Scam Group Warning: Insights into Billion-Dollar Fraud Cases Revealing Money Laundering Techniques in the Blockchain such as Monero, Coin Mixers, Cross-Chain Transactions

According to a report by the Nikkei, the Japanese police have arrested 26-year-old Yuta Kobayashi, the leader of an online crime group. Kobayashi laundered 100 million yen in stolen funds through Monero, a privacy coin known for its advanced blockchain laundering techniques. Earlier this year, 23-year-old Taiwanese Lin Rui-xiang, who was serving as an alternative military service personnel in Taiwan, was arrested in the United States for operating a drug website and laundering money through Monero. This article will explain the principles of Monero and other common money laundering methods.

Disclaimer: The author only introduces and analyzes various techniques from a technical perspective. Money laundering is a criminal activity.

23-year-old Taiwanese serving alternative military service in New York arrested, suspected of operating dark web drug market, with profits exceeding one million US dollars.

Over 100 Million Yen Fraud Case, Main Suspect Only 26 Years Old

It is reported that the suspect Yuta Kobayashi is suspected of listing fictitious products on the flea market website Mercari between June and July 2021, using others' credit cards to forge transaction records a total of 42 times, and allegedly defrauding operating companies a total of 2,751,561 yen.

Kobayashi's criminal group is suspected of conducting approximately 900 fraudulent transactions using cards under other people's names from June 2021 to January 2022. The abused credit card information is likely obtained through forged websites or forged emails.

Four Technologies Creating an Anonymous Blockchain, Monero Becomes a Tool for Crime

As a money laundering channel for Yuta Kobayashi and his associates, the privacy coin Monero has become a highlight in this case. According to CoinMarketCap data, the current market value of XMR is approximately 2.8 billion US dollars, and it is currently only listed on exchanges such as HTX, Gateio, MEXC. Some may wonder why this coin, ranked thirtieth by market capitalization, is not listed on any major exchanges. In fact, it is to comply with regulations, so mainstream exchanges including Binance have delisted the XMR token.

Monero primarily achieves anonymity and anti-tracking features through four designs. It should be emphasized that Monero's native design is intended for privacy, and the majority of tools themselves are neutral. Whether they are good or bad depends on how users operate them. Just like how a knife can be used by a doctor to save lives or by someone to harm others.

1. Ring Signatures

Ring signature technology is primarily used to conceal transactions, grouping transactions from the same time period into a ring and distributing them to individual addresses.

Conceptually, it can be imagined as follows: A wants to give 100 yen to C, and B wants to give 150 yen to D. In a typical blockchain, two transactions, A to C and B to D, would be executed. However, on the Monero chain, A puts 100 yen into a "ring," and B puts 150 yen into a "ring." They are then distributed to C and D individually. This way, outsiders cannot determine which input is the actual sender of the transaction because all inputs look the same.

2. Stealth Addresses

Monero uses stealth addresses to protect the recipient's privacy. Whenever someone sends Monero, the system generates a unique, one-time address for the recipient, called a stealth address. This address is different from the recipient's public address, so even with a blockchain explorer, the actual recipient cannot be identified.

3. Confidential Transactions - RingCT

Confidential transaction technology ensures that transaction amounts are hidden. Traditional cryptocurrency transactions show how much asset is transferred, while Monero hides this information through RingCT. The amount of each transaction is obfuscated through encryption, and only the parties involved in the transaction know the specific amount.

4. Anti-Tracking Technology Dandelion++

Monero also employs the Dandelion++ protocol to prevent network-level tracking. When a user sends a transaction, it first goes through several random nodes for obfuscation before entering the blockchain network. This way, even with network monitoring, it is not easy to determine which IP address initially initiated the transaction.

Mixers and Cross-Chain Transactions Leave Traces, Making Monero the Toughest Barrier for Law Enforcement

Monero has always been a headache for law enforcement agencies like the FBI, so the fact that the police were able to catch the suspects through analyzing Monero is actually quite shocking. Next, we will discuss other methods that create breakpoints in the money flow.

First is the most common method of handling multiple empty wallets to increase the difficulty of tracing. Typical fraudulent groups often use many empty wallets to handle money flows to increase the difficulty of tracking. However, these fraudulent groups at this level usually end up aggregating the funds and then directly entering exchanges. It is recommended to use websites like Metasleuth in combination with a blockchain explorer to improve the efficiency of tracking money flows.

Lastly, many people mention mixers and cross-chain transactions. However, both of these have a common issue, usually having clear input and output transaction records. As long as there are two transactions with similar amounts near each other in time, the tracking can continue. Reminder: We will not proactively private message readers. If you encounter cryptocurrency fraud, the first step is to remain calm. If you can successfully track the money flow, remember to keep evidence and report to the authorities. If the money flow enters a large exchange, please promptly report to customer service and provide the relevant information for reporting. Additional: Platforms like Arkham can help examine whether money flows into exchange wallets.