- The T1 Holding unveiled a new tool for analysing cryptocurrency transactions, ‘InChain’.
- Its remit is similar to Rosfinmonitoring’s ‘Transparent Blockchain’, but it will primarily identify cases of moving ‘dirty’ crypto assets into fiat.
- Experts question the practical utility of InChain, as the number of wallets it can track is limited.
At the start of November, during the Finopolis 2023 Forum on Innovative Financial Technologies, there was a presentation of the new solution for analysing cryptocurrency transactions ‘InChain’ from the T1 Holding. The developers position it as a tool for units that monitor fiat operations related to asset circulation in the banking sector.
In terms of its focus, InChain is similar to ‘Transparent Blockchain’, a project developed since 2021 by Rosfinmonitoring and VTB Bank. Until spring 2022, VTB was among the shareholders of T1 Holding.
ForkLog discussed with experts why Russia needs yet another transaction-analysing tool, and how effective it might be.
What do developers say about the tool?
In a ForkLog interview, Dmitry Ruznyayev, Product Director for InChain at the T1 Holding, said that InChain is a comprehensive tool for investigations and analysis of operations using cryptocurrencies. Its functionality is not limited to identifying illicit operations.
Zадачи, которые решает продукт:
- conducting cryptocurrency investigations;
- deanonymisation of participants in the cryptocurrency market;
- verification of cryptocurrency addresses and transactions;
- identifying links between fiat and cryptocurrency operations;
- carrying out comprehensive analysis and monitoring the activities of providers of virtual assets.
According to the presentation, InChain covers 90% of the overall cryptocurrency market and tracks the movement of more than 30 coins.
According to Dmitry Ruznyayev, the ‘90%’ refers to the share of tokens supported in the system by the total capitalization of the cryptocurrency market. The plan is to connect new, ‘rapidly developing’ cryptocurrencies.
In ‘InChain’ millions of addresses of criminal participants, PUVA, mining pools and other participants of the cryptocurrency market. In terms of tagging we place special emphasis on addresses related to the Russian market. At the same time, ‘InChain’ is aimed not only at Russia but primarily at the global market’, added Ruznyayev.
The need to analyse crypto-operations is explained by rising numbers of users of digital assets and an increasing number of criminal schemes. With InChain, transactions can be checked for money laundering of illicit proceeds.
“Bank compliance staff have the ability to determine the type of operation and the profile of a natural person, for example, a crypto investor who benefits, to investigate the entire chain of cryptocurrency movement from the moment of purchase and identify passage through unscrupulous providers of virtual assets, such as shadow marketplaces or exchangers,” said Alexey Fetisov, CEO of the T1 Holding.
One of InChain’s key capabilities is verifying the legality of cross-border transfers. Under international constraints, the development will help identify high-risk cryptocurrency and block its movement to another country, added T1.
InChain draws on globally available analytics. It also has its own analytical resources; the service stores various analytical reports on the market overall and on specific sectors, ForkLog representatives from T1 said.
What is T1 Holding?
The company, founded in 1992 as T1 (formerly «Technoserv»), was until 2018 the largest IT asset of Promsvyazbank co-owner Alexey Ananyev — with a turnover of more than 50 billion rubles. But after the Central Bank placed PSB into resolution, a group within VTB bought 40% of Technoserv from the entrepreneur.
In spring 2020, the bank transferred part of its assets to the structure ‘Sirocco Digital’, engaged in providing financial services.
In a ForkLog comment, VTB’s press service said that the bank left the shareholding in T1 in March 2022.
The holding is a partner of various IT manufacturers and developers. Among their clients are government bodies and major companies across key sectors: telecoms operators, financial institutions, industrials, oil and gas, transport and trade.
When asked about a potential link between InChain and ‘Transparent Blockchain’ at VTB, they did not respond.
InForkLog, Dmitry Ruznyayev explained that these two tools have different development directions. According to him, ‘Transparent Blockchain’ is aimed at users from executive authorities.
“InChain is designed for the private sector, primarily for financial organisations in Russia and other countries. For employees of compliance departments of financial organisations, a Personal Cabinet has been implemented, where they can work with tagging of crypto market participants and conduct investigations,” noted Ruznyayev.
Following in the footsteps of ‘Transparent Blockchain’
‘InChain’ is not the first Russian tool for analysing and tracking crypto transactions. In 2020 Rosfinmonitoring announced the creation of ‘Transparent Blockchain’, which helps identify the sender and recipient of digital assets. The expert community at the time was sceptical about the development.
‘Transparent Blockchain’ allows tracking more than 30 cryptocurrencies. As of November 2023, the service’s unified database contains around 19,000 ‘grey’ addresses.
The system is connected to personnel from the Ministry of Internal Affairs, the Investigative Committee, and the FSB. With its help, several dozens of criminal cases have already been investigated.
The product has also been launched in a number of Central Asian countries, with interest shown by Arab, African and Latin American states.
The specifics of InChain
Despite the similar remit of the two tools, InChain will focus on identifying ‘dirty’ transactions when exchanging cryptocurrencies into fiat, explains Julia Privalova, head of FinTech & Crypto practice at the law firm DRC:
“This is not about tracking operations worldwide as such — that would contradict the essence of the blockchain — but about monitoring fiat operations (in rubles, dollars and euros) related to the turnover of crypto assets in the Russian banking sector.”
According to the lawyer, control over suspicious operations in Russia is conducted in line with the law ‘On Countering Legalisation (Money Laundering) of Proceeds from Crime, and Financing of Terrorism’.
“Banks, as a rule, can determine the suspiciousness of P2P operations by indirect signs: a tangled or unusual nature of the operation, lacking obvious economic sense or legitimate objective, and operations related to the turnover of digital currency. Based on the stated characteristics, InChain will enhance the quality of such analysis at the moment of converting crypto assets to fiat,” she noted.
Privalova did not rule out a potential link between InChain and ‘Transparent Blockchain’ given that VTB previously held a stake in T1. Additionally, according to her, the new tool was clearly coordinated with Rosfinmonitoring.
CEO of Indefibank, Sergey Mendeleev, regards InChain as a commercial version of ‘Transparent Blockchain’.
“I don’t quite understand what ‘90% of the market volume’ means. If their databases tag 90% of existing wallets, that figure greatly exceeds the similar figures of world leaders in the industry (sarcasm). If they only see 90% of transactions, what about the remaining 10%?” asks the expert.
However, in his view, the main problem lies in the timeliness of the new tool’s databases.
“Personally, I’m not ready to use it. Incorrect clustering exceeds my personal tolerance for errors, but if someone simply wants to track flows and draw arrows — why not? The question is simply cost,” he said.
Incomplete control
Meanwhile AML experts warn that the practical usefulness of InChain, as with ‘Transparent Blockchain’, may be questionable if the solutions only track a small portion of cryptocurrency wallets.
According to Dmitry Machihin, founder and CEO of BitOK, the true scale of cybercrime is substantially larger than publicly known, as victims often do not know where or to whom to turn for help.
According to the Macquarie University‘s counts, in 2017 around 27 million participants in the Bitcoin network were involved in illicit activity. The total volume of illegal cryptocurrency operations then exceeded $75 billion.
“As the industry developed, regulators began to exert increasing influence on the market. This, in turn, affected criminals’ activity. Yet the current volume of ‘dirty’ addresses remains several hundred times higher than what budgetary institutions report,” Machihin explained.
In 2022, the American company Chainalysis documented at least 1.2 million addresses, with an average of up to $100 in ‘dirty’ cryptocurrency per address.
“In Russia, quasi-governmental companies claim to have created ‘a single database’ with tens of thousands of ‘grey’ wallets. As Western peers show, the figures simply do not align with real market demand and the scale of the problem. Only one American exchange, Coinbase, identified and blocked 25,000 crypto addresses linked to Russia due to illicit activity,” added Machihin.
According to him, developers of Russian state solutions for blockchain analysis lack experience working with real crypto infrastructure, as there are few qualified specialists in the field.
Reluctance of the Russian state to use foreign blockchain-analytics tools is understandable given the current realities, Machihin notes. However, the lack of dialogue with private business and experts who have already proven themselves on the international stage leads him to suspect officials are not fully aware of the true state of play in the crypto market.
“At the same time, about 300 million rubles have already been spent on the ‘Transparent Blockchain’, i.e., roughly 15,000 rubles per found address. Chainalysis, priced at $8 billion and covering 4 billion addresses, shows an efficiency 75 times higher,” summarised the CEO of BitOK.
Recall that in October the State Duma said that at one bank a test of transaction analysis technology for citizens on Russian territory was underway. If successful, the plan is to scale it across the entire banking sector.