Blockchain analytics unable to prevent FTX-level illicit sch | Crypto Fight
Blockchain analytics unable to prevent FTX-level illicit schemes.
Blockchain tracker Whale Alert attempted to scan FTX’s historical balance checks to find out whether it was possible to spot the collapse sooner.
Data transparency has been a focal point for the cryptocurrency industry, but the FTX fiasco has shown that centralized exchanges (CEXs) are not transparent enough. So far, crypto analytics firms are apparently not capable of tracking transactions to help prevent collapses like that of FTX.
All Bitcoin transactions are available publicly on-chain, which means people can track transactions when sending crypto from one address to another. However, this is not the case when it comes to interacting with a centralized crypto exchange.
Cointelegraph spoke with executives at blockchain intelligence firms — including Chainalysis, Nansen and Whale Alert — to gain more insights into the tracking of illicit CEX transactions on-chain.
Chainalysis, a major blockchain data platform that cooperates with many governments across the world, said there is currently no on-chain tracking tool that can trace funds through a CEX.
“Chainalysis — or any other blockchain analysis tool — can’t trace funds through a centralized service because the way that these services store and manage funds deposited by users inherently makes further tracing inaccurate,” a spokesperson for Chainalysis told Cointelegraph.
“Even if you could trace through a centralized exchange, on-chain analysis alone cannot reveal fraudulent intent behind transactions,” the representative noted. The spokesperson stressed that Alameda’s leaked off-chain balance sheet was the first thing to reveal that something was wrong.
While blockchain analysis can track deposits on CEXs, there is no way to access their liabilities, according to Nansen analyst Andrew Thurman. “FTX halted withdrawals when they still had in excess of a billion in various digital assets. We now know they had a far greater sum in liabilities,” he said.
Thurman also argued that a proof-of-reserves model — the increasingly popular effort of CEXs to prove transparency — is “only a half measure, but it’s a good one.”
Despite blockchain analysis so far having limited opportunities in tracking illicit CEX transactions, some monitoring services are trying to prove that the industry may be able to one day prevent issues like the FTX crash.
