Cryptocurrency was designed to bring about more financial autonomy, offering individuals, wherever they may be in the world, access to a store of value and a monetary network independent of state control. This concept has underpinned the exponential growth cryptocurrencies have experienced, with as many as 100,000 investors holding more than USD 1 million in Bitcoin by February 2021. As with any asset class, however, this impressive growth has inevitably opened an opportunity for fraud and corruption, leaving some investors significantly “out of wallet”.  As these trends continue, so does the need for crypto tracing services either as part of a wider asset tracing exercise into a debtor or in helping to unpick a complex web of transactions and locate misappropriated cryptocurrency. Whilst this can seem a challenging prospect, tracing cryptocurrency transactions is in many ways more feasible than other forms of asset tracing, provided one is equipped with the necessary expertise. The recent success of the US Department of Justice in recovering USD 2.3 million worth of misappropriated Bitcoins following a ransomware attack on a US oil pipeline operator was only the latest successful demonstration. of how this can be done. [1]

Public cryptocurrencies such as Bitcoin and Ethereum often create greater opportunities for asset tracing than traditional fiat currencies, which is principally due to their building blocks. One of the most salient features of cryptocurrencies is the use of blockchain technology and a digital ledger where all transactions are recorded and visible for all cryptocurrency traders. Each and every trade is recorded with both the seller’s and buyer’s pseudonym appearing on the ledger. Whilst the owners of these pseudonyms can be vague, in some cases they can provide investigative clues which aid the identification of the individual behind the cryptocurrency address or wallet. If an investigator is able to positively identify an owner, they may be richly rewarded; the interconnected nature of the ledger means that a single confirmed data point can ultimately lead to the unravelling of a network of individuals and assets.

Fraudsters employ many techniques to conceal cryptocurrency and stymie investigators.One popular technique is the layering of multiple transactions through crypto currency exchanges and coin-mixing, a service which allows users to mix their cryptocurrencies in a single pool and obfuscate its origins. Whilst there may be anonymity behind the ownership of crypto assets, digital footprints get left behind which can be used to piece together associations between individuals and anonymous activities. Examples include internet browsers, password managers, exchange accounts, cryptographic keys and wallets stored on hard drives or even casual conversations in chat messages and social media on mobile phones. In the layering example, the advancement of crypto-tracing abilities has meant that even these complicated and confusing techniques can be unravelled when transactions produced through the coin mixer hit a known exchange and can be traced.

Investigating cryptocurrency assets in this manner requires technical expertise of a kind that is now utilised as standard in such cases. A thorough asset tracing investigation will be similarly lacking, though, if these technical skills are not deployed in tandem with many of the more traditional asset tracing tactics.Cryptocurrency tracing will require the collaborative work of cyber and digital forensics teams as well as cryptocurrency exchanges. These groups have the tools and resources to gather crucial clues for tracking and tracing crypto assets.

At the outset, for example, open-source investigation tools can be used to build a profile of the subject and inform an assessment of whether they are likely to hold any cryptocurrency assets in the first place. Our experience suggests that individuals with significant sums in cryptocurrency are usually not shy about showing their enthusiasm for the asset class - or even particular cryptocurrencies and exchanges - on social media accounts and in other public forums.

Those investors in the sector who are more discreet might still find themselves undone by another constant of corporate intelligence: leaks.

Finally, it is a truism of asset tracing that the right legal tools can be crucial to an investigation, and this is no less true in the case of cryptocurrency assets. Depending on the jurisdiction in question, mechanisms like subpoenas and court orders can be vital tools to locate assets and pierce the cryptocurrency veil. One crucial caveat here is that the results obtained from these means can vary wildly. While exchanges registered in highly regulated jurisdictions such as the US and UK generally prove more co-operative following subpoena requests, access to transactions and account history in less regulated countries can be challenging. The information provided can also vary in the extreme depending on the meticulousness of the KYC tools implemented by each exchange, with certain exchanges providing details down to transaction dates while others restrict their output to only the most high-level information.

Despite, or perhaps even due to the novelty of cryptocurrencies, they are steadfast becoming a well-established investment opportunity for the wealthy alongside more traditional assets such as properties and luxury vehicles. Equally, cryptocurrencies have provided a new medium through which fraudsters can operate. This dichotomy means that the work of crypto tracers is ever evolving in conjunction with legal, cyber and IT forensics specialists to hunt down even the most obscured of transactions. as cryptocurrency and related fraud become more evermore mainstream.