Despite the belief that cryptocurrency transactions are untraceable, researchers and companies have developed techniques to cluster and trace Bitcoin addresses, highlighting the traceability of cryptocurrency transactions.
The growth of illicit commerce using crypto has led to the emergence of data geeks and law-enforcement experts who employ tracing techniques to uncover criminal activity and apprehend perpetrators.
Deep dives
Cryptocurrency traceability and illicit activity
The podcast episode discusses how the transparency and decentralization of blockchain technology in cryptocurrency were believed to make it safer for traders and investors. However, it also made it easier for bad actors to hide illicit activity. Chainalysis estimated $14 billion worth of shady dealings in cryptocurrency in 2021 alone. The episode explores the growth of illicit commerce using crypto and the methods used by cyber investigators to trace cryptocurrency crimes.
The myth of cryptocurrency untraceability
The podcast reveals the misconception surrounding the untraceability of cryptocurrency, particularly Bitcoin. It explains that while transactions between Bitcoin addresses are recorded in the blockchain, the pseudonymous nature of these addresses led to the false belief that transactions could not be traced back to individuals. However, researchers like Sarah Mikkeljohn and companies like Chainalysis developed techniques to cluster and trace Bitcoin addresses, highlighting the traceability of cryptocurrency transactions.
Case studies in cryptocurrency tracing
The podcast highlights real-world case studies where cryptocurrency tracing techniques were used to uncover criminal activity. It discusses the case of corrupt DEA agents involved in the Silk Road investigation, who thought Bitcoin was untraceable but were eventually caught through tracing techniques. Another case involved the takedown of the dark web black market, AlphaBay, where principles like clustering Bitcoin addresses and tracking unspent money helped law enforcement identify and apprehend the administrator.
The evolving landscape of cryptocurrency traceability
The podcast explores the evolving landscape of cryptocurrency traceability and how law enforcement agencies like the IRS and FBI have embraced the tracking of cryptocurrency for investigating and solving crimes. It also discusses the potential future of truly untraceable cryptocurrencies like Zcash and how their adoption could change the dynamics of the cat-and-mouse game between criminals and investigators.
For his next book, Michael Lewis wants to find out how investigators manage to trace the murky trail of illicit crypto. Cryptocurrency started with the dream of cash changing hands without a trace. But that dream has turned into a nightmare for many would-be criminals. A new field has emerged of data geeks and law-enforcement experts trying to find out who’s behind transactions on the blockchain. Michael calls up Andy Greenberg, senior cybersecurity writer for WIRED and author of “Tracers in the Dark: The Global Hunt for the Crime Lords of Cryptocurrency” to find out how investigators crack the code of crypto.
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