Bitcoin is the perfect tool for criminals because it is an anonymous currency they can use and do nefarious activities without getting caught, right? Wrong. This is a common misconception if you’re new to blockchain and cryptocurrency investigations.
As an investigator, your main goal is to follow the trace of stolen money to a Know Your Customer (KYC) destination. In a traditional finance context, investigators refer to a plethora of sources during a financial investigation to do this tracking. In a crypto investigation, most of the information you need is public and available to you, thanks to the transparency of blockchain transactions.
Bitcoin is one of the most transparent currencies in the world; all transactions are recorded on the blockchain and are stored there permanently, allowing anyone to analyze and make sense of the different money flows happening in real time.
Today, we will explore the tools needed to track criminals on the blockchain, which the FBI, IRS and other law enforcement agencies rely on. These tools are essential in identifying suspicious activity and closing criminal cases.
Blockchain Explorers
An essential tool for anyone who wants to delve deeper into cryptocurrency transactions. These online applications provide users with a comprehensive view of all the transactional data stored on a blockchain network and offer plenty of insight into the behavior of users on the network.
Imagine having a magic window into the blockchain world, where you can see everything happening in real-time. That’s exactly what a blockchain explorer offers. By simply typing in a public address, you can view every transaction that has ever taken place on the blockchain network. This makes it easy to track your own transactions, as well as monitor the activity of others on the network.
In addition to providing access to individual transaction data, blockchain explorers also give users the ability to view the overall state of the blockchain network. This includes the current number of blocks and the total amount of cryptocurrency in circulation. By monitoring these indicators, users can gain a deeper understanding of the overall health and stability of the network.
On May 8th, 5,000 BTC (approx. US $139.4m) were transferred from one unknown wallet to another in a single transaction on the blockchain. Let’s use this example to preview the capabilities of blockchain explorers.
Blockchain.com offers one of the most popular blockchain explorers that allows you to search for specific transactions, wallet addresses, or transaction blocks. By using the transaction hash: df31a26a637fde6a5447032378bbee07166c4bd112f812848cd4b135c68e28a2, you can access a range of useful data points regarding the transaction, such as its value, time of occurrence and destination addresses.
Compared to traditional financial transactions and ledgers, there are several unfamiliar data points in cryptocurrency transactions. For example, multiple inputs and outputs may occur within the same transaction. This difference highlights the need for specialized investigative tools to understand the complexities of blockchain transactions.
Blockchain explorers are handy tools for exploring single transactions one by one to gather clues and build a case. Nevertheless, blockchain transactions are fast and easy to perform. Criminals leverage that to their benefit by performing nefarious activities on numerous transactions to obfuscate their traces and make it difficult for investigators to identify them using simple blockchain explorers.
This is when the next tool comes into play to reduce the complexity of blockchain tracing.
Graph Analysis Tools
Blockchain explorers display transactional data in a linear, chronological fashion. While this can be useful for understanding the individual transactions themselves, it doesn’t provide a comprehensive view of the relationships between different entities on the blockchain network.
Graph analysis tools are like magic glasses that help you see how different pieces of information on the blockchain network are connected. With these tools, you can more efficiently and easily identify relationships between different entities, such as people or organizations and trace the flow of money most relevant to your case.
Using graph analysis tools, you can see a visual representation of the data on the blockchain network, such as network graphs and heat maps. These visualizations can help you spot patterns and anomalies that may indicate illegal activity, including the movement of funds between specific addresses at specific times.
OXT is one popular graph analysis tool. It is an open-source blockchain explorer and analytics tool that allows users to visualize and analyze the data on the Bitcoin blockchain.
By pasting the same transaction hash in OXT, we start with a simple dot, representing the transaction.
Double-clicking on the dot expands the inputs and outputs inside it, providing more information about the transaction.
By examining the full picture, you can quickly identify points of interest in the transaction details without having to go through every step as you would with a traditional blockchain explorer.
For instance, the big arrow highlights a very large transaction. Typically, you want to look at this transaction first. Hovering over the arrow reveals more information about the exact amount of funds transferred in that specific transaction, which amounted to 5,000 Bitcoin, and the address that received that amount.
Now that we have a lead on the parties involved in the transaction, we would like to continue following the flow of funds, without losing track of where we started and the wallets involved.
Graph analysis tools offer a variety of customization features to help us stay on track. For example, we can use color codes to highlight transactions and entities, cluster addresses together that we suspect to belong to the same entity and more.
Blockchain Analytics Tool: QLUETM
While OXT and similar graph analysis tools are powerful for exploring and analyzing blockchain data, they have some limitations, especially when it comes to complex cases or long-term investigations. This is where blockchain analytics tools come in to address these shortcomings and provide more comprehensive solutions.
One of the main limitations of OXT is that it is a relatively simple tool, and may not have the same range of features as more comprehensive blockchain analytics tools. This can make it difficult to investigate more complex cases, such as large-scale money laundering or fraud schemes.
Blockchain analytics tools, on the other hand, are designed to provide more comprehensive solutions for investigating illegal activity on the blockchain. These tools offer a broader range of features, such as risk scoring, transaction monitoring and wallet clustering, to help investigators detect and prevent illegal activity.
For example, let’s say a law enforcement agency is investigating a large-scale money laundering scheme on the blockchain network. While OXT may be helpful for exploring a simple series of transactions, it may be insufficient for tracking the movement of funds across the network or identifying the individuals behind the scheme.
QLUE™ the leading blockchain investigative tool, provides a comprehensive range of features that can help law enforcement agencies track down the individuals behind the money laundering scheme swiftly.
Similarly, in the instance of the transaction we previewed earlier, we noticed that the 5,000 Bitcoins remained unspent in the destination address. If a criminal is behind this transaction, they will likely continue to make further hops with the funds to obfuscate their trace before attempting to withdraw it through one of the cryptocurrency exchanges.
Using QLUE™, investigators can set up an alert on the wallet currently holding the funds, to automatically receive a notification when the funds are on the move and continue following their lead to the suspect.
- Best-in-class visualization
- Insightful data attribution
- Collaboration and case management system
- Automation and address clustering
- Multi-chain investigation
QLUE™ is designed by investigators to streamline and automate cryptocurrency investigations, cutting down from the complexity of tracing cryptocurrency transactions and providing evidence that can be used in court.
You too can use QLUE™ to investigate cryptocurrency-related crime. Contact us to learn more.
Written By: Omar Marzouk
Writer, Content marketing at Blockchain Intelligence Group
