Bitcoin & Crime: A Practical Guide

TL;DR

Criminals use Bitcoin for illegal activities due to its perceived anonymity and global reach. However, Bitcoin transactions are traceable on the blockchain. Law enforcement agencies and companies can track these transactions using various tools and techniques. This guide outlines how criminals misuse Bitcoin, how it’s tracked, and what steps you can take if involved.

How Criminals Use Bitcoin

1. Ransomware: Attackers demand payment in Bitcoin to decrypt files.
   Example: A hospital network is locked down; a ransom of 5 BTC is requested.
2. Dark Web Markets: Illegal goods (drugs, weapons, stolen data) are bought and sold using Bitcoin.
   Example: Silk Road was a notorious example.
3. Money Laundering: Converting illicit funds into Bitcoin to obscure their origin.
   Example: Breaking up large sums of money into smaller transactions across multiple wallets.
4. Fraud & Scams: Using Bitcoin in Ponzi schemes, investment scams, and phishing attacks.
   Example: A fake cryptocurrency exchange promising high returns.

Tracking Bitcoin Transactions

While not completely anonymous, Bitcoin offers pseudonymity. Transactions are recorded on a public ledger (the blockchain). Here’s how they can be tracked:

1. Blockchain Explorers: Websites like Blockchain.com allow you to view transaction history, addresses, and block details.
   Example: Searching for a specific Bitcoin address reveals all incoming and outgoing transactions.
2. Address Clustering: Identifying multiple addresses controlled by the same entity (e.g., a criminal). This is done by analysing patterns in transaction behaviour.
   Note: Requires advanced analysis tools.
3. Heuristic Analysis: Using rules-based systems to identify suspicious transactions (e.g., mixing services, common scam addresses).
4. Chainalysis & Similar Services: Commercial platforms that provide detailed Bitcoin transaction analysis and attribution.
   Note: These are often used by law enforcement and financial institutions.
5. Wallet Provider Data: Exchanges and wallet providers may hold KYC (Know Your Customer) information, which can be subpoenaed by authorities.

What to Do If You’ve Paid a Ransom or Been Scammed

1. Report to the Police: File a report with your local law enforcement agency.
   Note: Recovery is unlikely, but reporting helps track criminals.
2. Contact Your Bank/Financial Institution: If funds were transferred from a bank account to purchase Bitcoin, inform them immediately.
3. Report to Action Fraud (UK): Action Fraud is the national reporting centre for fraud and cyber security incidents.
   Note: They can provide advice and support.
4. Document Everything: Keep records of all transactions, communications with attackers, and any other relevant information.
5. Do NOT Engage Further: Avoid further communication with the criminals; it may lead to more demands or threats.

Preventing Bitcoin-Related Crime

1. Be Wary of Unsolicited Offers: If something sounds too good to be true, it probably is.
   Example: Avoid investing in cryptocurrency schemes promoted through social media.
2. Use Strong Passwords & 2FA: Protect your Bitcoin wallets and exchange accounts with strong passwords and two-factor authentication.
3. Research Before Investing: Understand the risks involved before investing in any cryptocurrency.
   Example: Check the legitimacy of exchanges and projects before sending funds.
4. Keep Software Updated: Regularly update your operating system, antivirus software, and Bitcoin wallet to protect against vulnerabilities.