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US military accesses crypto security threat

The military's innovation office is starting a wide-ranging review of cryptocurrencies to figure out what threats they pose to national security and law enforcement.

The Defense Advanced Research Projects Agency, or DARPA, has hired the crypto intelligence firm Inca Digital to run the one-year project. DARPA is the organization that created the first technology that made the internet possible. The company will make tools that will give the Pentagon a detailed look at how crypto markets work. This will help the government stop people from using digital assets in illegal ways.

Mark Flood, a program manager at the agency, told The Washington Post that the program they are working on involves making a detailed map of the cryptocurrency world. In addition to fighting illegal finance, the office wants to use the data to learn more about how traditional financial markets work, where it is harder to get detailed information.

The deal is the latest sign that the government is doing more to stop bad governments, terrorists, and other criminals from using cryptocurrency to fund their operations.

Last month, the Treasury Department put out its first-ever sanctions against software code. They were aimed at Tornado Cash, a service that helped hackers from North Korea and other places wash stolen cryptocurrency. This week, the department put out a call for public feedback on the risks that crypto poses to national security and illegal financing. Separately, the Justice Department announced this month that it is putting together a national network of 150 prosecutors to coordinate investigations and prosecutions related to crypto.

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Flood said that hackers working for the North Korean government have stolen billions of dollars worth of data in order to fund the regime's weapons program. And just before the invasion this spring, the Ukrainian government said that Russia had attacked its financial sector.

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"We just need to recognize that the financial sector may become a part of modern warfare in the future," said Flood, a former Treasury official who has studied systemic financial risk. "Anything we can do to strengthen and protect the U.S. financial sector and the financial sectors of our allies is good."

Still, it has been hard for governments to keep track of cryptocurrency. Because the industry is not regulated, it has grown into a shadow financial system that smart criminals have found many ways to take advantage of.

Adam Zarazinski, the CEO of Inca Digital, said that his company's work for DARPA will be "pretty broad." The project wants to help the government, among other things, figure out how money moves into and out of blockchain systems, which are public ledgers kept on a network of computers. It's also meant to tell the difference between real crypto trading and trading done by bots and find crypto-based scams.

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"Crypto scams are causing a lot of worry right now," said Zarazinski, a veteran of the Air Force who also worked for Interpol in criminal intelligence. He said that the people who set up the schemes are often "well-organized, transnational criminal networks" that are often directly or indirectly supported by countries that are at odds with the United States or Europe. He also said that billions of dollars are being stolen from Americans and Europeans.

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This is not the first time DARPA has used blockchain technology. The agency issued a report in June commissioned from cybersecurity firm Trail of Bits that found blockchains frequently contain vulnerabilities that undermine their security claims. But Flood said the agency’s aim with its latest project is not to track individual crypto users. He said that DARPA does not spy on people. "I want to stress that we are careful in this research not to get involved with information that could be used to find out who you are."