Chainalysis: Three key points that law enforcement agencies need to master before investigating crypto crimes

The financial landscape is changing, and law enforcement agencies must adapt to it. Last year, cryptocurrency took the financial industry by storm, but many law enforcement agencies, especially law enforcement agencies at the state and local levels, do not yet have the tools or data needed to effectively investigate crimes related to cryptocurrency.

Although the data shows that the vast majority of cryptocurrency transactions are for legitimate purposes, cryptocurrencies are particularly attractive to certain bad actors. As global adoption grows, we expect to see more criminal cases involving cryptocurrencies . In addition, the complex network of blockchain makes this technology appear in all types of criminal cases. This means that law enforcement agencies at all levels must improve their cryptocurrency literacy and develop effective investigation strategies. Here are three things every institution needs to know about cryptocurrency.

Cryptocurrency is not anonymous

Cryptocurrency skeptics and public officials expressed concern about the anonymity of cryptocurrencies, but this is a misunderstanding. Cryptocurrencies are actually pseudonyms , not anonymous. The user’s cryptocurrency balance and transaction history are associated with a unique address—represented as a long string of letters and numbers, usually generated by a digital cryptocurrency wallet with many addresses—and can be easily viewed on the public blockchain. 

Chainalysis: Three key points that law enforcement agencies need to master before investigating crypto crimes

The image above shows the cryptocurrency transaction between two user wallets. Each circle in the wallet represents a unique cryptocurrency address, with its own balance and transaction history.

In this way, cryptocurrency transactions are actually more transparent than ordinary financial transactions. Once recorded on the blockchain, the transaction record remains there forever and can be viewed at any time, even after many years.  

However, what cannot be immediately seen on the blockchain is the real-world name of the person or entity conducting the transaction. Will this make the cryptocurrency anonymous? No, but it does mean that investigators must take further steps to determine the culprits behind suspicious cryptocurrency transactions. The vast majority of cryptocurrency transactions are conducted through addresses hosted by cryptocurrency exchanges and other services similar to traditional money service business (MSB). Chainalysis maps these addresses to the specific services hosting them and makes this information easy for law enforcement agencies to view. 

But can you identify a single service where users conduct suspicious transactions? Yes. In most jurisdictions, the regulation of these cryptocurrency services is similar to that of financial institutions, which means they must also collect customer information, conduct “know your customer” (KYC) checks on all users, and report any suspicious activity. When investigators identify an address hosted by a service engaged in suspicious or criminal activities, they can go to the service itself and quickly understand the identity of the user behind the activity by following standard legal procedures.

Cryptocurrency affects all major forms of criminal activity

Although the share of transactions related to criminal activities is low, cryptocurrencies are increasingly playing a role in almost all types of criminal activities that law enforcement agencies are concerned about. This should not be surprising. Most crimes are based on economic motives or at least contain financial elements, so it makes sense that cryptocurrency, as a new form of digital currency, will involve a wide range of criminal threats. Criminals have always been early adopters of technology, and cryptocurrency is no exception. Some forms of criminal activity involving cryptocurrency include:

  • Sell. The dark web market is an online black market where users can buy and sell drugs, as well as stolen data and tools used in hacker attacks. In 2020, the dark web market created a total of at least 1.7 billion U.S. dollars in cryptocurrency revenue, and the United States is the second most active country for buyers and sellers. 
  • Fraud. Fraud is the highest-paid form of crime based on cryptocurrency. Fraudsters received more than $2.6 billion worth of cryptocurrency in 2020, up from $9 billion in the previous year. Given the lack of reporting and the reluctance of victims to come forward, the real scope and impact may be even greater. These crimes may be executed remotely, but the impact is felt locally. Scammers often take advantage of the most vulnerable groups in our community, including the elderly, the lonely, or those who are not familiar with cryptocurrency. Cryptocurrency thieves promote unrealistic investment opportunities or demand payment in cryptocurrency. They have successfully deceived millions of people all over the world.
  • Child Sexual Abuse Video (CSAM). Between 2015 and April 2020, Chainalysis tracked more than $2 million in cryptocurrency payments to addresses associated with known CSAM distributors. The secret and elusive nature of this abnormal and illegal activity is a stain on mankind, and the use of cryptocurrency makes it more openly threatening. In 2019, the authorities shut down the largest ever cryptocurrency-based CSAM website. The operation resulted in the arrest of more than 300 website users in 38 different countries. Law enforcement agencies around the world must unite against the CSAM plague and be familiar with how to use cryptocurrency to fuel this crime.
  • Ransomware. Since at least 2016, designated terrorist organizations such as al-Qassam Brigades have been using cryptocurrency to receive donations. The ability to use cryptocurrency and crowdsourcing domestic and international terrorism is both easy to achieve and frightening. In addition, ransomware attacks have more than quadrupled between 2019 and 2020. Recently, ransomware has often targeted government agencies and critical infrastructure providers, such as Colonial Pipeline. Ransomware is the fastest growing category of illegal cryptocurrency use and continues to have a significant impact on the lives and livelihoods of many people.

Chainalysis: Three key points that law enforcement agencies need to master before investigating crypto crimes

Law enforcement agencies must quickly develop expertise and acquire the data and tools needed to investigate cryptocurrency-related crimes in order to stay ahead of threats.

Cryptocurrency will continue to exist

For more than a decade, skeptics have been predicting the demise of cryptocurrencies and have been repeatedly proven wrong. The emergence of any new asset class is subject to uncertainty and volatility, and of course the same is true for cryptocurrencies. However, more and more public officials and leaders in the financial sector have recognized the importance and potential role that cryptocurrency will play in the future of world finance.  

A recent report estimated from using blockchain analysis and other factors that as of January 2021, approximately 106 million people now hold cryptocurrencies, or in other words approximately one in every 73 people Hold cryptocurrency. This number is an increase of 77% over the company’s previous estimate in May 2020, and an increase of 16% over December 2020 alone. Other sources estimate that the adoption rate of this new asset class has grown similarly. What will the next three to five years bring? Are law enforcement agencies prepared for trillions of dollars in transactions and hundreds of millions of illegal activities?

Chainalysis: Three key points that law enforcement agencies need to master before investigating crypto crimes

We can see that this growth is largely reflected in cryptocurrency trading volume and other adoption indicators. Last year, Chainalysis created the Global Cryptocurrency Adoption Index, which ranks countries based on the adoption of cryptocurrency adjusted by the country’s population and economic scale to capture mainstream and grassroots adoption. According to Chainalysis, the weekly cryptocurrency trading volume has grown from approximately US$8.9 billion in late December 2018 to more than US$591 billion in the week of May 3, 2021. It is also important to pay attention to the most active areas of cryptocurrency use.

Countries that are leading the way in adopting cryptocurrencies include some of the largest markets in the world, such as China and the United States, and some of the fastest-growing countries, such as Kenya, Nigeria, and Vietnam. The market attractiveness of these key regions shows that as the world’s population and the number of mobile and Internet users increase, the use of cryptocurrencies will continue to grow. 

The increasing popularity and availability of decentralized finance (DeFi) networks as a means of value transfer has driven adoption. As governments, financial institutions, and businesses also embrace the cryptocurrency economy, we may see greater stability and transparency. The global adoption rate is rising, and as the adoption rate increases, the transaction volume and value transfer will reach trillions of dollars. 

Criminals and illegal actors always follow money, and they also incorporate cryptocurrency into their criminal enterprises. We may see more use of scams, fraud and other online and ransomware ransomware involving cryptocurrencies. As criminals adopt blockchain as a way to instantly transfer funds across borders to evade detection, taxation, and laundering of criminal proceeds, we may also see a higher degree of complexity.


Cryptocurrency is not just a cybercrime problem, nor is it just a handful of well-trained investigators dealing with complex financial fraud problems. This is a global phenomenon and tool, and more and more criminals of all types are incorporating it into their activities. Therefore, it is essential to spread the knowledge of cryptocurrency to all levels of any law enforcement agency. Investigators who are not proficient in cryptocurrency may soon find that they are outdated and lose their advantage in front of cybercriminals and threat actors who are proficient in cryptocurrency.  

(View source: Chainalysis, Compiler: Baize Research Institute)


Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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