Elliptic’s AI Solution Slashes Crypto Crime: James Smith on Cutting Human Error in Compliance

Blockchain forensic firm Elliptic deploys machine learning to track illicit crypto flows—reducing compliance failures by 60% in pilot programs.

"Most thefts stem from preventable mistakes," says CEO James Smith, citing $4B lost annually to exchange hacks and DeFi exploits. "AI flags suspicious patterns humans miss."

The system cross-references 20M+ wallet addresses with dark web markets and sanction lists. Early adopters include three Tier-1 exchanges (who clearly waited until regulators forced their hand).

As crypto matures, expect more "AI cop" tools—because trusting billion-dollar systems to coffee-fueled analysts was always a hedge fund’s idea of risk management.

From Reluctance to Regulation

Smith credits this shift not just to industry maturity, but to evolving regulatory environments. While early frameworks like New York’s BitLicense quickly became outdated, newer efforts — particularly in Europe — show promise.

“In the US, stablecoin regulation has lagged behind, with enforcement taking precedence over clarity,” he noted.

“But we’re seeing movement with bills like the Stable Act. Europe’s ahead in this regard — MiCA has given clearer rules, and we’re seeing banks become more comfortable experimenting with tokenized deposits and even launching their own stablecoins.”

Elliptic recently partnered with Morabanc in Europe to further navigate this regulatory terrain, especially around stablecoins.

The Age of Public Chains and Bank Adoption

Historically, banks experimenting with blockchain leaned toward private ecosystems. That’s changing. “More banks now understand the real value lies in open, connected systems,” Smith noted. “You get efficiency when you remove the air gaps between chains.”

Elliptic sees growing interest from European banks in exploring how public blockchains and stablecoins can reduce friction in cross-border payments and asset transfers.

AI, Automation, and the Arms Race Against Crypto Crimes

With rising transaction volumes and sophisticated criminal tactics, Elliptic has embraced AI and automation to stay ahead. “We’re helping our customers simplify how they respond to alerts and reduce human error,” said Elliptic co-founder. “Automation is key to scaling compliance as the market grows.”

Criminals are early adopters of new tech. From mixers to multi-chain hops, illicit actors continue to innovate.

“A third of the complex cases our customers investigate now involve at least three blockchains. We’ve had to build systems that follow the money across bridges, DEXs, and protocols — and identify the real beneficiaries behind the wallets.”

Inside the Bybit Hack and DPRK’s Crypto Playbook

Smith recalls the recent $1.5 billion Bybit hack vividly — it broke just as Hong Kong Consensus wrapped. “We spotted the red flags quickly — the movement patterns matched DPRK-linked activity from past hacks.”

Within hours, Elliptic’s intel team was working around the clock, collaborating with Bybit and sharing a public blacklist of flagged addresses.

“It was a coordinated laundering effort. They moved funds into native ETH, then swapped it for BTC through DEXs and no-KYC platforms. THORChain alone processed over $1.2 billion, generating fees for LPs — a troubling incentive.”

What’s Next for Elliptic

Looking ahead, Elliptic plans to expand support for more blockchains (currently over 50) and enhance its AI-driven tools. “We want our clients to grow without needing to hire a new analyst every time trading volumes spike,” Smith noted.

As regulation and risk converge, Smith believes businesses must act not just for compliance — but for the industry’s future. “The best ones always played by the rules they knew were coming,” he says. “That’s how you build something lasting.”