The Purpose of Blockchain Forensics in Cryptocurrency Trading

Did you know that not all cryptocurrency wallets are created equal these days? Here are the many different types of cryptocurrency wallets that exist today.

Despite the hype about Blockchain forensics, it is important to note that Law enforcement agencies still need to be aware of this topic. That being said, some investigative techniques are now available to help de-anonymize crypto transactions. These include clustering algorithms and subpoenas in civil litigation. These could be used to identify the operators of fraudulent crypto schemes positively.

Clustering Algorithms Help To Identify Wallet Addresses.

Using heuristics and clustering techniques to identify wallet addresses in cryptocurrency trading can be helpful. These techniques are based on data science methods. They can identify hundreds of thousands of addresses, given only a few verified labels. Several studies have been conducted on the financial aspects of cryptocurrencies. Several researchers have developed software to analyze these systems. These researchers have also identified relationships between entities, and they have designed heuristics and clustering algorithms. In addition, the authors of most papers also proposed an improved change address detection heuristic. This heuristic can identify a change address if the output address meets four qualification conditions. The heuristic can also find the relationship between output and input addresses.

Investigative Techniques Can Be Used To De-Anonymize Crypto Transactions.

Using investigative techniques, law enforcement agencies have been able to de-anonymize cryptocurrency users through cryptocurrency accounting and other tools. This can be used to identify bad actors and catch perpetrators. This method can help law enforcement trace a cryptocurrency transaction to a particular exchange location or “choke point” where the money has been diverted. It can also help to identify communications that are associated with the scheme. This information can then be used to identify who made the transaction. Law enforcement can then use a warrant to force an exchange to reveal the real identity of the party involved. The process has proven to be successful in many cases. Another method is called “taint” analysis. This technique evaluates the association of two addresses. If there is a relationship, the addresses will likely be linked to the person. The use of address-linking techniques can also assist with de-anonymization. These techniques look at networks of crypto addresses. 

Identifying Frauds And Suspicious Activities

Identifying fraud and suspicious activities in cryptocurrency trading is a growing global concern. Although it is possible to identify some common types of crypto fraud, the full extent of the problem remains unknown. In addition, the private sector cannot address the problem alone. To address this challenge, an academic scoping study was conducted that analyzed the current state of knowledge about fraud and suspicious activities in cryptocurrency trading. It included an updated academic literature search and a review of grey literature. It also included a consensus exercise. In this expert consensus exercise, a group of experts from various sectors identified the main types of fraud and suspected types of fraudulent activity. It elicited opinions about future threats, current risks, and the feasibility of future research. The study found five primary types of scams: HYIPs, mining malware, phishing, imperson scams, and ICO scams. Of these, Ponzi schemes were discussed most often. In addition, participants voiced their concerns about pump-and-dump operations.

Verifying Provenance Tracking Of Digital Evidence

Identifying and tracking the perpetrator in the tamper-proof crypto exchange enigma is no easy task. Hence, the need for a trifecta of a forensics savant, digital detective, and cryptographer. A comprehensive database of evidence, a comprehensive set of guidelines and policies to guide the prosecution’s efforts and ensure the evidence’s accuracy, proper etiquette, and a proper code of conduct are key to the success of an entrant. The best way to achieve these objectives is to identify and resolve the problem early in the game. As such, a rigorous and exhaustive testing process to ensure the highest quality of evidence is produced is the linchpin to achieving success. Hence, the need for a forensics savant is imperative for the reasons above and to ensure the smooth functioning of the ensuing court proceedings.

Avoiding Traceability

Despite the hype surrounding cryptocurrencies, there is still a need for traceability in the supply chain. This is especially true in the textile industry, where customers seek quality assurance and transparency through product labels and proof of origin certifications. For instance, a fashion brand might place an order with a supplier for an organic cotton tee. This would require the manufacturer to document the journey of said tee from source to store. This is, of course, not the easiest task to accomplish, but it is also possible. Using a decentralized ledger, or blockchain, as the foundation for a traceability solution is a good way to go about it. While many of the best practices of the broader blockchain community apply to public ledgers, a private version is a great way to maintain privacy while maximizing speed and efficiency. In the idealistic scenario, each channel may have a separate shared ledger and one or more smart contracts.


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About Marc Wallace

I'm never too busy to share my passion. I've created this page to help people learn more about business, finance and real estate. Besides all the serious stuff, I'm also a man that values family and healthy relationships. I hope you find my content insightful.

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