to get this far
611
00:36:34.159 --> 00:36:38.719
within crypto space. I think that's really incredible technology. And
612
00:36:38.760 --> 00:36:43.360
I agree that regulators are also responsible and providing these
613
00:36:43.360 --> 00:36:45.800
tools and solutions and taking up some of this cost
614
00:36:46.400 --> 00:36:50.800
if they're going to impose, you know, these regulatory oversights
615
00:36:50.840 --> 00:36:54.039
and the requirements on these exchanges.
616
00:36:54.760 --> 00:36:59.000
Ah Michael. On that note, honestly, I really appreciate your time.
617
00:37:00.159 --> 00:37:01.840
Thank you for joining Drilling into Crypto.
618
00:37:02.039 --> 00:37:04.559
Thanks for drilling into Crypto with us. If you enjoyed
619
00:37:04.559 --> 00:37:07.000
our discussion, please give us a like on your podcast
620
00:37:07.039 --> 00:37:10.360
app or social media, and don't forget to subscribe. Join
621
00:37:10.440 --> 00:37:13.960
us next time when we will deliver more perspectives on crypto,
622
00:37:14.000 --> 00:37:17.639
asset mining, energy markets, and the global financial revolution
1
00:00:00.120 --> 00:00:03.600
Welcome to Drilling into Crypto. I'm your host, Mohammad al MASRII.
2
00:00:03.919 --> 00:00:06.040
Every week I speak to the leaders that are driving
3
00:00:06.040 --> 00:00:09.960
the global financial revolution. Drilling into Crypto puts the spotlight
4
00:00:10.000 --> 00:00:13.359
on the importance of crypto assets on energy markets and
5
00:00:13.400 --> 00:00:15.119
on global monetary policy.
6
00:00:16.559 --> 00:00:20.160
Great, I have Michael Pearl here from Cybers. Thank you
7
00:00:20.199 --> 00:00:22.000
Michael for joining Drilling into Crypto.
8
00:00:23.359 --> 00:00:25.160
Hey, mol, thank you so much for having me.
9
00:00:25.800 --> 00:00:26.399
My pleasure.
10
00:00:27.399 --> 00:00:30.199
So please, I'd like to start off by asking you,
11
00:00:30.199 --> 00:00:34.640
you know, to introduce yourselves to the audience and more importantly,
12
00:00:34.719 --> 00:00:36.719
tell us about your journey. I mean, what were you
13
00:00:36.759 --> 00:00:40.359
doing before cybers before getting into crypto and how you
14
00:00:40.399 --> 00:00:43.640
got into crypto? What was the turning point that made
15
00:00:43.679 --> 00:00:45.600
you say crypto is my life's task.
16
00:00:47.479 --> 00:00:49.359
Sure, So, first of all, again, thank you so much
17
00:00:49.359 --> 00:00:52.600
for having me. I'm Michael Pearl. I've been in the
18
00:00:52.600 --> 00:00:58.240
crypto space since twenty thirteen. Currently I'm the VP go
19
00:00:58.320 --> 00:01:01.359
to Market and Strategy for Diverse and I guess we'll
20
00:01:01.359 --> 00:01:04.280
talk about severs a little bit later. So just to
21
00:01:04.319 --> 00:01:07.439
follow up on your question, I started off my journey
22
00:01:07.480 --> 00:01:11.680
as a lawyer. Nobody's perfect, but that's what I decided
23
00:01:11.719 --> 00:01:16.040
to learn, and you know, very quickly I figured out that,
24
00:01:16.239 --> 00:01:17.959
you know, it's not for me, and I wanted to
25
00:01:18.000 --> 00:01:21.519
go into a kind of other realms. And I started
26
00:01:21.519 --> 00:01:25.439
off as a correspondent and an editor. I was in
27
00:01:25.519 --> 00:01:29.719
the in the financial media, and back then, I remember
28
00:01:29.799 --> 00:01:33.959
that I was exposed to to crypto first. First I
29
00:01:34.040 --> 00:01:36.760
was exposed to fintech, which was kind of the buzzword
30
00:01:37.040 --> 00:01:40.959
back then. But then, you know, I started seeing some
31
00:01:41.040 --> 00:01:45.760
meetups on bitcoin and it was fascinating because you know,
32
00:01:45.840 --> 00:01:48.719
it was a novel thing and I wanted to learn more.
33
00:01:49.280 --> 00:01:52.760
And I remember going to you know, meetups and you
34
00:01:52.840 --> 00:01:56.000
had like four people in the room trying to give you,
35
00:01:56.000 --> 00:01:59.640
you know, paper ballets of of bitcoin. I should have
36
00:01:59.680 --> 00:02:04.599
gotten more back then. Maybe, you know, maybe I would
37
00:02:04.680 --> 00:02:09.319
hold much more bitcoin right now. But it was very interesting.
38
00:02:09.400 --> 00:02:12.439
It was really hard to grasp, you know, you know,
39
00:02:12.560 --> 00:02:15.719
digital decentralized money and so on. And I kind of
40
00:02:15.840 --> 00:02:19.360
saw the evolution of crypto, you know, in the beginning,
41
00:02:19.479 --> 00:02:23.599
only bitcoin and then ethereum, and then you know, all
42
00:02:23.680 --> 00:02:28.560
the the idea of the centralized applications, you know, ethereum
43
00:02:28.599 --> 00:02:31.199
based smart contracts and so on. So I kind of
44
00:02:31.240 --> 00:02:33.879
saw the entire revolution, you know, going to NFTs and
45
00:02:33.960 --> 00:02:38.240
DeFi and I kind of grew my my career along
46
00:02:38.280 --> 00:02:41.039
with that. First I was involved kind of from the outside,
47
00:02:41.479 --> 00:02:44.719
you know, covering this space, and then gradually I became
48
00:02:44.800 --> 00:02:49.159
more involved. So I was involved in several projects. I
49
00:02:49.199 --> 00:02:54.840
was working with Chirobo, which is now called Intentable, And
50
00:02:55.000 --> 00:02:57.599
about two years ago I joined cybers because I really
51
00:02:57.639 --> 00:03:02.000
wanted to kind of see the intersection between AI cybersecurity
52
00:03:02.439 --> 00:03:05.840
and crypto and blockchain. And I'm really happy I did
53
00:03:05.879 --> 00:03:08.319
so because now I have kind of a unique perspective
54
00:03:08.400 --> 00:03:12.080
on you know, how this industry looks like, you know,
55
00:03:12.199 --> 00:03:16.360
on all facets, but also the weak points of this industry,
56
00:03:17.280 --> 00:03:21.199
which is cybersecurity and fraud and scams. And I guess
57
00:03:21.240 --> 00:03:22.560
we'll talk about it in a second.
58
00:03:25.199 --> 00:03:31.319
That's really interesting transition from actually it's pretty uh synergistic,
59
00:03:31.360 --> 00:03:34.680
you know, from from legal to security because you know
60
00:03:34.719 --> 00:03:39.680
that consists of compliance regulations. And I guess you got
61
00:03:39.719 --> 00:03:42.960
the backbone from from you know, law school, right and
62
00:03:43.240 --> 00:03:48.159
and and working in in in the legal uh sector.
63
00:03:48.560 --> 00:03:51.759
But did you actually practice law or was it just
64
00:03:52.039 --> 00:03:53.639
a shift after university.
65
00:03:55.159 --> 00:03:57.280
Yeah, I did a practice law for a while, but
66
00:03:57.919 --> 00:04:00.879
I think you're right at you know, the perspective is
67
00:04:00.879 --> 00:04:03.879
something that is very helpful because at the end of
68
00:04:03.919 --> 00:04:06.960
the day, I always say that, you know, if you
69
00:04:07.000 --> 00:04:09.919
want to succeed and if you really want to understand
70
00:04:10.000 --> 00:04:13.319
this world of blockchain and crypto, at the end of
71
00:04:13.400 --> 00:04:15.319
the day, you need to be you know a little
72
00:04:15.319 --> 00:04:18.000
bit of a lawyer because you know, there's heavy regulation
73
00:04:18.360 --> 00:04:21.720
or lack of and you need to also understand the
74
00:04:21.720 --> 00:04:25.079
financial side of things, which I learned while while I
75
00:04:25.199 --> 00:04:27.920
was covering you know, the fintech space. And then you
76
00:04:28.319 --> 00:04:31.600
also need to understand the technology, and that is something
77
00:04:31.639 --> 00:04:34.759
that I've kind of you know, taught myself and learned
78
00:04:34.759 --> 00:04:38.399
from kind of mentors that I had. So the combination
79
00:04:38.519 --> 00:04:41.639
of three is something that gives you the right perspective
80
00:04:41.680 --> 00:04:43.000
on this industry.
81
00:04:44.480 --> 00:04:44.920
Yeah, I can.
82
00:04:45.040 --> 00:04:48.399
I can relate to that one because coming from a
83
00:04:48.560 --> 00:04:52.079
corporate finance regulations background, you know, you see a thin
84
00:04:52.199 --> 00:04:55.360
line between what's compliant and what's not. You know, it
85
00:04:55.399 --> 00:04:58.040
could be a very small thing that you do or
86
00:04:58.040 --> 00:05:01.240
do not do that puts you offside of the regulatory
87
00:05:01.519 --> 00:05:04.399
frameworks or you know, puts you on side. So that's
88
00:05:04.439 --> 00:05:07.839
that's really interesting transition. And then you said, you guys
89
00:05:07.920 --> 00:05:15.480
entered into focus for security on AI, crypto and blockchain. So,
90
00:05:16.279 --> 00:05:20.279
you know, how where do you see this market going
91
00:05:20.879 --> 00:05:25.759
in terms of the cybersecurity requirements and even the overall
92
00:05:25.759 --> 00:05:29.360
security requirements of crypto and crypto fraud and you know,
93
00:05:29.439 --> 00:05:31.040
in the early days, there was always a lot of
94
00:05:31.040 --> 00:05:35.519
talk that cryptocurrencies and bitcoin are only used for illicit
95
00:05:35.560 --> 00:05:37.480
purposes or illegal activities.
96
00:05:37.959 --> 00:05:39.120
Now the narrative has.
97
00:05:39.079 --> 00:05:43.120
Completely changed, you know, from where we were five six
98
00:05:43.199 --> 00:05:46.959
years ago to where we are today with institutional backing
99
00:05:47.079 --> 00:05:51.319
and institutional involvement from the likes of government, sovereign wealth funds,
100
00:05:51.319 --> 00:05:55.800
financial institutions, even private and public corporations adopting crypto as
101
00:05:56.000 --> 00:06:00.319
treasury optimization strategies. Like you know, now, now that you
102
00:06:00.360 --> 00:06:04.360
see this happening within this space, you know, where do
103
00:06:04.439 --> 00:06:07.639
you see that you know, the most of them or
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most of the participants within the crypto industry are lacking
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in terms of security and fraud detection.
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Yes, I think it's a very good question. I think
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that what I see is kind of two processes that
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are not really going at the same pace. So, on
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one hand, everything that you've mentioned I totally agree with that.
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You know, In the beginning, people were asking questions like,
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so what do you do with crypto? And you know
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it's only for criminals and so on, And gradually you
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saw that, you know, the usability of crypto is becoming
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much much more first of all mature, but also widespread. Right,
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So we went from you know, being a very niche,
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kind of anarchistic way of you know, exchange in value
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and storing value and so on, into stuff that are
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very tangible. Right, the fact that you have let's say,
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credit card issuers that allow you to spend your crypto
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for day to day and in some places, you know,
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you reside in Dubai, so you can even buy a
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house for you know, for bitcoin. And gradually you see
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the institutionals kicking in. So you also have regulated and
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heavily you know, supervised financial vehicles that allow you to
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to gain yields and allow you to to trade in
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a much more significant way. All this is great, but concurrently,
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the evolvement of the cybersecurity space within crypto is much
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more stagnant and much more kind of slow and gradual.
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So what I saw is that you know, you can
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have crypto for good and I really believe in that
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and I think that again this is only growing and evolving.
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But in order for crypto to become mainstream, in order
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for the institutionals to feel comfortable with crypto, you need
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to have the proper guard rails. And by the way,
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you also need that with respect to the regulators. Right,
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we were just talking about the legal set of things,
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and in order for the regulators to feel comfortable with
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the crypto the way they feel comfortable with money in
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the bank, you eventually need to have the proper tools
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and to have the proper processes to protect crypto because
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even if you have the technology and the capability of
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doing all those great things with crypto, if your assets
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can just disappear in a heartbeat. And I mean, we're
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finishing this year. This year started with the biby tack, right,
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one point five billion dollars stolen and by the way,
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this is what you hear in the news, but actually
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the bigger part is crypto fraud, where thirty billion dollars
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were stolen this year as per sever's data. And this
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is not sustainable. You know, at the end of the day,
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if you if you want to have a real economy,
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if you want to draw drag the you know, the
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moms and pups, but also the golden and taxes of
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the world. You need to have some some more safety
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and security in the crypto space.
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Definitely, But that's that's also on the.
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Like the crypto startups, you know, and the and at
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that point, at this point, the large crypto companies, you know,
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the likes of you know, Tether, the likes of Finance,
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the likes of you know, these big crypto companies, they
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also have that you know, duty to the market in
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order to make sure that it's safer and safer. Uh
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And and you know, companies like cybers comes in and
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provides you know, these these advanced security and fraud detection solutions.
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But also you know, the large players have a role
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to play in how secure and how safe this industry is.
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I think.
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Also, you know, there's another thing that came up that
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I learned about this year on honestly, flash USDT you
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know and address poisoning for example, and stuff like that,
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which you know, I only learned about this year. And
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you know, I'm trying to wrap my head around this
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type of fraud, like what is flash us d T
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and how do people fall victim to have you.
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Have you looked into that, So I haven't looked into
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flash USDT as much, so I cannot comment on that.
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But I can tell you about address poisoning, which is
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something that we see a lot in Cyrus and we're
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combating it along with our clients. So just a quick
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explanation on what this is. Essentially, given the fact that
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most of us when we send crypto, what we do
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we usually go to ether scan, we see the last
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Let's say, if you send frequently to a certain address,
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so you go on ether scan and you just copy
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the address and you just, you know, send it to
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the same place. What usually those perpetrators do. They are
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sending you very small amounts or they can send you
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even big amount with some coins that have no value
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at all, some tokens that they created on their own.
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And eventually you see in your log you see multiple
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transactions to sorry from that address. And the thing is
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that this address is generated in a way that it
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looks exactly like the address that you frequently send funds to.
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Because obviously, first of all, because of the string that
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you see on the screen, it's usually cut off right,
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so you see the beginning and the end and when
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you look at it, you know, prima facie it looks
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exactly the same. So what you do You copy the
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last address because again it sent you funds. And then
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when you want to send I don't know, ten thousand,
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fifty one hundred thousand dollars worth of let's say USDT,
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you send it to the adverse and then you know,
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let's say, if you send it to your family member
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or to a vendor that you're working with, then eventually
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you find out that you know, they didn't receive the funds.
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Then you start checking and you figure out that it
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wasn't the right address. So this is extremely frequent. It
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is something that we see in our feed and our
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system every single day. And I think that what's more
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interesting is the fact that most people have been address poisoned.
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So most wallets right now already have this in them
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in terms of the potential because you know, these sending,
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the sending part, the preparation part is happening obviously on
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a march larger scale than you know people were actually
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falling for that. So almost everyone, and I urge you
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to go and check your wallet, almost everyone has the
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potential of falling victim to that. And that is something
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that we're combating. Obviously, it is advice as a private
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user to always make sure that you send to the
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right address, But from the more kind of systemic point
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of view, we are working with multiple wallets and exchanges
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on helping them to prevent it because you can actually
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see when a person was address poisoned and you can
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warn them, and you can blacklist some of the addresses
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that have address poison them to basically prevent it even
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before it happens.
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And how do you prevent it before it happens?
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Okay, so let's say that MOE has received, you know,
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fragments small fragments of ethereum from a wallet that poses
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as the wallet that you usually send funds to. Right,
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So what we can do is, first of all, we
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can identify that right, we can identify wallets that are
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affiliated with the address poisoning networks, and we can just
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block this wallet. So let's say, if I am working
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with your wallet provider, we can just black lie this
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wallet and then you will not be able to send
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funds to it. So even if you make the mistake
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and you copy that address, you will be i don't know,
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either blocked or advised not to send funds to that wallet,
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and even before that, if you were address poisoned, I
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can tell you that listen, these small amounts that you
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just received, those are not real transfers. Do not engage
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with this wallet, right, So eventually you can have the
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proper tools to refrain from losing your funds in that way.
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Is that a simple integration on your exchange account or
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is it a separate solution that have to be taken
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on by the client.
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So it's a good question. So from our side as
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cybers we can identify those wallets very easily, and if
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an exchange or wallet wants to integrate with us, they
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can have this feed of basically alerts in a matter
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of five minutes. Now what they choose to do with that,
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obviously if they have to build some sort of a
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logic on top of it and to integrate this into
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the system, and you know, to to have this in
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a user friendly way, because they obviously they want to balance.
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You know, exchanges are are supposed to provide you with
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with the liberty to you know, to to to engage
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with any wallet that you want. So I guess it
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is sensitive and they need to figure out some sort
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of a policy. Uh, but technology wise, the integration is
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something that can happen in five minutes.
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There's there's been recently a lot of.
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I think mainly in North America, a lot of news
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on retail for close camps, like because of ATMs.
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I'm not sure you have any insight on that, like
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you know at of course.
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Yeah, yeah, of course. So first of all, obviously an
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ATM is at the end of the day, you know,
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it can serve as a as a mean to allow
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you to buy crypto onto cell crypto. But obviously if
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the ATM is tricked, you know, in some way, either
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by the operators, which is obviously not very likely because
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they do want to continue to operate, but if somebody
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managed to hack into the ATM, you know, whether from
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the Web two side of things, because what you see
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when you engage with the ATM, you know, the front
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end is essentially a Web two application, and if you
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can trick it, you know, just to give an example
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in the Biby tech just to simplify it, at the
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end of the day, what the signers saw was not
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what really happened on the blockchain, and this discrepancy between
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the front end because that's what we see with our
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own eyes and what's happening on the blockchain, because presumably
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you need to have a connection between the button that
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you hit on the front end and what actually happens
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with your funds on the blockchain level. But in many ways,
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hackers can detach from that, right, they can detach between
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the two, and then obviously your funds can go elsewhere.
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But I think the more interesting and kind of the
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more frequent thing that we see right now with respect
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to scams by the way, with ATMs or on other
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methods like on actual exchanges, is all these types of
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what we call authorized fraud. Right, So authorized fraud means
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that I haven't you know, hacked into your wallet and
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stole your funds or you know, tricked you in some
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way to sending your funds without knowing it. You are
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sending your funds knowingly to an address. But what you
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don't know that the person on the other side is
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not who you think he is or she is. Right,
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So the background of that and there are many juicy
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stories which are very unfortunate. It can vary between kind
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of on the low level. It can be just you know,
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Roman scams and small investment scams where you know, a
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beautiful girl approaches you on telegram and you know, quote
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unquote by mistake, you start the conversation, the relationship evolved.
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Sometimes it can last for months and then eventually she
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tricks you into sending funds. In other cases, it might
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be someone that approaches you and offers you a very
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lucrative investment scheme and by the way, at first you
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might actually get yield from them. That's the interesting part.
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You know. It's sometimes referred to as pig butchering.
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Yeah.
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Sorry, I've seen that with some people. Happened a lot.
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I was almost a victim of that, but you know,
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I realized, even like you know, with email phishing and scams,
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there's some simple logic things that you know, we as
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consumers forget about. Is check the domain name, for example,
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where this email is coming from. Right, is it really
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from DocuSign or is it really from your bank?
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Right? Is the email seem fishy? Just by then I
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just delete.
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And put the email into spam and block it. Is
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someone offering you high returns and like get rich quick schemes.
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You know, these are things that I think. You know,
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you have to go back to your reasonable and logical
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mind to detect. But beyond that, given where technology is going,
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given where AI is advancing, and how it's being integrated
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with crypto, these scammers are becoming more and more sophisticated
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that you know, they come to a point where they
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can scam you and doing that pig butchering thing, you know,
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where people offer you yield and you're actually receiving income
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from them.
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You know.
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I it's easy to fall victim to that, right.
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I totally agree with that. And you got to the
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more interesting part because I think that, you know, before
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we dive in, I think that it's useful to understand
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what's the kind of the back office of all this operation.
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So for the most of it, we're not talking about
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in the visuals that are just you know, trying their luck.
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We're talking about huge, huge criminal networks. Most of them
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reside in in you know, Southeast Asia, Cambodia, Meanmar, but
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not not only where people live in in you know,
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actual labor camps. Right. People are tricked into into going
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there from many different regions in the world, from India,
346
00:20:25.640 --> 00:20:29.799
from from places in Asia, and eventually they are living there.
347
00:20:31.119 --> 00:20:33.759
I'm saddened to say, But as slaves. You know, there
348
00:20:33.839 --> 00:20:36.960
was a great piece in the Economist and the podcast
349
00:20:37.000 --> 00:20:40.359
about it, which you can read. We're talking about billions
350
00:20:40.359 --> 00:20:42.880
and billions of dollars that are being processed by the
351
00:20:42.880 --> 00:20:46.519
way in individual from Cambodia was recently arrested by the
352
00:20:46.680 --> 00:20:54.559
US federal law enforcement and what they do. Essentially, each
353
00:20:54.839 --> 00:21:00.200
such person operates several phones and several computers, and they
354
00:21:00.200 --> 00:21:03.720
converse with several people throughout the day. And they can
355
00:21:03.799 --> 00:21:06.160
be whoever you want them to be, right. They can be,
356
00:21:06.559 --> 00:21:09.960
you know, a beautiful lady from Germany. They can be
357
00:21:10.000 --> 00:21:15.319
a successful, you know, businesswoman from you know, Malaysia, whatever, right,
358
00:21:15.400 --> 00:21:18.960
they can have any identity. Obviously AI helps with that
359
00:21:19.480 --> 00:21:22.960
because we read, you know, about deep fake with respect
360
00:21:23.000 --> 00:21:25.680
to politics and things like that, but we don't think
361
00:21:25.720 --> 00:21:29.039
as much on you know, the other usages of deep fake.
362
00:21:29.799 --> 00:21:33.880
And they can you know, generate any domain that can resemble,
363
00:21:33.920 --> 00:21:37.640
as you said, to a real domain. In some cases,
364
00:21:38.400 --> 00:21:40.680
this even involves and I'm talking about kind of the
365
00:21:40.759 --> 00:21:45.720
higher end of these scams that can even evolve real
366
00:21:45.880 --> 00:21:51.319
real life actors. Right. So not only you know, individuals
367
00:21:51.319 --> 00:21:55.160
are being tricked to invest small amounts into that, but
368
00:21:55.519 --> 00:22:00.359
somebody can approach you know, a successful banker or you
369
00:22:00.400 --> 00:22:04.519
know a businessman and a lawyer or whatever that has
370
00:22:04.519 --> 00:22:08.960
sufficient funds to offer them something lucrative and you know,
371
00:22:09.039 --> 00:22:11.039
to eventually even set up an office in New York
372
00:22:11.200 --> 00:22:14.920
or you know in London or Singapore, and that is
373
00:22:14.960 --> 00:22:17.279
all happening. You know, that is not getting the right
374
00:22:17.720 --> 00:22:21.599
news as it should. But eventually, you know what all
375
00:22:21.640 --> 00:22:26.519
this uh sums up to a person hitting a send
376
00:22:26.599 --> 00:22:30.039
button on his wallet and sending the funds willingly and
377
00:22:30.079 --> 00:22:34.599
knowingly to that wallet. Because all the rest is a facade, right,
378
00:22:34.839 --> 00:22:37.160
it's all, it's all, it's all a charade. But at
379
00:22:37.160 --> 00:22:39.799
the end of the day, the person decides to send
380
00:22:40.240 --> 00:22:44.599
his funds willingly. Now, luckily, that is something that has
381
00:22:44.640 --> 00:22:48.799
a solution because even if all your you know checkboxes
382
00:22:48.839 --> 00:22:51.160
that you've mentioned earlier, you know, check this and check
383
00:22:51.240 --> 00:22:54.000
that and having common sense and so on, if you
384
00:22:54.079 --> 00:22:56.720
were tricked throughout the way, at the end of the day,
385
00:22:56.720 --> 00:22:59.440
when you hit that button, if you have the protection
386
00:23:01.079 --> 00:23:04.000
like cybers provides right now, you will see that this
387
00:23:04.160 --> 00:23:06.519
wallet is not who you think they are, right, so
388
00:23:06.599 --> 00:23:09.039
you will have a pop up or this will be
389
00:23:09.079 --> 00:23:12.240
blocked and you will be notified by your let's say
390
00:23:12.279 --> 00:23:15.440
exchange that you should not engage with this wallet because
391
00:23:15.640 --> 00:23:17.960
it is not who you think they are and work
392
00:23:18.440 --> 00:23:22.240
right now working with you mentioned binance and crypto dot
393
00:23:22.279 --> 00:23:26.680
com and a bevy of other exchanges that are working
394
00:23:26.720 --> 00:23:30.119
with us, where if you eventually send the funds and
395
00:23:30.160 --> 00:23:33.400
you want to issue the transaction, you will be stopped
396
00:23:33.400 --> 00:23:36.200
at the last moment thanks to the information that we
397
00:23:36.319 --> 00:23:39.279
provide to them.
398
00:23:39.400 --> 00:23:43.799
Yeah, you also mentioned willingly, you know, willfol conduct, will
399
00:23:43.799 --> 00:23:47.119
fall misconduct. That's a legal term, and it's very hard
400
00:23:47.160 --> 00:23:49.519
to then go into a case and try to prove
401
00:23:49.599 --> 00:23:53.000
that you were scammed into willingly setting funds. Right, So
402
00:23:53.359 --> 00:23:57.359
this is the art of these scams that and especially
403
00:23:57.359 --> 00:24:02.799
crypto and specifically because there's no intermediary, right, So you know,
404
00:24:02.839 --> 00:24:06.720
it's it's a feature, it's good, and it's it's risky
405
00:24:07.000 --> 00:24:09.039
for people who don't know how to use crypto, but
406
00:24:09.400 --> 00:24:13.319
there's no intermediary. So you said it willingly to you know,
407
00:24:13.359 --> 00:24:18.039
from person X to person Y and from a legal
408
00:24:18.160 --> 00:24:21.000
term with your your lawyer hat on. You know, how
409
00:24:21.160 --> 00:24:24.880
how does that wilful sending of crypto to a scammer
410
00:24:24.920 --> 00:24:27.599
look like in a court or in a case spot.
411
00:24:29.599 --> 00:24:31.839
So I think that the first of all, you're right,
412
00:24:32.200 --> 00:24:34.559
But I think the bigger problem is the fact that
413
00:24:35.559 --> 00:24:39.240
even if you know legally you can claim something, you
414
00:24:39.319 --> 00:24:42.200
will never know where the funds went to, right, I mean,
415
00:24:42.640 --> 00:24:45.960
let me let me kind of tone it down. You
416
00:24:46.000 --> 00:24:47.880
for the most of it, you never know, right, And
417
00:24:47.920 --> 00:24:51.680
even if when you know they have, you know, obfiscated
418
00:24:51.960 --> 00:24:55.000
the trail in a way that you cannot really get
419
00:24:55.000 --> 00:24:58.839
to the funds in an effective way, right, because usually
420
00:24:58.920 --> 00:25:02.160
we're talking about jurisdic where you know, you don't have
421
00:25:02.240 --> 00:25:05.640
any power on and eventually they launder the funds and
422
00:25:05.680 --> 00:25:09.680
you cannot really trace them in an effective way, especially
423
00:25:09.720 --> 00:25:13.880
when you know time passes by, because if you act immediately,
424
00:25:14.200 --> 00:25:18.519
then maybe you can you know, freeze the funds through tether,
425
00:25:19.319 --> 00:25:21.799
or maybe you can contact the exchange if you can
426
00:25:21.839 --> 00:25:25.960
trace it to a specifically wallet, but it's very hard
427
00:25:25.960 --> 00:25:28.480
to do that. But you know, what's the interesting part
428
00:25:28.839 --> 00:25:30.960
is not even the legal set of things, it's a
429
00:25:30.960 --> 00:25:35.880
psychological set of things because the majority of the people, sorry.
430
00:25:35.960 --> 00:25:37.880
I'm saying that's detrimental to most.
431
00:25:37.680 --> 00:25:42.680
People, yes, but also the majority of the people would
432
00:25:42.720 --> 00:25:46.200
not admit it, right, So if you were tricked, unless
433
00:25:46.240 --> 00:25:48.319
you lost all your funds, and then I don't know,
434
00:25:48.359 --> 00:25:51.079
you probably cannot hide it anymore. But you know, if
435
00:25:51.119 --> 00:25:53.480
you lost ten thousand dollars and that is something that
436
00:25:53.920 --> 00:25:57.440
you can kind of internalize and handle, then you will
437
00:25:57.519 --> 00:26:00.480
just say, you know, you know that that's life. You know.
438
00:26:00.519 --> 00:26:03.359
I was strict because you will be ashamed to admit it.
439
00:26:03.440 --> 00:26:05.920
Not that you should, right, I'm just saying that that's
440
00:26:05.920 --> 00:26:10.279
what most people do, and that's that's the reason why
441
00:26:10.519 --> 00:26:13.839
you know it is under reported. Right, we don't see
442
00:26:13.880 --> 00:26:16.680
this phenomenon as it should be, which is much much
443
00:26:16.759 --> 00:26:20.000
larger than what we're reading the news. And I know
444
00:26:20.079 --> 00:26:22.799
that because I see the numbers, but you know, people
445
00:26:22.880 --> 00:26:25.400
are not aware of that. It's actually much bigger than hacks,
446
00:26:25.839 --> 00:26:29.200
and it's more painful because it affects you know, the
447
00:26:29.319 --> 00:26:32.240
end users, the small individuals.
448
00:26:34.079 --> 00:26:36.599
Yeah, you said something about you know, once you send
449
00:26:36.640 --> 00:26:38.880
them their funds, it's hard to trace it because by
450
00:26:38.880 --> 00:26:42.759
that time, you know, they've already laundered money.
451
00:26:43.400 --> 00:26:44.799
That's a good segue.
452
00:26:44.400 --> 00:26:47.319
For me to you know, touch on this final topic,
453
00:26:47.359 --> 00:26:53.519
which is AML and terrorist finance, which is a really
454
00:26:53.559 --> 00:26:57.440
sensitive topic in the financial services world, specifically right within
455
00:26:57.480 --> 00:27:03.119
the financial services sector, especially financial regulators that are you know,
456
00:27:03.519 --> 00:27:08.319
building robust frameworks. You know, UH, hats off to you know,
457
00:27:08.480 --> 00:27:11.720
uh the A d g M and Abu Dhabi UH
458
00:27:11.839 --> 00:27:15.799
and and other regulators within the region that have come
459
00:27:15.880 --> 00:27:21.200
up with really robust frameworks for you know, uh, crypto
460
00:27:21.279 --> 00:27:24.920
compliance with with a m L and terrorist financing for
461
00:27:25.160 --> 00:27:29.000
firms who are registering. Where do you see the market? So,
462
00:27:29.079 --> 00:27:32.519
what are the main challenges that financial services companies are
463
00:27:32.599 --> 00:27:35.000
facing right now in terms of anti money laundering and
464
00:27:35.079 --> 00:27:35.880
terrorist financing?
465
00:27:36.160 --> 00:27:38.160
Especially large exchanges.
466
00:27:37.680 --> 00:27:40.039
You know that have large volumes, you know, some of
467
00:27:40.039 --> 00:27:44.759
the largest and we've seen you know, uh stories and
468
00:27:45.079 --> 00:27:50.880
public uh publicity and and and and public issues about
469
00:27:51.200 --> 00:27:56.519
you know, certain exchanges that have based you know, scrutiny
470
00:27:56.599 --> 00:27:59.880
from you whether it's US regulators or otherwise regarding their
471
00:28:00.319 --> 00:28:05.000
AML and terrorists financing policies and procedures in turner, So,
472
00:28:05.720 --> 00:28:10.200
where are the main challenges right now? Are these these
473
00:28:10.200 --> 00:28:15.440
things still happening on exchanges right and how to address
474
00:28:15.480 --> 00:28:18.799
it within the market because some of these exchanges I'm
475
00:28:18.839 --> 00:28:24.480
not I'm not providing any allegations or anything, but I'm
476
00:28:24.519 --> 00:28:27.880
just saying some of these exchanges might turn a blind
477
00:28:27.920 --> 00:28:32.559
eye to certain activities because of the volumes, for example,
478
00:28:32.599 --> 00:28:35.920
because you know, that's where their revenue comes from. Or
479
00:28:36.039 --> 00:28:39.759
some of these exchanges might not even have internal policies
480
00:28:39.759 --> 00:28:43.240
and procedures that are robust enough to detect and support
481
00:28:43.279 --> 00:28:47.720
them with this while maintaining you know, the ability to
482
00:28:47.799 --> 00:28:53.200
scale and offset whatever they lose from these illicit funds
483
00:28:53.559 --> 00:28:57.880
with legal or compliant funds that come into the platform,
484
00:28:57.880 --> 00:28:58.079
you know.
485
00:28:58.160 --> 00:28:59.160
So there is that thin.
486
00:28:59.160 --> 00:29:04.000
Line between integrity, ethics, you know, and and morals of
487
00:29:04.039 --> 00:29:07.720
an exchange and how we funnel money through the system
488
00:29:07.880 --> 00:29:10.200
of you know, cryptocurrency and blockchain.
489
00:29:11.119 --> 00:29:12.519
So I want you.
490
00:29:12.519 --> 00:29:15.359
To give us like at least you know, two to
491
00:29:15.440 --> 00:29:18.240
three minutes on am l and terrorist finance.
492
00:29:19.720 --> 00:29:23.640
Sure, So you know, contrary to what I said earlier
493
00:29:23.880 --> 00:29:25.680
that I think that you know, and you said it
494
00:29:26.200 --> 00:29:29.720
very well, that you know it is the obligation and
495
00:29:29.759 --> 00:29:33.599
the duty of the exchanges to actually be proactive about
496
00:29:33.680 --> 00:29:37.119
security and preventing fraud and so on. I totally agree
497
00:29:37.160 --> 00:29:40.079
with that. I think that with respect to anti money
498
00:29:40.160 --> 00:29:45.279
laundering and terror financing. You know, in an ideal world,
499
00:29:45.519 --> 00:29:47.599
I would love for the exchange to be you know,
500
00:29:47.720 --> 00:29:51.599
proactive about it, regardless of regulation, and you know, to
501
00:29:51.640 --> 00:29:55.160
not want to to funnel these funds through their system
502
00:29:55.279 --> 00:29:59.240
and so on. But first of all, you know, it's
503
00:29:59.359 --> 00:30:02.400
very different. You know, when when an exchange like bibit
504
00:30:02.480 --> 00:30:05.440
loses one point five billion dollars, which is obviously bad
505
00:30:05.480 --> 00:30:09.359
for business. Right, So so even from a pure business logic,
506
00:30:09.880 --> 00:30:12.519
they or you know, any other exchange should be more
507
00:30:12.559 --> 00:30:16.799
proactive about their security. And then when their clients, when
508
00:30:16.920 --> 00:30:20.640
you know, lose an accumulative sum of let's say, one
509
00:30:20.720 --> 00:30:23.759
point five billion dollars together, that's also and that's by
510
00:30:23.799 --> 00:30:26.400
the way, the numbers that we're talking about for the
511
00:30:26.480 --> 00:30:30.279
large exchanges, billions of dollars that are just to give
512
00:30:30.319 --> 00:30:34.839
you one number, we prevented this year six hundred million
513
00:30:34.920 --> 00:30:40.039
dollars in fraud, six hundred million dollars, and obviously we're
514
00:30:40.079 --> 00:30:42.759
serving part of the industry, so that just goes to
515
00:30:42.839 --> 00:30:46.519
show the magnitude of that. Right. So going back to that,
516
00:30:46.799 --> 00:30:51.279
an exchange does have, you know, a responsibility and it's
517
00:30:51.279 --> 00:30:54.000
also in their best interest to protect their assets and
518
00:30:54.039 --> 00:30:58.240
their clients assets. But when it comes to AML, I mean,
519
00:30:58.279 --> 00:31:01.039
both of us can see why it it's not kind
520
00:31:01.039 --> 00:31:05.160
of in their first priority to deal with that, right,
521
00:31:05.240 --> 00:31:08.920
because everything has a cost, right because when they stop funds,
522
00:31:09.480 --> 00:31:14.000
they you know, close wallets, they have less volume, less transactions,
523
00:31:14.079 --> 00:31:17.440
less fees and so on. And also, you know, all
524
00:31:17.480 --> 00:31:21.680
these things are very kind of gray area because oftentimes
525
00:31:21.720 --> 00:31:24.200
you know, things are not like it's kind of a
526
00:31:24.279 --> 00:31:27.759
scale right between zero and one hundred, right, a risk scale,
527
00:31:28.119 --> 00:31:31.559
So you cannot always tell whether the funds are indeed,
528
00:31:31.640 --> 00:31:34.559
you know, ilicit funds, whether it's you know, terror financing,
529
00:31:34.680 --> 00:31:39.160
drug financing, stolen funds from a hack and so on.
530
00:31:39.920 --> 00:31:41.759
So it's very hard to tell. So then you go
531
00:31:41.799 --> 00:31:45.480
into disputes and you need to hire compliance people, and
532
00:31:45.519 --> 00:31:48.279
you go into lawsuits and so on. So it's a
533
00:31:48.319 --> 00:31:51.680
huge headache for them. I'm saying all that just to
534
00:31:51.720 --> 00:31:55.119
emphasize that AML Essentially, if you want to do it
535
00:31:55.119 --> 00:31:58.000
in an efficient way in a society, that is something
536
00:31:58.039 --> 00:32:00.640
that should be regulated. You know, I'm not a big
537
00:32:00.680 --> 00:32:03.680
fan of regulation, but I'm saying that, And again I
538
00:32:03.680 --> 00:32:08.279
would rather, you know, prefer that you know, exchanges are
539
00:32:08.559 --> 00:32:11.920
proactive about you know, security and fraud prevention and so on,
540
00:32:12.160 --> 00:32:14.960
because it's in their best interest. But when it comes
541
00:32:15.000 --> 00:32:17.200
to m l At the end of the day, you
542
00:32:17.240 --> 00:32:20.119
need to incentivize them, you know, you need to. The
543
00:32:20.160 --> 00:32:25.000
regulator needs to set very stringent rules. They need to
544
00:32:25.039 --> 00:32:30.680
have effective ways of monitoring the execution of those rules, right,
545
00:32:31.319 --> 00:32:34.680
And they also need to give the exchanges some some
546
00:32:34.960 --> 00:32:37.839
tools to deal with that, right, because you know, not
547
00:32:37.960 --> 00:32:41.160
everything is so easy to trace. And also they have
548
00:32:41.240 --> 00:32:43.759
to guide them. They have to give them, you know,
549
00:32:43.880 --> 00:32:48.880
firm guidelines. Now let's talk about and by the way,
550
00:32:49.160 --> 00:32:52.559
don't get me wrong, right, I think that money laundering
551
00:32:52.759 --> 00:32:56.799
is a huge problem. It's also part of what is
552
00:32:56.839 --> 00:33:00.680
feeding this nefarious industry that I was talking to talking
553
00:33:00.680 --> 00:33:03.920
about with respect to to fraud, right, because it's all interconnected.
554
00:33:04.440 --> 00:33:09.240
And obviously terror financing is something that we should stop immediately.
555
00:33:09.640 --> 00:33:12.440
But the way to get there is again by by
556
00:33:12.480 --> 00:33:18.880
the regulators being realistic and very involved and very proactive. Now,
557
00:33:19.319 --> 00:33:21.720
let's talk about the tools for a minute, because we
558
00:33:21.759 --> 00:33:24.839
need to understand what's possible and what's not right because
559
00:33:25.319 --> 00:33:30.160
crypto is to some extent anonymized, to some extent decentralized
560
00:33:30.200 --> 00:33:33.720
and so on. We all know that, right, But you
561
00:33:33.799 --> 00:33:37.680
do have amazing tools that can help you to actually
562
00:33:37.720 --> 00:33:41.680
get some context about funds. One of the problems that
563
00:33:41.720 --> 00:33:43.759
we have right now that some of the tools that
564
00:33:44.079 --> 00:33:46.079
and I'm not gonna name names, right, but some of
565
00:33:46.119 --> 00:33:49.480
the tools that we all know and everyone uses, they
566
00:33:49.519 --> 00:33:53.519
are quite static. Now what do I mean by that?
567
00:33:53.720 --> 00:33:56.440
I mean that, you know, how do you label something
568
00:33:56.759 --> 00:34:01.279
as you know, illicit funds? How do you label funds
569
00:34:01.319 --> 00:34:04.559
as illicit? Right? You can say that they originated from
570
00:34:04.559 --> 00:34:07.240
a wallet that was involved in some sort of a
571
00:34:07.319 --> 00:34:11.000
nefarious activity, or they received funds from a wallet and
572
00:34:11.039 --> 00:34:14.320
another wallet, and eventually you can track it back to
573
00:34:14.360 --> 00:34:18.199
some nefarious activity and funds that you labeled as malicious.
574
00:34:18.800 --> 00:34:23.960
The problem here is that these providers, they usually do
575
00:34:24.039 --> 00:34:28.199
it in post mortem way, right. So, yeah, so we
576
00:34:28.639 --> 00:34:31.480
identified someone with you know, the FBI cut a person,
577
00:34:31.559 --> 00:34:35.239
and then they find an address, right, they check and
578
00:34:35.320 --> 00:34:38.039
they see that the address belongs to that person, and
579
00:34:38.079 --> 00:34:41.760
they label the funds as malicious, and then all his
580
00:34:42.000 --> 00:34:45.960
prior transactions are deemed as malicious. Right. And you can
581
00:34:46.000 --> 00:34:50.119
do some tracing, some automated tracing or manual tracing, and
582
00:34:50.199 --> 00:34:53.840
you can see kind of how those funds proliferated. And yeah,
583
00:34:53.920 --> 00:34:55.960
if you catch those funds in some exchange you will
584
00:34:56.000 --> 00:34:59.800
freeze them, right, But this is really too little to
585
00:35:00.519 --> 00:35:03.320
right because at the end of the day, it's only
586
00:35:03.360 --> 00:35:08.199
a small fragment of the actual illicit activity on chain.
587
00:35:08.719 --> 00:35:11.559
So that is why you know you need to be
588
00:35:11.639 --> 00:35:13.519
much more proactive. You know, one of the things that
589
00:35:13.559 --> 00:35:17.719
we do at cybers is essentially all our platform is
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00:35:17.880 --> 00:35:22.119
real time and dynamic. So if a wallet receives funds
591
00:35:22.159 --> 00:35:25.679
that are deemed as elicit, it is labeled in a
592
00:35:25.719 --> 00:35:28.000
split of a second, right, So then if you as
593
00:35:28.000 --> 00:35:31.679
an exchange engaged with that wallet, you will be worn. Right.
594
00:35:31.760 --> 00:35:34.159
You already have the alert not to not to proceed,
595
00:35:34.679 --> 00:35:37.280
or to cancel the transaction, or however you want to
596
00:35:37.320 --> 00:35:43.360
handle this. So bottom line, dynamic and real time compliance
597
00:35:44.199 --> 00:35:46.519
is what's needed right now for the industry if it
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00:35:46.559 --> 00:35:49.920
wants to be serious about money laundering and another thing
599
00:35:50.880 --> 00:35:53.000
we talked about AI. Right, So at the end of
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00:35:53.079 --> 00:35:57.360
the day, you know, manual labeling and even automated labeling
601
00:35:57.800 --> 00:36:00.679
is no longer sufficient. You know, at the pay of things,
602
00:36:00.960 --> 00:36:03.119
you know the amount of transactions that you have on
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00:36:03.159 --> 00:36:07.039
the blockchain and the speed of things, and the way
604
00:36:07.079 --> 00:36:11.000
that now you can automate transactions to go through multiple
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00:36:11.000 --> 00:36:14.800
players in one atomic transaction, you need to have a
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00:36:15.000 --> 00:36:19.119
very proactive but also smart, smart as in AI smart
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00:36:19.559 --> 00:36:24.159
system that can actually map you know, the relationships between
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00:36:24.199 --> 00:36:27.960
the wallets and map the sequence and and to trace
609
00:36:28.000 --> 00:36:29.920
the funds.
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00:36:29.639 --> 00:36:34.039
That's the technology, not for AI to get this far
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00:36:34.159 --> 00:36:38.719
within crypto space. I think that's really incredible technology. And
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00:36:38.760 --> 00:36:43.360
I agree that regulators are also responsible and providing these
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00:36:43.360 --> 00:36:45.800
tools and solutions and taking up some of this cost
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00:36:46.400 --> 00:36:50.800
if they're going to impose, you know, these regulatory oversights
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00:36:50.840 --> 00:36:54.039
and the requirements on these exchanges.
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00:36:54.760 --> 00:36:59.000
Ah Michael. On that note, honestly, I really appreciate your time.
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00:37:00.159 --> 00:37:01.840
Thank you for joining Drilling into Crypto.
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00:37:02.039 --> 00:37:04.559
Thanks for drilling into Crypto with us. If you enjoyed
619
00:37:04.559 --> 00:37:07.000
our discussion, please give us a like on your podcast
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00:37:07.039 --> 00:37:10.360
app or social media, and don't forget to subscribe. Join
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us next time when we will deliver more perspectives on crypto,
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00:37:14.000 --> 00:37:17.639
asset mining, energy markets, and the global financial revolution
