Elliptic, which sells anti-money-laundering software that can help banks detect improper use of cryptocurrencies, has raised $23 million in a Series B round led by Tokyo-based SBI Group.
Additional new investment came from AlbionVC, with participation from existing investors including SignalFire, Octopus Ventures, and Santander Innoventures. Tomoyuki Nii from SBI Group and Ed Lascelles of AlbionVC will be joining Elliptic's board of directors. SBI Group is an internet-based financial conglomerate spun off from SoftBank.
Elliptic plans to use the new funds to continue its expansion into Asia, opening new offices in Japan and Singapore, and to keep developing its existing software product. Countries like Japan and Singapore have established regulatory frameworks around cryptocurrency and the combating of money laundering.
“The businesses there are much more confident that they are operating within legal boundaries,” said Tom Robinson, chief scientist and co-founder of Elliptic. There's also a lot of consumer demand in the region, he noted.
U.S. consumers have mainly speculated on the value of cryptocurrencies such as bitcoin, he said.
As cryptocurrency markets grow, so does the need to track how criminals use them in laundering money and other forms of crime.
Vendors of crypto AML software, like Elliptic and Chainalysis, monitor digital currency transactions and link them to digital wallet holders. Though money launderers try to hide what they’re doing with the use of tumblers or mixers that combine identifiable cryptocurrency funds with others to obscure the trail back to the fund's original source, Elliptic can identify when a mixer is being used, Robinson said. Then its bank customer can further identify the cryptocurrency owner and the source of the funds.
Robinson says the amount of cryptocurrency used to launder money and do other nefarious things is lower than most would think. He estimates that about half a percent ($1 billion worth) of crypto payments are made in the dark web and therefore are probably being used to buy and sell narcotics, credit card details, hacking tools and other suspect items.
“There is far more money laundering taking place in traditional currencies than in cryptocurrencies,” Robinson said. “But with crypto assets, you have far more visibility of the entire transaction chain than a financial institution would have of the transaction that that's receiving funding. I think if traditional finance moves further towards crypto assets, we'll see a corresponding reduction in money laundering through those institutions.”
Unsurprisingly, Robinson thinks banks should overcome their qualms about banking crypto-related companies.
“They need to be adapting to the demands of younger consumers of financial assets who have grown up with crypto assets, trust them and want to use them,” Robinson said. “At the moment they see perceived risks outweighing the benefits, but I think they are overestimating those risks and underestimating the benefits.”
Earlier this summer, Elliptic did something unusual: it released a large set of cryptocurrency transaction data to the Kaggle data science community, in conjunction with MIT.
“We’re doing this because it helps defeat crime in cryptocurrencies, raise our profile and recruit good engineers and data scientists,” Robinson said.
