Blockchain analysis

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Blockchain analysis is the process of inspecting, identifying, clustering, modeling and visually representing data on a cryptographic distributed-ledger known as a blockchain. [1] [2] The goal of blockchain analysis is to discover useful information about different actors transacting in cryptocurrency. Analysis of public blockchains such as Bitcoin and Ethereum is typically conducted by private companies like Chainalysis, TRM Labs, Elliptic, Nansen, CipherTrace, Elementus, Dune Analytics, CryptoQuant, and Ormi Labs. [3]

Contents

Cryptocurrency exchanges

Cryptocurrency exchanges are often required by law to address the source of funds for crypto traders. For example, Singapore, Japan, and the United States have all passed laws that require exchanges to track the source of the crypto funds. [4] [5] In the United States, the Bank Secrecy Act requires cryptocurrency businesses to implement know-your-customer and anti-money laundering programs, including registering with FinCEN as a money service business. [6]

Blockchain analysis enables law enforcement to trace cryptocurrencies back to individuals wallets on exchanges, which can then be subpoenaed for information on criminal actors.

Method

Because blockchains are typically public, anyone can view the contents of transactions by querying a node or block explorer site (such as Etherscan.io). By using common-spend clustering algorithms, it is possible to map the transactions of certain entities on the blockchain. [7] This is how criminals have been caught moving illicit funds using various cryptocurrencies. [8]

Law enforcement and blockchain surveillance

Blockchain analysis has helped produce evidence in several high interest cases. [9] In 2018, an analysis of bitcoin transactions uncovered a link between major cryptocurrency exchange BTC-e and Fancy Bear. [10] In 2019, a major website hosting child sexual abuse material was taken down by law enforcement using blockchain analysis techniques. [11]

In 2021, the US Department of Justice used blockchain analysis to recover most of the ransom from the Colonial Pipeline ransomware attack. [12] [13] In 2022, IRS Criminal Investigations used blockchain analysis to seize over 50,000 bitcoin stolen from the Silk Road dark web marketplace. [14] [15]

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References

  1. ↑ Meiklejohn, Sarah; Pomarole, Marjori; Jordan, Grant; Levchenko, Kirill; McCoy, Damon; Voelker, Geoffrey M.; Savage, Stefan (23 October 2013). "A fistful of bitcoins". Proceedings of the 2013 conference on Internet measurement conference. Imc '13. pp. 127–140. doi:10.1145/2504730.2504747. ISBN   9781450319539. S2CID   2224198.
  2. ↑ Sarah, Kappos, George Yousaf, Haaroon Maller, Mary Meiklejohn (2018-05-08). An Empirical Analysis of Anonymity in Zcash. OCLC   1106297947.{{cite book}}: CS1 maint: multiple names: authors list (link)
  3. ↑ Greenberg, Andy (2022). Tracers in the Dark: The Global Hunt for the Crime Lords of Cryptocurrency. Doubleday. ISBN   978-0593663677.
  4. ↑ Team, Chainalysis (2021-10-26). "Cryptocurrency Regulation: How Governments Around the World Regulate Crypto". Chainalysis. Retrieved 2023-01-05.
  5. ↑ PricewaterhouseCoopers. "Carving up crypto: Regulators begin to find their footing". PwC. Retrieved 2019-05-28.
  6. ↑ "Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies | FinCEN.gov". www.fincen.gov. Retrieved 2023-01-05.
  7. ↑ Spagnuolo, Michele; Maggi, Federico; Zanero, Stefano (2014). "BitIodine: Extracting Intelligence from the Bitcoin Network". Financial Cryptography and Data Security. Lecture Notes in Computer Science. 8437: 457–468. doi:10.1007/978-3-662-45472-5_29. hdl: 11311/881385 . ISBN   978-3-662-45471-8. S2CID   4643437.
  8. ↑ Yakowicz, Will (2018-01-09). "Startups Helping the FBI Catch Bitcoin Criminals". Inc.com. Retrieved 2019-05-29.
  9. ↑ Alden Pelker, C.; B. Brown, Christopher; M. Tucker, Richard (2021). "Using Blockchain Analysis from Investigation to Trial". Department of Justice Journal of Federal Law and Practice. 69 (3): 59–100.
  10. ↑ "Bitcoin Suspect Could Shed Light on Russian Mueller Targets". Bloomberg.com. 4 September 2018.
  11. ↑ Newman, Lily Hay. "How a Bitcoin Trail Led to a Massive Dark Web Child-Porn Site Takedown". Wired.
  12. ↑ Bing, Christopher; Menn, Joseph; Lynch, Sarah N.; Bing, Christopher (2021-06-08). "U.S. seizes $2.3 mln in bitcoin paid to Colonial Pipeline hackers". Reuters. Retrieved 2023-01-05.
  13. ↑ Team, Chainalysis (2022-02-10). "Chainalysis In Action: How FBI Investigators Traced DarkSide's Funds Following the Colonial Pipeline Ransomware Attack". Chainalysis. Retrieved 2023-01-05.
  14. ↑ Greenberg, Andy. "IRS Seizes Another Silk Road Hacker's $3.36 Billion Bitcoin Stash". Wired. ISSN   1059-1028 . Retrieved 2023-01-05.
  15. ↑ "U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud". www.justice.gov. 2022-11-07. Retrieved 2023-01-05.
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