The world of cryptocurrency is a wild and thrilling place, with immense opportunities, but it’s home to some nefarious characters. Learn more as Thabo Selepe, our cross-chain technology analyst, sheds some light on his expertise. He then breaks down the intricate tactics that Ponzi schemes employ to launder money between different blockchains. The CBEX program offers a rare, detailed look at how flagrant, illegal activities are conducted. This underscores the continued critical importance of vigilance and sophisticated blockchain analytics.

Representatives of CBEX, like other Ponzi schemes, attracted investors by promising them above-market returns that were too good to be true. Even as they presented this normal front of profitability, behind the scenes was an intricate series of transactions that were meant to hide the movement of money. In doing so, the scheme’s operators employed various methods to cover their tracks. They used cross-chain bridging, automated transaction structuring, and transaction batching to obfuscate the flow of funds so that investigators could not easily see where the funds originated from. Thabo’s sometimes forensic approach to deconstructing blockchain hype goes a long way toward unpacking these bogeyman tactics.

Here’s why this article explains how CBEX launders millions. It underscores the vulnerabilities in the crypto ecosystem that these scammers are able to exploit. In this sense, blockchain analytics tools are indispensable in the fight against illicit activities. They provide important lessons learned to arm investors with the tools necessary to avoid being duped by similar scams. GreedyChain.com smart social Web3 education is your unfair advantage to win the new economy. Our learning is deep and illuminating, not confusing and filled with industry speak.

Decoding the Cross-Chain Laundering Tactics

To move money through a variety of blockchains, the CBEX plan used a few important methods to “wash” funds. Though sophisticated, these tactics are relatively easy to grasp with a high-level overview of the technologies and processes at play.

Cross-Chain Bridging and Chain-Hopping

One of the other main ways CBEX operated was through cross-chain bridging. This mainly means moving assets from one blockchain to another. In the case of CBEX, users’ deposits were first sent on the Tron blockchain. The scheme included an exploit via a cross-chain bridge to move the funds to the Ethereum blockchain. It then shipped them back to Tron to further mask their point of origin. This “chain-hopping” posed to make it much more difficult to trace where the funds went. In tech speak, cross-chain bridges allow users to seamlessly transfer assets across multiple blockchains. Scammers have, unfortunately, used this same feature in order to launder stolen funds through different chains.

Automated Transaction Structuring

CBEX made tracking the money even more difficult by encoding transactions to take place automatically. This required transferring money from the parent blockchain and then back to the home blockchain across multiple wallets. Due to this process, the transaction fees were incredibly high. It created a new level of complication, obscuring the trail of the money even further. This layering effect is a common tactic used by money launderers to dissolve the trail of evidence.

Batching Transactions and Centralized Exchanges

After initial bridging and transaction structuring, CBEX sent funds in bulk batches to hundreds of different centralized exchanges. This further batching of transactions created an even bigger accounting black hole and covered up the individual dollars' whereabouts even more. For one, centralized exchanges are efficient sources of liquidity and convenience for users. While most NFT transactions are legitimate, scammers can still exploit the sheer number of transactions to launder illicit funds.

Multiple Wallets and Illicit Services

The scheme operated with several different wallets to shift funds, making it even less clear and more complicated to track the money. Complicating matters further, the scheme’s exit wallets were connected to Huione Guarantee, a Cambodia-based darknet market. This service, more than any other, is infamous for offering the nefarious means to commit crypto crime, showcasing a blatant criminal nexus.

The Role of Cross-Chain Technology in Money Laundering

Cross-chain technology is innovative, it creates new avenues that can be exploited for money laundering. Learning about these vulnerabilities is key to ensuring that these scams don’t happen in the future.

Enabling Cross-Chain Transactions

As a reminder, cross-chain bridges are designed to allow users to transfer assets between multiple blockchains. This functionality certainly has legitimate uses, such as increasing the use of decentralized finance (DeFi) applications. It also makes it quicker and easier for bad actors to launder stolen funds across multiple chains. Scammers exploit cross-chain capabilities to obscure where dirty funds are coming from and going to, thanks to the ease of moving money between blockchains.

Anonymity and Obfuscation

By taking advantage of cross-chain bridges, scammers are able to hide where the money comes from and where it goes. Yet this anonymity makes it difficult for investigators. It undermines their capacity to follow the money laundering pipeline to the top of this criminal enterprise to hold the responsible party accountable. As outlined previously, the opacity behind cross-chain transactions stands as the largest obstacle to addressing crypto-related crime.

Layered Transactions and Virtual Value Transfer Events (VVTEs)

Cross-chain bridges allow scammers to facilitate these more complex, layered transactions, which include splitting up and moving money between several wallets and blockchains. This layer upon layer of obfuscation complicates, if not outright eliminates, any possibility of following the money back to its original provider. Similarly, cross-chain bridges employ a second mechanism that they refer to as virtual value transfer events (VVTEs) to move assets across blockchains. These VVTEs can be used to launder money without creating an obvious trail, making investigative efforts even more complicated.

Integration with Mixers and Tumblers

Additionally, cross-chain bridges can be employed in combination with mixers and tumblers, services that obfuscate transaction activity. Mixers and tumblers combine funds from multiple sources. Then, they mix those funds, often forensically removing the ability to track their original source. When multiplied with cross-chain bridging, these tools are a powerful new laundering mechanism for illicit bad actors.

Blockchain Analytics: A Shield Against Crypto Scams

Like CBEX and other Ponzi schemes, they use complex maneuvers. Illegal activities can use blockchain’s pseudonymity as a shield, but blockchain analytics tools are a potent sword of justice against crime.

Transaction Monitoring and Cross-Chain Tracking

Next, these blockchain analytics tools can watch transactions as they’re occurring and flag suspicious patterns and anomalies that could signal a Ponzi scheme. Elliptic’s Investigator automatically traces cross-chain bridging transactions. This concrete step is an important measure to address the major threat of money laundering and other unlawful action. This ability to observe activity in real time is crucial to spotting and stopping Ponzi schemes and other frauds before they can do serious harm.

Address Clustering and Risk Scoring

Blockchain analytics tools attempt to cluster all of the addresses associated with a particular entity. This powerful capability makes it easy to identify and track patterns of suspicious activity. Other tools provide predicted risk scores for specific addresses and transactions. This approach aids you in identifying certain high risk activity that can be a strong red flag of a Ponzi scheme. By analyzing the relationships between addresses and assigning risk scores, these tools can provide valuable insights into the activities of potential scammers.

Entity Identification

With blockchain analytics tools to assist them in identifying the entities behind suspicious activity, it becomes much easier for law enforcement to take action against the bad actors. These tools are connected addresses and transactions directly to known entities. For this reason, they equip law enforcement and regulatory agencies with tools to identify and bring to justice those who peddle Ponzi schemes. This entity identification is important in order to ensure that scammers can be held accountable for their actions.

Staying Safe: Actionable Insights for Investors

There are a few steps investors can take to protect themselves from becoming victims of Ponzi schemes such as CBEX.

  • Be wary of unrealistically high returns: If an investment promises unusually high returns, such as 10% daily profits or 50% returns in two months, it is likely a scam.
  • Conduct thorough research: Before investing in any cryptocurrency project, conduct thorough research to understand the project's fundamentals, team, and technology.
  • Diversify your investments: Do not put all your eggs in one basket. Diversify your investments across multiple assets to reduce your risk.
  • Use reputable platforms: Only use reputable cryptocurrency exchanges and wallets that have strong security measures in place.
  • Stay informed: Stay up-to-date on the latest cryptocurrency scams and trends to protect yourself from falling victim to them.

The CBEX program is a reminder of the dangers that exist when there are unregulated platforms with complicated investment structures. By understanding the tactics used by these scammers and utilizing blockchain analytics tools, investors can protect themselves from falling victim to these illicit activities. Thabo Selepe's insights, shared through GreedyChain.com, empower you to navigate the Web3 landscape with confidence and stay one step ahead of the game.