Crypto crimes can be uncovered – if you have the right skills and technologies
With the growing popularity of cryptocurrency – and increasing levels of associated crimes – more clients are drawing on the services of specialized investigators. Richard Peters, a partner and crypto forensic expert at consulting firm HKA, in a recent article outlined the skills and tools digital forensic experts use to uncover blockchain-related criminal activity.
With today’s global crypto market ballooning to a value of $3 trillion, crypto-related legal investigations have been proliferating in areas such as fraud, money laundering, ransomware attacks, and tax evasion, Peters says.
An estimated 861 million people – including one in four Americans – use crypto to make fast, secure transactions without banking intermediaries.
At a basic level, cryptocurrency uses cryptographic methods to hide identifying information. It is also decentralized, which means no central authority such as a government oversees the currency.
Transactions are publicly visible and transparent on the blockchain, although users are pseudonymous, represented by a sting of numbers.
Cryptocurrency is built on blockchain technology, a decentralized digital ledger that records transactions across many computers and cannot be altered or deleted.
The pseudonymous/anonymous, decentralized nature of cryptocurrency from the outset attracted criminal elements seeking to leverage the benefits of digital transactions for illicit drugs, human trafficking, etc. (usually the exclusive arena of cash transactions).
Today, the limited supply (and consequent exploding value) of assets such as bitcoin has attracted more legitimate elements into the crypto game, but the central criminal-abetting facets of the system remains.
The identities of pseudonymous users can, however, be uncovered with the right kind of tracing, Peters says.
The massive amount of blockchain data used in cryptocurrency requires skilled investigators with advanced technical tools, the HKA partner adds.
Investigators can firstly analyze crypto exchanges where fiat currency is converted to crypto coins. Such exchanges have know-your-customer regulations that verify identities of users and can be subpoenaed to reveal account identities.
If a user is lax enough to not use anonymization tools such as VPNs or Tor networks, investigators can analyze data to link IP addresses to transactions and wallet addresses.
Investigators can also utilize common spend analysis to link two or more wallets based on common, recurring transactions that fund larger accounts.
Manually tracing is an impossible task in many cases, however, so professional crypto tracing solutions are very important.
Such tools can create visual maps and graphs to reveal hidden connections between wallets and identify complex laundering patterns.
The software can also link crypto addresses to entities such as exchanges, ransomware groups, and legitimate businesses by drawing on extensive databases. Blockchain tracing software can also monitor address and transaction patterns to provide instant notices if suspicious activity occurs.
Tracing tools can assess the risk level of transactions based on a party’s historical behavior, connections to illicit activities, and compliance with regulations.
Select tools can also integrate with investigation platforms and compliance workflows to deliver court-ready reports.
“The crypto landscape and, in turn, the challenges of crypto tracing are constantly changing,” Peters says. “However, as blockchain technology continues to evolve, so will the techniques used for tracing illicit activities. By continually honing tracing strategies and staying on top of the latest technological capabilities, we can ensure blockchain remains a tool for transparency and accountability—not crime.”
