We live in an era of technological innovations with infinite positive contributions. But as we all know, every new innovation has a form of security requirement behind it, and a perfect example of a novel technological innovation is the blockchain technology which brought about the need for blockchain forensics.
Blockchain technology in brief
Blockchain, invented in 2008, is a growing list of records called “blocks”, which are linked using cryptography. It serves as the public distributed ledger for Bitcoin, a form of cryptocurrency. This ledger permanently records and stores transactions made between two entities. The invention of blockchain technology, among other things, has served as the major tool for other cryptocurrencies which have subsequently emerged.
The blockchain technology of cryptocurrencies presents its users with a seamless method of payment, as it offers fast and almost tax-free transactions. The anonymity in transactions and the exclusion of trusted third parties needed to verify such, made cryptocurrencies become a default standard payment in the dark web. As a result, it has become a tool that has been increasingly used by criminals to perform illegal transactions and activities. The surge in the rate of financial crimes involving cryptocurrencies, has triggered a need for an investigation into blockchain activities.
The American Heritage Dictionary defines forensics as “the use of science and technology to investigate and establish facts in criminal or civil courts of law”. In other words, forensics deals primarily with the recovery and analysis of latent evidence. Latent evidence can take the form of fingerprints left on a window, to logs recovered from a damaged computer system or ledger transaction activities on a blockchain. Digital forensics is a growing field that implore the use of technology and other sophisticated tools to detect or trace cyber crimes.
Given the disturbing rate of crimes and scams in the crypto and Blockchain scenes. We are now witnessing the rise of Blockchain forensics startups and firms focusing on how to address this critical issue. Let us briefly look at what Blockchain forensics is all about.
Cipherblade.com defines Blockchain forensics as an accounting that involves both tracking and interpreting the flow of cryptocurrency assets on blockchains. It also involves the use of forensic principles and methods to investigate crimes related to blockchain technology.
How Blockchain Forensics is Aiding Cryptocurrency Criminal Investigation and Analysis
Like blockchain itself, blockchain forensics is also in its infancy stage. Even as criminals will always develop a means of using cryptocurrencies for reprehensible purposes, blockchain forensics has been quite effective in considerably reducing the rate of cyber fraud. The ways it has helped include:
De-anonymization: It is a common belief that blockchain technology often offers some form of anonymity, but startup firms like Cipherblade, Ciphertrace, and Elliptic, have debunked this. These startups have developed tools using principles of forensics, that allow law enforcement agents to easily identify and trace criminals who attempt to use blockchain to conceal their illegal activities.
Financial Investigation: The application of blockchain forensics in the financial sector offers enforcers the technical ability to follow digital money trails, thereby, leading to the successful investigation and prosecution of various crypto crimes, the most recent being the Twitter bitcoin scam of the 15th July 2020.
Although the methods adopted by the investigators in trailing the masterminds behind the scam are still unclear, wired.com reports that the backward trailing of bitcoin payments, as well as wallet and IP addresses, led investigators to two of the alleged perpetrators, within two weeks. This is a pointer to the fact that blockchain forensics constitutes an immensely useful tool in the investigation process of cyber crimes.
Digital Asset Recovery: Hacking incidents, crypto ponzi schemes, crypto exchanges and thefts, are ways in which cyber criminals defraud victims of their cryptocurrencies. With the application of blockchain forensics, these digital assets can be recovered in no distant time.
As cryptocurrencies continue to be the financial weapons of choice for cybercriminals, blockchain forensics will continually position itself as the preferred tool for cryptocurrency regulators and law enforcement agents who wish to effect a reduction in crypto crimes.