Criminals believed for a long time that they could hide their misdeeds by using the cryptocurrency. But today more and more online tools are helping the authorities to catch Bitcoin rogues.
Authorities around the world have a message to people who want to use Bitcoin for illegal activities: You can indeed get away but you cannot hide in the future. The reason, more and more government officials are using Bitcoin’s public transaction directory, the Blockchain, to track down suspicious cash transfers and find suspects.
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How Do Criminals Use Bitcoins?
Among the most popular of the cryptocurrencies, Bitcoin has played an important role in the recent ransomware attacks, including blackmail attempts like the WannaCry cyber-attack, in which evil hackers want to encrypt their victims’ computers and release them only when those affected pay a certain amount in Bitcoin.
The cryptocurrency can be used to collect the ransoms without the criminals having to disclose their identity. Similarly, Bitcoin is used in sales of illegal drugs, money laundering or trafficking in prohibited sexual services.
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Chainalysis Software to Analyze Bulk Transaction Data
While Bitcoin allows you to remain anonymous when in use, there are many other pieces of information that may be of interest to law enforcement. Thus, every Bitcoin transaction ends up in the Blockchain which in turn is publicly accessible to anyone interested. Blockchains have proven to be a “truly useful source of truth”, says Jonathan Levin, co-founder of Chainalysis which develops software to analyze bulk data. The company’s products help investigators draw conclusions about how people use the digital currency.
Crime Investigation Tools
Chainalysis combines its analysis with other publicly available data to identify users based on the unique Blockchain addresses of numbers and letters. Then you can see how they move their funds back and forth.
Example of Bitcoin Crime Investigation Tools:
The technique can also be used to check on which Bitcoin exchange users of virtual gaming hell convert their Bitcoins into dollars.
The company’s tools are very useful for crime investigations. Chainalysis has, according to its own statements since 2015, among other things, the US tax authority, the FBI, the US Securities and Exchange Commission, the US Drugs Investigation, and the US Immigration and Customs Authority.
In most of the cases, investigators turn to Chainalysis when they have a trail, such as a Bitcoin address owned by a suspect. If it can then be determined which Bitcoin exchange this person was in, investigators can obtain a search warrant for them to obtain further data.
Authorities are also interested in how money is flowing in the Blockchain to determine if traders accepting Bitcoin will declare their revenues and pay taxes, says Danny Yang, founder of BlockSeer, another company that makes Blockchain analysis tools and supported the state in investigations.
Even Bitcoin exchanges are using Chainalysis and Co. meanwhile. In many countries, they must comply with different rules by law, such as identifying the identity of customers and ensuring that they do not launder money. And a Bitcoin exchange will not get a bank account if they do not know who their customers are. In addition, once the government finds that criminals use a Bitcoin exchange, it wants to have information about what’s going on.
Smart criminals have already begun to switch to these. Chainalysis reported in September that some of the WannaCry executives had now partially switched from Bitcoin to Monero. The Bitcoin addresses had landed on the blacklist.
Instead of criminalizing cryptocurrencies, law enforcement should learn to use them. The study has shown that Bitcoin used for illegal activities mostly end up in blender services and sites for online gambling. There can begin investigations. So we can combat drug trafficking, terror financing and money laundering without the more than 99% legal Bitcoin transactions under general suspicion.
