Inside the Bitcoin Bust of the Web's Biggest Child Abuse Site

Chainalysis is a software for tracing cryptocurrency, "to turn the digital underworld's preferred means of exchange into its Achilles' heel," writes Wired. This week they describe what happened when that company's co-founder discovered that for two yeras, hundreds of users of a child pornography-trading site — and its administrators — "had done almost nothing to obscure their cryptocurrency trails..." and "seemed to be wholly unprepared for the modern state of financial forensics on the blockchain." Over the previous few years, [Internal Revenue Service criminal investigator Chris] Janczewski, his partner Tigran Gambaryan, and a small group of investigators at a growing roster of three-letter American agencies had used this newfound technique, tracing a cryptocurrency that once seemed untraceable, to crack one criminal case after another on an unprecedented, epic scale. But those methods had never led them to a case quite like this one, in which the fate of so many people, victims and perpetrators alike, seemed to hang on the findings of this novel form of forensics.... Janczewski thought again of the investigative method that had brought them there like a digital divining rod, revealing a hidden layer of illicit connections underlying the visible world.... When Bitcoin first appeared in 2008, one fundamental promise of the cryptocurrency was that it revealed only which coins reside at which Bitcoin addresses — long, unique strings of letters and numbers — without any identifying information about those coins' owners. This layer of obfuscation created the impression among many early adherents that Bitcoin might be the fully anonymous internet cash long awaited by libertarian cypherpunks and crypto-anarchists: a new financial netherworld where digital briefcases full of unmarked bills could change hands across the globe in an instant. Satoshi Nakamoto, the mysterious inventor of Bitcoin, had gone so far as to write that "participants can be anonymous" in an early email describing the cryptocurrency. And thousands of users of dark-web black markets like Silk Road had embraced Bitcoin as their central payment mechanism. But the counterintuitive truth about Bitcoin, the one upon which Chainalysis had built its business, was this: Every Bitcoin payment is captured in its blockchain, a permanent, unchangeable, and entirely public record of every transaction in the Bitcoin network. The blockchain ensures that coins can't be forged or spent more than once. But it does so by making everyone in the Bitcoin economy a witness to every transaction. Every criminal payment is, in some sense, a smoking gun in broad daylight. Within a few years of Bitcoin's arrival, academic security researchers — and then companies like Chainalysis — began to tear gaping holes in the masks separating Bitcoin users' addresses and their real-world identities. The article describes some investigative techniques — like pressuring exchanges for identities, tying a transaction to a known identity, or even performing an undercover transaction themselves. "Thanks to tricks like these, Bitcoin had turned out to be practically the opposite of untraceable: a kind of honeypot for crypto criminals that had, for years, dutifully and unerasably recorded evidence of their dirty deals. "By 2017, agencies like the FBI, the Drug Enforcement Agency, and the IRS's Criminal Investigation division had traced Bitcoin transactions to carry out one investigative coup after another, very often with the help of Chainalysis. "The cases had started small and then gained a furious momentum...." Thanks to long-time Slashdot reader Z00L00K for sharing the article.

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