Experts on Russia’s Bitcoin-transaction-tracking system: authorities reinvent the wheel yet again

Experts say it would be more sensible to study existing analogues rather than build a domestic system for tracking cryptocurrency transactions.

“The authorities are reinventing the wheel again, and at almost a billion rubles. The blockchain of the same Bitcoin, for example, is not the most anonymous, as many might think. There are many solutions in the world capable of tracing transactions even after using mixer services,” said Dmitry Machikin, CEO of Pay Super.

He noted that such solutions already exist. One of the most popular is from the analytics company Chainalysis.

“Transaction tracking has long been in operation; there are Chainalysis, Coinfirm, Crystal — a whole cluster of projects that allow screening transactions in public blockchains and assessing how risky they are,” confirmed Grigory Klumov, founder of the STASIS stablecoins platform.

Member of the Commission for Legal Support of the Digital Economy of the Moscow branch of the Russian Lawyers Association, Yuri Brisov, noted that it is not entirely clear what exactly artificial intelligence will do in the new system.

“Perhaps, this was a punchy term used to describe the set of search algorithms or their refinement,” Brisov said.

This is not the first attempt by Rosfinmonitoring to obtain a system for tracking cryptocurrency transactions, said Dmitry Kirillov, senior tax-lawyer at Bryan Cave Leighton Paisner LLP and lecturer at Moscow Digital School.

In 2018, the agency awarded a government contract to develop the Unified Information System.

Under its framework, they were to create “an instrument for analyzing and detecting illicit activity, including the use of cryptocurrencies.”

The contract card states that execution was completed, and the cost exceeded 195 million rubles.

“Judging by the fact that the Lebedev Physical Institute was involved in the new project, and the project’s budget is almost four times larger than the previous one, one can assume that financial intelligence needed a deeper dive into the technology of tracking crypto assets,” Kirillov said in an interview with ForkLog.

Overall, experts agreed that monitoring transactions is gradually being adopted by many states.

“I see nothing wrong with this; the US and other countries are implementing or already using similar systems,” said ForkLog independent expert Mansur Guseinov.

Transaction tracking and linking them to individuals is a very real possibility that Rosfinmonitoring and most global regulators in this field will reach, says the head of fintech company Exantech, Denis Voskvitov.

“As for the problem of ‘dirty’ transactions, given the presumption of innocence in the Russian Federation one cannot simply accuse a person that the funds on their account come from, say, human trafficking in Africa. However, technically it is possible to couple people and transactions, and questions to people can be asked,” he added.

The new tracking system will not fully deanonymize cryptocurrency transactions, EXANTE analyst Viktor Argonov argues:

“The new tracking system, first and foremost, will notice those transactions that users do not try to hide, or hide not very cleverly. The most significant volumes of large covert actors will probably remain out of the focus.”

Recall that Rosfinmonitoring is developing a system named “Transparent Blockchain” for analyzing cryptocurrency transactions reported by media.

For how transactions are tracked in the Bitcoin network, read in ForkLog cards.

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