ForensX Intelligence Services

Tracing Cryptocurrency

Tracing Cryptocurrency

First there was gold. Then there were coins. Then came cash. Oh, and there were also cheques, wire transfers, and e-transfers — you catch the drift.


accounting data on a clipboard with forensic accounting written on a post-it note


All these have long served as tools for purchasing and storing value.


But with the popularity of the internet and our lives moving online, currency began moving toward a more digital existence, too.


That gave birth to cryptocurrency aka crypto.


Crypto existed before it was made most recognizable by the popular Bitcoin. The digital currency trend became popular in the late 2000s. It’s taken more than two decades to evolve into what it’s become today: an alternative to traditional currencies that need middlemen and are regulated by governments.


When crypto burst onto the scene, its main selling feature was anonymity. This sold the concept of the digital currency to people that wanted to make transactions without any government interference. Using crypto, they could avoid a centralized system, too.


Cash and other currencies issued by the central bank of a country can effectively be traced back to a source. We’ve all seen the Hollywood movie that uses marked banknotes to trap the criminals.


But crypto, it was thought, wasn’t traceable. And it wasn’t, until it was.


How do Cryptocurrencies Work?

Crypto was considered an evolutionary form of cash that would free people to make transactions anywhere in the world without having to go through a money centralized exchange, like a bank..


What is Cryptocurrency?

Simply put, it’s a digital currency, which uses encrypted algorithms to enable transactions between users or sets of users, minus an intermediary, such as a bank.


As the name indicates, all transactions made using crypto are highly encrypted. These digital currencies are stored in digital wallets that can be accessed using a private key.


This feature was touted to make crypto highly secure. But before a cryptocurrency gets to the wallet, it’s part of a larger gathering point called a ledger. The ledger is decentralized; meaning, everyone has a copy, and everyone can see what happened, so no need for a bank to track it all. The blockchain takes care of that.


Every new digital coin is created through a process called mining. This is also the method that verifies each (new and old) digital coin and transaction on the ledger.


Mining leads to creating a blockchain that lays out the path for each exchange.


Each blockchain contains:

  • Details of a sending address
  • Details of a receiving address
  • Details of transaction time
  • Details about the amount of crypto sent
  • Details about the number of network confirmations

To receive or send coins, a user must obtain a bitcoin address, which comes as a string of up to 35 alphanumeric characters or a QR code — the address doesn’t use any names, locations, or other personal identifying data. The technical term for such an address is a ‘public key.’


A wallet contains a collection of such keys that are derived from the private key, which opens a single wallet. Public keys serve as one-time tokens for single blockchain transactions.


When making a transaction, users provide an address from their crypto wallet. They can sign all transactions using a private key and receive crypto using a public key.


The crypto anonymity got the attention of those that wanted to move large amounts of money without being traced.


After all, so many passwords needed to access and complete crypto transactions should make it untraceable, right?


Well, not really. There are still loopholes in the crypto world that have given authorities the ability to track and trace crypto interactions. But, it’s still not as fast of a process as it is with other forms of regulated payment methods.


Cracking the Cryptocurrency Code

As criminals shifted their attention toward crypto, so did authorities.


The anonymity and ability to get away with huge transactions and disappear into the night caught the attention of law enforcement. They began working on ways to follow the digital money. It’s been a complicated process, but they’ve figured out a way.


ForensX investigates cryptocurrency fraud and can help trace blockchain transactions


As time has passed, and authorities have caught up with what was happening behind the crypto scenes, the secrets to tracing the secretive currencies have also surfaced.


Shockingly enough, it turns out that what made crypto so safe and secure is the very feature that now makes it traceable.


Let’s step back and take a look at the picture together.


Follow the Pattern

How do cops trace a currency that never changes hands?


Crypto wallets are locked away in vaults, accessible only to the one using a private key. There may be some items or services one can buy directly using crypto. But in a majority of cases, the digital currency needs to be exchanged into a local currency if someone wants to actually spend it.


To exchange crypto for dollars, or another currency, you need a company on the ground that processes such transactions.


Enter Crypto Exchanges

Such companies will generally ask for customer identity verification. That takes away the anonymity of owning or using a cryptocurrency.


These not so secretive middlemen can be the key that opens the doors to the crypto vault for authorities. Cryptocurrencies do not intrinsically require an ID to be attached to a wallet. But crypto exchanges, aka virtual asset service providers (VASPs) require the use of a ‘know your customer’ (KYC) ID before any transactions can be done.


Crypto exchanges themselves are not linked to any particular wallet identity, but they have records of all identities and wallets from where the crypto comes. And that’s how converting crypto into a regulated currency creates a distinct trail that authorities can follow.


Moreover, the digital ledger used to store and record transactions includes minute details, such as the amount, time, the wallet the money was sent from, and the wallet that received the money.


If you have a crypto wallet, it can sit anonymously and hidden if unused. But the second you use it to receive or send money, the KYC ID can open the door to law enforcement agencies. And they can identify both the receiver and the sender.


Theoretically, law enforcement could also subpoena a crypto exchange and have them give up user information instead of searching for it quietly.


Identifying Transactions

This is a tedious and lengthy method that can take several yearstime because it requires watching and studying the patterns behind all the transactions.


Crypto research demonstrates that transactional data leaves unintentional patterns that can reveal the identity of digital currency users, no matter what their intent.


A Trail of Breadcrumbs

Where no VASPs are used and the individual uses only their own wallets, the tracing process can get more difficult.


Enter algorithms

These aren’t the ones that decide which video you’re going to watch next on TikTok or YouTube, but they’re the types that analyze blockchain money flow analysis.


This sophisticated software takes tons and tons of complicated blockchain data and painfully and painstakingly analyzes it bit by bit.


Remember the blockchain that recorded all crypto transactions? Well, that blockchain is generally public. And typically, each currency has its own blockchain website that is open for anyone to access using the currency’s browser.


Agencies that specialize in tracing cryptocurrencies can use these browsers to go after specific transactions or wallets. Investigators use the ‘crumbs’ of information crypto exchanges and wallets leave behind. Once a specific transaction has been found, the next step is to pinpoint its ID. Remember that long string of alphanumeric characters we mentioned? Yup, that’s what this ID is.


But tracing blockchains can have its hiccups, too. Sometimes, investigators may have to put in a large amount of work to gather information if the transactions are happening on darknet markets. Companies that specialize in tracing crypto, like ForensX, have the ability to identify dark web transactions and surface pertinent information on such transactions for your investigation.


Over time, companies that use some software can trace transactions back to a specific user — even if they’re using multiple wallets and addresses.


Another method is to use internet browser history of anyone making crypto transactions and then cross-referencing it with all the KYCs available from crypto exchanges.


Other Information Used in Tracing Crypto

  • Lifetime Value: Crypto addresses that hold significant value can become targets by criminal prosecutors.
  • Total Transactions: The total volume of a wallet’s crypto transactions can signal the potential of fraud or other fishy activity.
  • Profiling: Software that conducts extended searches for crypto activity assigns bitcoin addresses a risk score using advanced algorithms. These tags can identify associations with known entities, such as crypto exchanges, ransomware rings, and darknet markets.
  • IP Address: Authorities will also conduct investigations into metadata collected through blockchain surveillance systems, which go after IP addresses associated with suspicious transactions. These pieces of information, when available, can point to other identifying features, such as the geographical location of the subject at the time of the transaction.

Tracing and tracking crypto has its advantages and disadvantages. Primarily, for those that want to operate under the radar, it’s a huge negative that authorities are now starting to shine their lights on crypto. However, tracing can be useful for those that want to make money off crypto and keep their digital currencies safe from scammers and hackers.


If you’ve encountered a situation where you need to trace a Bitcoin or other cryptocurrency transaction and you need help, make sure you reach out to our team of expert investigators at ForensX.




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Name: ForensX Media
Posts: 6
Last Post: July 11, 2023