This week they describe what happened when that company's co-founder discovered that for two yeras, hundreds of users of a child pornography-trading site — and its administrators — "had done almost nothing to obscure their cryptocurrency trails..." and "seemed to be wholly unprepared for the modern state of financial forensics on the blockchain." Over the previous few years, [Internal Revenue Service criminal investigator Chris] Janczewski, his partner Tigran Gambaryan, and a small group of investigators at a growing roster of three-letter American agencies had used this newfound technique, tracing a cryptocurrency that once seemed untraceable, to crack one criminal case after another on an unprecedented, epic scale. But those methods had never led them to a case quite like this one, in which the fate of so many people, victims and perpetrators alike, seemed to hang on the findings of this novel form of forensics.... Janczewski thought again of the investigative method that had brought them there like a digital divining rod, revealing a hidden layer of illicit connections underlying the visible world....
One of the main promises of thecryptocurrencies when it first appeared in 2008 was that it would only reveal the addresses of the coins that it addresses. The idea of a new financial netherworld where digital briefcases full of bills could change hands across the globe in an instant was created by this layer of obfuscation. In an early email about thecryptocurrencies, the inventor of it, Satoshi Nakamoto, wrote that participants can be anonymous. Thousands of users of dark-web black markets like Silk Road had embraced the use of Bitcoins as their central payment mechanism.
Chainalysis built its business on the fact that every transaction in the Bitcoin network is captured in the network's ledger, a permanent, un changeable, and entirely public record. Coins can be forged or spent more than once if they are protected by the blockchain. It makes everyone in the economy a witness to transactions. Every criminal payment is a smoking gun. Academic security researchers and companies like Chainalysis began to tear gaping holes in the masks of users of the virtual currency after a few years.
The article describes some investigative techniques, like tying a transaction to a known identity, or even performing an undercover transaction themselves.
"By 2017, agencies like the FBI, the Drug Enforcement Agency, and the IRS's Criminal Investigation division had traced Bitcoin transactions to carry out one investigative coup after another, very often with the help of Chainalysis. "The cases had started small and then gained a furious momentum...."Thanks to long-time Slashdot reader Z00L00K for sharing the article.
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