Even without advanced tools, investigators can leverage public blockchain explorers to trace cryptocurrency transactions effectively. Here are ways investigators can maximize these tools:
1. Tracking the Flow of Funds
• Basic Transaction Tracking: Input a wallet address or TxID to see incoming and outgoing transactions, helping to establish a timeline and flow of funds.
• Follow the Trail: By exploring each subsequent wallet, investigators can map the path of funds, potentially revealing networks of wallets involved in illicit activities.
• Identifying Large Transactions: Filtering transactions by value can help spot suspicious large transfers indicative of money laundering or fraud.
2. Monitoring Wallet Activity
• Frequent Transactions: High-frequency transactions may signal involvement in scams or money laundering.
• Dormant Wallets Activated: Sudden activity in previously inactive wallets can indicate illicit operations.
• Linking Wallets to Exchanges: Identifying transfers to exchanges can lead to obtaining user information through legal channels.
3. Utilizing Transaction Timestamps
• Corroborating Evidence: Time stamps can align blockchain activity with real-world events, strengthening the case.
• Cross-Referencing: Matching transaction times with other digital footprints can uncover identities.
4. Detecting “Peeling” or “Smurfing” Transactions
• Peeling Chains: Criminals split funds into smaller amounts across multiple wallets to obfuscate origins.
• Smurfing: Breaking large transactions into smaller ones to evade detection can be spotted by analyzing transaction patterns.
5. Linking Addresses through Shared Inputs and Outputs
• Wallet Clustering: Analyzing shared transaction inputs or outputs can group wallets likely controlled by the same entity.
• Identifying Mixers: Noting funds moving into known mixing services can indicate attempts at money laundering.
6. Flagging Suspicious Wallets
• Whale Watching: Monitoring wallets with large balances may reveal significant illicit activity.
• Darknet Market Activity: Tracking transactions linked to known darknet wallets can uncover illegal operations.
7. Investigating Ransomware Payments
• Ransomware Tracking: Following funds from ransom payments can reveal distribution patterns and exit points.
• Identifying Exit Points: Spotting transfers to exchanges where funds are cashed out can lead to real-world identities.
8. Building a Case with Transaction Histories
• Evidence Collection: Detailed transaction histories serve as crucial evidence in legal proceedings.
• Correlation with Known Addresses: Comparing suspect wallets with public databases of illicit addresses strengthens the investigation.
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Challenges and Limitations of Public Blockchain Explorers
While powerful, public blockchain explorers have limitations:
• Pseudonymity: Wallet addresses aren’t linked to personal identities, requiring additional methods to uncover owners.
• Data Overload: The vast amount of transactions makes manual analysis time-consuming.
• Cross-Chain Transactions: Movement of funds across different blockchains complicates tracking.
• Use of Mixers and Tumblers: Services that obfuscate transaction paths hinder tracing efforts.
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Advanced Tracing Tools: Chainalysis and TRM Labs
Advanced tools like Chainalysis and TRM Labs offer sophisticated features beyond the capabilities of public explorers.
Chainalysis
Chainalysis is widely used by law enforcement and financial institutions for its comprehensive analytics:
• Pattern Recognition: Utilizes machine learning to detect suspicious transaction patterns.
• Real-Time Alerts: Provides immediate notifications for potentially illicit activities.
• Wallet Attribution: Connects wallet addresses to real-world entities and known criminal organizations.
• Investigative Capabilities: Maps entire transaction networks across multiple cryptocurrencies.
TRM Labs
TRM Labs focuses on risk management and compliance:
• Risk Scoring: Assigns risk levels to transactions and wallets based on associations with illicit activities.
• Cross-Chain Analysis: Supports tracking across multiple blockchains, crucial for following cross-chain movements.
• Contextual Insights: Offers geolocation data and jurisdictional risks, aiding in AML compliance.
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The Cost Barrier for Small and Mid-Sized Departments
While advanced tools like Chainalysis and TRM Labs provide invaluable capabilities, they come with significant costs, often putting them out of reach for small and mid-sized law enforcement departments. Budget constraints can limit access to these powerful platforms, leaving investigators without some of the critical features needed to trace complex cryptocurrency transactions.
However, this does not mean smaller departments are left without options. Agencies can:
1. Leverage Free Public Blockchain Explorers
While limited in features, public blockchain explorers still provide essential investigative functions that can aid in tracking and understanding illicit cryptocurrency activities.
2. Access Assistance from Larger Agencies
Smaller departments can seek help from larger law enforcement agencies that have access to advanced tools like Chainalysis or TRM Labs. Many large federal and state agencies provide support in complex investigations.
3. Utilize Partnerships with Private Sector Experts
Organizations specializing in cryptocurrency investigations, such as cryptocurrency exchanges or blockchain analytics firms, may offer limited free services or assistance in investigations involving major cases or widespread threats.
4. Take Advantage of Training and Collaboration Resources
• Agent Thomas R. Alber – US Crypto Cop: Provides training and resources to law enforcement agencies through his website, https://www.uscryptocop.com. His Cryptocurrency for the Patrol Officer Course offers free training for law enforcement to help officers gather perishable information on cryptocurrency scams, building their capacity to conduct investigations.
• Mid-States Organized Crime Information Center (MOCIC): MOCIC offers assistance to member agencies with access to cryptocurrency tracing tools and analytics to help smaller departments handle complex investigations.
• Regional Organized Crime Information Center (ROCIC): Like MOCIC, ROCIC provides investigative support and access to advanced tools for member agencies to assist in tracing cryptocurrency transactions and unraveling criminal networks.
• International Association of Financial Crimes Investigators (IAFCI): Provides resources and training to help smaller departments enhance their ability to investigate financial crimes, including cryptocurrency fraud.
• Operation Shamrock: An international conglomeration of law enforcement and financial experts working to share intelligence on scam operations and assist departments in need.
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Comparing Public Blockchain Explorers and Advanced Tracing Tools
Which Tool Is Right for You?
• For Basic Users and Initial Investigations:
o Public blockchain explorers are suitable for tracing simple transactions and getting an overview of fund movements.
o They are accessible and free, making them ideal for initial investigations or when resources are limited.
• For Law Enforcement and Financial Institutions:
o Advanced tools like Chainalysis and TRM Labs are indispensable for in-depth analysis, compliance, and uncovering identities.
o They provide actionable intelligence and real-time tracking capabilities that significantly enhance the ability to investigate complex, large-scale cryptocurrency crimes.
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Both public blockchain explorers and advanced tracing tools play vital roles in cryptocurrency investigations. While public explorers offer a valuable, cost-free starting point for tracing transactions, advanced tools provide the deep analysis needed for comprehensive investigations. However, for small and mid-sized departments, the cost of advanced tools can be a barrier. Fortunately, resources like Agent Thomas R. Alber at US Crypto Cop, MOCIC, ROCIC, and IAFCI provide valuable assistance and training to support these agencies, enabling them to further their investigations and stay effective in the fight against cryptocurrency-related crime. By leveraging public explorers, seeking assistance from larger agencies, and utilizing training programs, even smaller departments can enhance their investigative capabilities without breaking their budget.
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