Hacks and scams have become commonplace in the world of crypto. There seems to be some new fraud or scam making headlines almost every other day. And while it’s hard to put a finger on an exact amount, such illicit activities have duped innocent investors of billions of dollars ever since crypto tokens first entered the market.
Throughout their detention, Diaz and Mendoza maintained their innocence. Still, they were doubtful about their ability to prove it in courts due to the country’s lack of blockchain and technological literacy.
“There is a lot of technological ignorance in my country, despite being an economy open to crypto … Even though we worked at a technology enterprise, we felt this doubt about how we could explain something that was so new and so difficult to understand ”, Mendoza said, according to Coindesk.
During their detention, their employer, POSINT, a software development company, stepped in to prove their innocence. Chief Operations Officer of POSINT, Danny Penagos, hired the blockchain analytics and intelligence company CipherBlade to investigate the cyberattack on Bancar.
CipherBlade’s investigation found various facets and details about the attack, such as the security vulnerabilities that led to the attack and a trail of stolen money that led to Russia-based crypto-firm SUEX.IO, which the US Treasury Department had recently blacklisted.
A report of the findings was submitted to the Venezuelan court in January 2021. And in August of 2021, the court official dismissed Diaz and Mendoza of all charges, according to a court document obtained by Coindesk.
Various blockchain intelligence firms like CipherBlade have gained prominence over the last few years as the crimes in this sector have increased. Blockchain intelligence firm Chainanalysis has received multi-million-dollar contracts from the U.S. government in the previous seven years for blockchain analysis and surveillance. In September of last year, the global payments giant MasterCard bought purchased CipherTrace, a firm that scans blockchains for illicit transactions, to enhance fraud detection and further bolster the security of its systems.
How blockchain forensics is helping solve crypto crimes:
Cryptocurrencies were once thought to be a haven for criminal activities. But now, as crimes in this space have started to escalate, law enforcement agencies are learning how to follow a trail of ill-gotten crypto gains and have dedicated new tasks force to deal with these crimes.
Let us take the recent Bitfinex hack as an example. A married couple from New York stole 94,000 BTC from Bitfinex in 2016 in a sophisticated attack. The hackers moved a portion of bitcoin they stole to the darknet market exchange Alphabay. A darknet is a market on the dark web that takes part in illegal trading and selling. The hackers then moved the bitcoin from Alphabay to regular crypto exchanges. This trail of money helped federal investigators piece together the identity of the perpetrator.
Blockchains and user privacy:
There is a misconception that blockchain technology preserves the complete privacy of users. This is only true in the sense that any real-world identification would not be attached to a user’s wallet address. In reality, blockchains are distributed ledgers where the database is kept on every node participating in the network. This provides a high level of transparency where anyone can check the state of a database and the transactions on it. Agencies could simply follow the trail of transactions on the blockchain that will help narrow down the identity of a user in the network. While this might require certain tools and specialised knowledge, it is definitely doable.
To circumvent the transparency issue of blockchains, criminals use various tools and techniques such as mixers, tumblers, and chain-hopping to obfuscate their transaction trail. But these are not full-proof methods. And again, with the right knowledge about these techniques and tools, law enforcement agencies would be more than able to apprehend criminals.
Blockchain analysis is a small part of digital forensics
In digital forensics, many moving parts work together to put the pieces of the puzzle together. There needs to be a collaboration between various entities to solve crypto or any cybercrime. One of the biggest advantages that law enforcers have in this space is the tightening of Know Your Customer (KYC) policies for exchanges and other financial firms. This gives the criminals limited areas where they can funnel the stolen money. Any deposit or withdrawal made from these entities will leave some identification mark.
Several private intelligence firms are like Chainalysis and CipherBlade are dedicating substantial resources to create tools and techniques for blockchain intelligence. These include technique such as identifying tainted wallets, assigning risk scores to wallet addresses, using analytics and artificial intelligence techniques to flag suspicious patterns and much more. They are working with law enforcement agencies and providing them with their tools and know-how to clamp down on crypto crime.
(Edited by : Abhishek Jha)