In our report Digital Asset, Blockchain Industry and Crime Trend Predictions 2023, we assessed that ‘corresponding to an increase in prosecution of alleged criminals and Service Providers, blockchain analytics tools will be more openly challenged for the credibility and reliability of their data.’
The report goes on to say that although blockchain analysis has been increasingly valuable to law enforcement, and prosecution, there has yet to be a significant legal challenge to this form of evidence.
Here I look at the top reasons why enforcement agencies need reliable and credible blockchain analytics tools:
1. Transparency
Blockchain analytics tools provide transparency to blockchain transactions.
Data stored on the blockchain is coded and validated in shared and unchangeable public records. Analytics tools scan those public records and organize the data in a way that portrays the links between different crypto wallets. This process can accomplish the following:
- Detect anomalies and reduce risks to ecosystem participants.
- Single out specific types of transactions.
- Establish trends and display relationships with other sources.
This helps investigators and analysts to trace illicit trading on blockchains, and where possible, recover stolen or laundered funds.
As a result, we see more law enforcement agencies turning to blockchain analytics tools. This was evidenced by the Colonial Pipeline case in 2022 when the Department of Justice announced that it had seized 63.7 bitcoins, valued at approximately $2.3 million.
These funds allegedly represent the proceeds of a May 8, 2021, ransom payment to individuals in a group known as DarkSide, which had targeted Colonial Pipeline, resulting in critical infrastructure being taken out of operation.
“Following the money remains one of the most basic yet powerful tools we have. We will continue to target the entire ransomware ecosystem to disrupt and deter these attacks,” said Deputy Attorney General Lisa O. Monaco for the U.S. Department of Justice.
The Colonial Pipeline case proved that skilled and suitably equipped investigators could begin to identify the “anonymous” perpetrators using blockchain analytics; combining tools, and techniques to trace the ransom payments, and undermine the goal of the criminal’s operation.
You can view these visualisations in our free blockchain explorer: Payment from Colonial Pipeline to DarkSide Group and US FBI recovers $2.3 Mn USD.
Yet just because blockchains are typically transparent, and it is possible to track transactions, without additional data and research conducted off-chain, it is not always possible to make the links to real-world entities. Which brings us to the next point.
2. Data you can trust
Investigators often use data available on the blockchain to provide evidence in criminal or civil law courts. Often the focus is on analyzing transaction activities and how these link to wallets, and ultimately real-world entities.
But it is important to understand that the data about real-world entities is the product of highly skilled and diligent ‘off-chain’ research teams, that scour both open, public channels and closed, sensitive sources for intelligence – applying tradecraft to messaging apps, social media and the darknet to piece together information about the entity who is behind an exchange or a wallet.
Collecting, processing, and analyzing this information is a painstaking and critical process; it is not sufficient to simply accept any claim of ownership that is made.
It is therefore crucial for investigators joining the dots that the information is reliable and accurate.
Excellent blockchain analytics tools are made even better by the team of analysts who stand behind it, working hard to verify connections and identities. This can only be achieved through transparency of the collection and verification; a methodology we are proud to share with our clients.
Crystal has unique access to a variety of data sources, and regularly parses Telegram, stealer logs, enthusiast forums, as well as many other social media channels to bring timely, accurate intelligence to our clients.
3. Powerful visualization tools
Blockchain visualization tools provide an efficient way of understanding on-chain activity and uncovering hidden relationships, anomalies, and trends from blockchain data.
With these visualization tools, investigators reap the benefit of enhanced transparency across blockchain networks and can quickly generate meaningful insights to further their investigations
They help to:
- Easily connect the dots while tracking the trail of funds across blockchain entities
- Illustrate red flags and anomalies across blockchain networks to facilitate further investigation.
- Show a clear view of customer activity across multiple entities alongside detailed transactional information.
Additionally, visualizations are vital for providing evidence in court to judges and juries who have limited technical knowledge of blockchain technology and cryptocurrencies.
Visualizations make it easy to see patterns drawn from numerical or textual data. Consider how difficult it is to trawl through a spreadsheet to see an emerging pattern versus looking at a visualization. Quite clearly, an illustration showing a pattern speeds up the analytical process; saving the courts time and money.
They also help focus the investigation. For example, seeing an entity with a thousand transactions and a high balance with several dependent entities may indicate a critical service provider that could warrant further investigation.
Multichain visualizations are even more powerful.
Multichain visualizations such as this illustration below give investigators the capability to investigate emerging risks related to chain-hopping and cross-chain crime more easily and rapidly.
4. Follow the digital asset trail
An automated tracking solution allows law enforcement agents to trace the flow of digital funds through dozens of intermediate wallets before reaching their destination, which is typically a fiat bearing exchange.
It does not matter if the assets start at unlicensed exchanges, mixers, illicit marketplace, or other criminal-related entities, the flow of funds can be discerned with an effective tracking tool.
A good tracking tool should have:
- Extensive coverage – supported tracking across extensive portfolio of digital assets.
- Deep analysis of the crypto landscape – profiling of thousands of entities, including global exchanges, ATM mixers, and gambling services, and assigning average risk scores to transactions.
- Ease of use – a super-intuitive interface that facilitates deep analysis of transaction flows by users of all kinds.
- Leverage updated crypto data – maintain a massive database of crypto transactions, sanction lists, and other crypto activities to ensure screening of updated information.
- Case management – an integrated case management tool that provides a convenient way for performing and collaborating on investigations. The case management tool should assist crypto case investigation and management, and enable investigators to:
- Organize entity-based investigative processes as cases that can be systematically tracked for suspicious activities.
- Document each case with the relevant contextual or off-chain information (e.g. media mentions), including all associated or “connected” transactions.
- Use built-in algorithms to analyze on-chain data and identify connections to suspicious addresses that have been flagged in the analytics software database.
- Generate and export detailed case reports, which should include easy-to-read visualizations of high-risk addresses as well as transaction inputs and outputs.
- Save and share cases with collaborators when performing investigations on an ongoing basis.
- Allow for real-time notifications whenever a transaction is flagged as risky, or there is a considerable change in tracked wallets’ risk score or balance.
Our Digital Asset, Crypto Crime, and Blockchain Industry Trend Predictions for 2023/4 report aims to provide professional guidance to policymakers, investigators, and other compliance staff seeking to understand risk and those that create it. Download it here:
To learn more about Crystal’s blockchain analytics tool, and how it can help law enforcement agencies identify and trace illicit flows of funds, contact us here.
