A closer look at the rise of blockchain detectives – Cryptopolitan

The once promised “Netflix on the blockchain” by Ryan Felton did not materialize. Instead, he spent the millions raised from investors on luxury items such as a $1.5 million house and a red Ferrari.

This case exemplifies the role that digital currencies played in criminal activities, as they provided a seemingly anonymous way for criminals to transfer large amounts of money.

However, this anonymity was only an illusion, as cryptocurrency transactions are recorded on a publicly visible blockchain. This has led to the emergence of a new breed of cryptocurrency detectives, such as Chainalysis, which was valued at $8.6 billion after a funding round last year.

These detectives are at the center of a growing industry dedicated to deciphering blockchain records and helping authorities track crypto transactions.

The role of the chain light

Chainalysis is taking on an increasingly important position in the crypto industry as federal agencies crack down on crypto fraud. The company markets itself as a force for good in the sector, solves crime and cooperates with public officials.

For example, after the FTX exchange imploded, Chainalysis was hired to trace $400 million in crypto stolen from FTX’s accounts. The firm has also engaged in light diplomacy, hosting conferences to bring together government officials and crypto leaders.

However, this ambassadorial role has put Chainalysis at odds with some of crypto’s most passionate advocates, who envisioned digital money as a private and anonymous financial network.

This clash represents a battle for crypto’s future, unfolding at a turbulent moment in the industry’s short history.

The government’s perspective

From the government’s perspective, Chainalysis is arguably the most trusted company in the industry due to its powerful tools aimed at penetrating the veil of secrecy that made crypto attractive in the first place.

Jonathan Levin, one of the founders of Chainalysis, stated that the blockchain is “often the key to unlocking a case” and that “it is more traceable and more conclusive.”

In Ryan Felton’s case, Beth Bisbee, a Chainalysis investigator, helped prosecutors by using a forensic technique called clustering to show that Felton had moved investors’ Ether to one exchange before transferring it to another and then converting the Ether to cash.

Blockchain Tracking: An Expanding Industry

As the crypto industry has expanded, blockchain tracking has become increasingly important. Major crypto companies are now hiring blockchain analytics firms to monitor customer activity and comply with anti-money laundering laws.

In bankruptcy proceedings, analytics firms examine public transaction logs to find missing funds.

Although the recent downturn in the crypto industry has affected the tracking business, firms like Chainalysis have been somewhat insulated from the worst effects of the market crash.

With two-thirds of its revenue coming from partnerships with government institutions, including law enforcement agencies, Chainalysis has managed to maintain relatively stable revenue even in turbulent market conditions.

Chainalysis now faces competition from smaller rivals such as TRM Labs, which has gained prominence by selling software for new types of cryptocurrencies.

As the world of digital money continues to evolve, the struggle to maintain anonymity and privacy while fighting crime is likely to shape the future of the crypto industry.