How Investigators Track Cybercriminals

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A version of this article originally appeared in the TIME Into the Metaverse newsletter. Subscribe to receive a weekly guide to the future of the internet. You can find past issues of the newsletter here.

Criminals have increasingly turned to cryptocurrencies to conceal illicit activity over the past decade, and Wired reporter Andy Greenberg has covered their movements from the start. His new book, Tracers in the Dark: The Global Hunt for the Crime Lords of Cryptocurrency, however, focuses on the enemies of crypto scammers and criminals: the federal agents who have used the transparent qualities of blockchain to carefully track down ever – do-wells and put them behind bars.

The book recounts, for example, how blockchain tracing techniques led to the arrest of 337 people who participated in a gruesome dark web network that shared child pornography. These users thought their identity was secure due to the network’s use of Bitcoin. But it is precisely the open nature of Bitcoin transactions that has allowed them all to be tracked down and stopped.

Greenberg’s (Doubleday) book comes at an era of growing crypto scams, including the $400 million hack of now-insolvent exchange FTX. In a phone call, Greenberg spoke about the status of this hack and the dangers of online anonymity and surveillance.

Excerpts from the conversation are below.

How did you come to write a book about crime tracing through blockchain?

The reports date back to 2011. At that time, I was obsessed with this group called the Cypherpunks, a mostly libertarian movement that in the 1990s began dreaming of using encryption technologies to try to take power from the governments and businesses and give to individuals. It was then that I learned what appeared to be a Cypherpunk invention, which was Bitcoin.

What was remarkable about Bitcoin back then wasn’t just buying a cup of coffee, but also, just like cash, you could put a bunch of unmarked bills in a briefcase and the send around the world without revealing your identity. Bitcoin looked like it could be anonymous and untraceable. As someone interested in this world of cybercrime and surveillance evasion, it seemed like it was going to open up a whole new world of online crime, money laundering, drug trafficking, and cybercrime.

It definitely happened. But it took me a decade to realize just how opposite untraceable Bitcoin really was. Cryptocurrency tracing was not only possible, but an incredibly powerful investigative technique. And in the hands of a small group of detectives, it has led to the collapse of one massive cybercrime operation after another, each bigger than the last.

Let’s talk about some big news right now: This month, FTX founder Sam Bankman-Fried admitted that his cryptocurrency exchange mixes client funds with those of his investment firm, Alameda Research. . Why has no one found proof of this on the blockchain so far?

It is fascinating to see that in the midst of this golden age of crypto tracing, where so many admitted bad actors have been tracked down, identified, charged and imprisoned through crypto tracing, this huge black hole of irresponsibility or financial negligence was happening right under our noses, but escaped notice.

I think that’s partly because he was seen as a legitimate player in the crypto economy. It wasn’t a black market trying to evade surveillance. But I don’t know if the dangerous money flows from FTX to Alameda were visible on the blockchain, or if they were happening on a different level from those companies’ accounting systems.

It should be noted that there was this apparent theft of around half a billion dollars of FTX funds. It’s a real crime in progress, it seems.

The interesting thing about crypto properties is that we can all watch that half-billion-dollar sum move around the blockchain. Many of the main characters in my book are watching this money move. It will be very difficult for whoever took this cryptocurrency from FTX to cash it without being identified. We will, almost certainly, have an answer to who took that money.

You see that with so many of these heists: someone steals a huge amount and ends up with the very difficult problem of what to do with it. Very often you see them freezing for years. The problem isn’t stealing it: it’s too easy. It gets away with it and launders that money in a way where you can actually spend it on something.

Do you think most people using crypto in 2022 understand its lack of privacy?

I think the majority of crypto users probably don’t care at all whether it’s anonymous or private: they just buy it as a speculative investment. For people who seek financial privacy, they have come to realize that most cryptos, and certainly Bitcoins, are anything but private. You see this partly in the way they are moving towards more private currencies, like Monero and Zcash. You also see it in how the most prolific cybercriminals seem to be in places where it doesn’t matter if they can be traced, like Russia and North Korea.

I think there is still a dwindling but existing group of people who think they are staying one step ahead of law enforcement and surveillance. But it’s very easy to think you’re doing enough to escape this tracing when you’re not. And there’s a whole industry of very smart, well-funded people whose job it is to find ways to surprise you and track down the seemingly untraceable.

How have law enforcement and independent research firms stepped up their game since the bulk of the reporting in your book took place?

When Tigran Gambaryan [the IRS agent and investigator who is a main character of Greenberg’s book] tracked down corrupt Secret Service agents, he basically worked alone, after hours, and did so without any real tools. Now, if you fast forward to 2022, IRS criminal investigators have routinely used this technique to make the first, second, and third largest cash seizures of any kind in Justice Department history. There are entire teams in probably every major law enforcement agency in the United States, and probably others around the world, who use it routinely. I know there are full-time crypto tracers within the FBI, DEA, and IRS.

But also, there’s this whole arsenal of tools created by an entire industry of companies, first by Chainalysis, which was the first startup to focus on Bitcoin tracing as a business. Today they compete with Elliptic, TRM Labs, CipherTrace and many more every day.

Read more: Inside the chess match that led feds to $3.6 billion in stolen Bitcoin

The game of cat and mouse will continue to progress – or at least the cat side is getting so fierce and cutting edge. They are all in competition to come up with new techniques to trace people’s money.

It also means that these tools become a commodity. If you’re a law enforcement agency that doesn’t know how to trace cryptocurrency, you don’t need to learn. You can just pay a contract with one of these companies who will provide you with super advanced tools to do it and train you to do it.

At the end of your book, cryptography professor and tracing pioneer Sarah Meiklejohn expresses concern about how this kind of power could be used by oppressive governments.

One scenario is that people might have wanted to use crypto as a way to pay for abortions in states where it’s illegal. Now it can be traced. Internationally, it’s even more heartbreaking to think about how there will be repressive Russian, Chinese or other powerful regimes that will use this tool to crack down on people who seek financial privacy or fundraise for dissent. or adversarial journalism or activism.

There is no doubt that this is a complicated capacity, from an ethical point of view. I’m not necessarily saying that Chainalysis or the US government will abuse it. But it seems clear that at some point these capabilities will be available to regimes that we would prefer not to be given new surveillance powers.

When I was working on this book, I was afraid to tell a whole story from a law enforcement perspective: I didn’t want to tell a simple story of cops and robbers. Much of the narrative came from federal agents and prosecutors, and I really needed to offer the perspective of someone who could fix that. Luckily for me, Sarah is the conscience of the story. She invented so many of these techniques, but decided not to work for the cryptographic tracing industry. He’s a super thoughtful person who can talk about how it’s not entirely a good thing that crypto can be traced so easily.

In August, the Treasury Department sanctioned Tornado Cash, a privacy-preserving blockchain tool, arguing that it posed “a significant national security threat” to the United States. Its defenders have sued and argued that banning it would make privacy a crime. What do you think of this legal battle?

I don’t think the future of cryptocurrency privacy depends on the outcome of this case. There will be other decentralized mixing services, and there are tools like ZCash and other alternative cryptocurrencies that already seem very difficult to trace. As these tools become more widely adopted, there will be new technical and political battles over it.

I think it may be that untraceable transactions are still possible – and that a world of true financial privacy may still be coming, for better or for worse. Some of this will no doubt be criminal.

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