Benefits of Blockchain Forensics to the United Arab Emirates: What the UAE Requires to Eliminate Budding Blockchain Insecurities
On May 27, 2021, the Dubai Electronic Security Center issued a press release stating that the new cryptocurrency- Dubai Coin, launched under the supposed auspices of the Emirate, was a scam. The scam endeavour gathered much patronage because media outlets in Dubai ran with the news, suggesting that the Emirates was supposedly behind it. While it remains unknown how much was lost to the Dubai coin scam, one UAE resident lost his life savings (Dh15, 000), while many others lost more than they bargained for. Similar events are becoming a normal part of the UAE’s digital business environment.
The strict Sharia tight environment is presently not only known for its Burj Khalifa, Burj Al Arab, grand five-star hotels, and fancy shopping malls. The area is fast becoming the world’s blockchain hub. And this blockchain craze is encouraged by the Emirates and Dubai’s blockchain development and integration strategy.
The Dubai Blockchain Strategy, launched in 2018, aims to leverage the accuracy and speed of blockchain technology to transfer half of all government transactions within the Emirate onto blockchain platforms by 2021. At the same time, Dubai’s blockchain development and integration strategy aim to put Dubai at the summit of blockchain technology and increase economic opportunities from the unexploited blockchain digital goldmine. The latter strategy is built on three pillars: government efficiency, industry creation, and international leadership. Both blockchain integration campaigns aim to take advantage of the efficiency, cost-effectiveness, and numerous opportunities lurking within the technology.
Blockchain induced challenges in the UAE
The introduction of the blockchain and cryptocurrencies within the UAE business environment carried along with it estranged siblings of fraud, and money laundering, among other vices, which more often than not would embolden the existing illegal financial practices within the environment. While the UAE is recorded as one of the first regions of the world to put in place clear legal and regulatory structures to manage the use of cryptocurrencies, the region is not immune to the challenges of the technology, at least not yet.
To begin with, cryptocurrencies have increased third-party scams within the UAE. These third-party scams involve individuals who get crypto buyers and sellers to which they pose as brokers. The scammer convinces the seller and the buyer to meet for a sale. And while the buyer shares his wallet address with the broker, the broker sends his address for payment rather than the seller’s address, resulting in the buyer sending his funds to the broker’s wallet. Sometimes, the seller transfers their assets to the scammer’s wallet address. Consequently, resulting in the loss of their funds and assets, respectively.
Another challenge is the fake crypto scam wherein fraudsters create worthless coins to mimic the symbols and names of existing coins and sell the worthless coins in place of the originals to an unsuspecting buyer. That is, a buyer who wishes to buy USDC receives USDC (notice the subtle difference in the name) from his buyer. Later the buyer realizes the received asset is not what he paid for, and it’s worthless in the crypto market.
One that has endured in the UAE, albeit a challenge not induced by the introduction of the blockchain, is the issue of Cheque fraud. Here, scammers employ advanced tech to create fake cheques or alter the initial documentation on a Cheque to create financial and other reputational and legal issues for the involved parties.
In addition, with the UAE as the financial capital of the Middle East and with a 90 percent expatriate population, there is huge potential for money laundering and other illicit financial activities. In fact, the UAE this year was placed under the money laundering “watch dog’s grey list,” suggesting the presence and increase of illegal, particularly, terrorist money funneling within the region, which provides a home for numerous international company headquarters.
How blockchain forensics could fix the budding crypto insecurity in the UAE
The goal of the UAE when it comes to the blockchain and cryptocurrencies is to make the UAE a blockchain superpower, increase the integration of blockchain into its financial apparatus, and open its citizens to the opportunities on the blockchain. What this means is that the use of the technology would increase tremendously, and with this increase, its security challenges are more than likely to double. Fortunately, with widespread blockchain adoption, financial data would become abundantly available, hence, creating the environment for blockchain forensics to balance the security landscape of the UAE crypto space. Some of the immense benefits that blockchain forensics would provide the UAE include:
- Monitoring and investigations of financial transactions
Forensics will keep crypto usage and transactions within a relatively tight box under the full scope of the UAE financial authorities. The importance here is two-fold: First is monitoring cryptocurrency exchanges and companies to ensure compliance with the laid down regulations for existence and business operations. It will also make it easy to identify suspicious transactions through the surveillance of these crypto exchanges to make criminal investigations smooth and seamless.
With crypto forensics, the UAE authorities can monitor how funds exchange hands and how it is moved from one wallet to another, as well as the cash-out terminals used and the individuals or groups of individuals who are the final recipients of these funds. Blockchain forensics will make it easier to apprehend security threats as they form, as well as handicap illegal organizations by seizing their illegal financial acquisitions.
An example is the colonial pipeline hack that required the company to make a ransom payment of $4.4 million to the Hackers. Through the tools of blockchain forensics, the FBI, in a concerted effort with the US Department of Justice, was able to recover $2.3 million after securing a private key to the wallet holding the ransom received by DarkSide RaaS, the dark web outfit responsible for the operations.
Another example was the Kaseya hack which required Kaseya to make a ransom payment of $70 million. Once more, blockchain forensic experts under the auspices of the US Cybersecurity and Infrastructure Agency came to the rescue. Through their effort, a universal decryptor key was secured without the payment of any ransom and used to release Kaseya’s systems and those of her clients.
- Assets Recovery
The era when hackers would steal cryptocurrencies and roundtrip the loot through multiple wallets to hide their trails and funnel back these funds into the real world as legit money is done. Blockchain forensics made sure of that. With blockchain forensics, another Dubai coin debacle would be prevented. Stolen assets would be recovered and returned to the owners. In 2021, hackers had breached the poly network, a platform for swapping coins, and made away with $610 million. $33 million of the loot was converted into Tether stable coins. While this was going on, experts had followed the money trail and alerted the chief technical officer at Tether, who froze the assets almost immediately. Two weeks later, Tether released the funds to its owners, and through efforts on the part of Poly network, the rest were recovered from the hackers.
In 2020, US security authorities seized $1 billion in crypto assets connected to the Silk Road Digital Market place. The case was cracked through efforts of blockchain forensic methods and tools via a joint effort between the IRS and Chainanalysis, a blockchain research firm.
Blockchain forensics makes it possible to take the strings of characters that seem like hieroglyphics left after transactions and make them into simple diagrams, chats, cluster analysis, tables, and money trails, making it easier to make informed decisions as to how, what, where and who to focus on when crypto-assets are stolen.
More than anything else, blockchain forensics creates some deterrent effect for would-be hackers and crypto thieves, and money launderers because they now know that sophisticated tools and methods currently exist for tracking and apprehending their schemes.
- Trust
One major feature of the corporate financial atmosphere in the UAE is one of distrust. This problem is manifest in the country’s international status as being on the “watch dog’s grey list,” suggesting the uncertainty which beclouds the financial transaction that goes on within the financial capital of the Middle East, as well as locally in the apprehension towards cheques due to the high incidence of Cheque fraud in the region.
Internationally, the use of blockchain for governmental transactions and more and the integration of blockchain forensics will make the UAE’s general transaction ledger an open book. All transactions, which would be immutable, would be stored on the chain, making it possible for the world to see the actual state of the region’s financial status. More so, the region would be able to apprehend suspicious financial activities, which would immediately erase the thought of labeling the region “at-risk.” Locally, the apprehension towards cheques would be eliminated since all financial data would be recorded on the blockchain.
Each account user would get a unique identifier attached to their accounts and reflected on checkbooks. A digital version of the chequebook could be created on the blockchain as a backup to the physical one. Each time the physical check is issued, the user indicates that the cheque is in perfect condition on their blockchain application as authentication to the receiver and the bank. This will erase the apprehension towards cheques and restore local and international trust in the UAE regarding financial interactions.
In summary, the UAE, like any other country or region in the world, requires the integration of blockchain forensics. This is, however, doubly so, considering the efforts of the region to become the Silicon Valley of blockchain. The advantages of blockchain cannot be overemphasized, and more so are the advantages of Blockchain forensics. Think of Blockchain as the human body and forensics as the process that rids the body of toxins. In other words, if widespread acceptance of the technology must be achieved within the UAE and beyond, then the security of user assets through the instruments and expertise of blockchain forensics is a must.
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