University at Buffalo School of Management

14 Buffalo Business Autumn 2018 behind a foot of concrete, steel doors built to survive a nuclear blast and a Faraday cage to protect against electromagnetic attacks, sits Xapo's 10,000-square- foot data center dedicated to storing millions of dol- lars worth of bitcoin. Jay Joysher, MS '18, is an analyst on the risk and compliance team at Xapo. The company is based out of Palo Alto, California, but Joysher telecommutes from Mumbai, India, for the job. He's there to add yet another layer of protection to Xapo's digital cur- rency transactions. "We monitor the transactions our customers make, and when one crosses a limit in value, we check the entire history of that payment and alert users of any suspicious activity," says Joysher. This level of protection is critical because a le- gion of hackers is constantly working to break into digital wallets and other cryptocurrency services. Thieves pillaged nearly $500 million in bitcoin from the Mt. Gox exchange in 2014, hackers grabbed $72 million from cryptoexchange Bitfinex in 2016 and last year, NiceHash, the Slovenia-based cryptocur- rency mining service, was breached. Regulating the wild west As cryptocurrency matures and grows, it's also becoming the payment method of choice for illegal activity online, largely taking place on the dark- net, a part of the internet hosted in an encrypted network and accessible only through special tools. Bitcoin and blockchain technology have been used to hire hit men, exchange child pornography, and for drug trafficking, extortion, gambling and gang activity. "Bitcoin is less controllable as a currency be- cause anyone can transact with anyone," says Wolfe. "When you have centralized intermediaries like a bank and someone wants to send money to someone who's suspected of engaging in illegal activities, reg- ulators and intermediaries like banks can say, 'No, I'm not going to allow you to transfer $1 million to that person; that seems suspicious.' With a block- chain, you can't stop that." That's where recent School of Management graduates like Anmol Agarwal and Palak Pahwa come in. The pair, who earned their master's de- grees in management information systems in May, spent the spring semester researching ways to audit blockchain and cryptocurrencies, and are develop- ing standardized tools companies can use when im- plementing technologies on these platforms. "We are analyzing all the attacks and fraud that have taken place on blockchain platforms and the bitcoin network to find exact vulnerabilities," says Agarwal. "We want to develop guidelines for regula- tions so future applications won't be as susceptible." Pahwa says there are a number of ways to curb illegal blockchain transactions. "We can store information about illegal digital materials and cross-check the data when users try to transfer those files between each other," she says. "If the transaction data matches our files we can sim- ply discard the request." In addition, Wolfe says there is a level of ac- countability built into the blockchain system. "When you get caught and authorities can link you to your bitcoin account, they can see every transaction you've had," he says. "It becomes a big long trail of breadcrumbs that connects everyone, making it easier to put together a case to unwind these illegal networks." THE RISE OF BITCOIN Anmol Agarwal, MS '18, and Palak Pahwa, MS '18, in the Alfiero Center. Photo: Nancy J. Parisi " We monitor the transactions our customers make, and when one crosses a limit in value, we check the entire history of that payment and alert users of any suspicious activity." Jay Joysher, MS '18

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