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Battles Of Dirty Money And Blockchain: How To Trace Stolen Crypto

Nastel Technologies®
September 17, 2020

Blockchain – I have watched as the amount defrauded in the crypto space has grown to more than $12 Billion and despite global efforts, 98% of cases going unsolved.

On the other hand – as in the case of QuadrigaCX, a cryptocurrency exchange which lost $190 Million in customer assets early last year after the apparent death of its founder Gerald Cotton, along with the loss of the cold wallet keys – well prepared and verifiable evidence makes it far easier to gain effective court action.


How can the difference in outcomes be so vast? Assets like Bitcoin and Ethereum, before treated as ‘anonymous’ and ‘high risk’, are now at the front line of advancement in anti-money laundering technology – usurping traditional finance at a fraction of the cost. And some have woken up.


Blockchain investigators are now finally being turned to by law firms to negotiate a constantly morphing crypto crime environment. An advantage Miller Thomson has sought in the recent retention of our strategic partner Kroll, a division of Duff and Phelps, to collaborate alongside us in the QuadrigaCX matter.

In light of this sea change, allow me to familiarize you with the kind of battles typical cases present – and how my team traces stolen crypto.


Crypto Mixing Schemes

Misappropriated cryptocurrency funds related to hacks, scams, ransoms, drug and human trafficking and all other types of illicit and criminal activities tend to be passed through complex layering/mixing schemes aimed to conceal the trail of funds.


One scheme is by the use of blockchain transaction mixers (also referred to as tumblers/anonymizers) – services that attempt to confuse the trail of blockchain transactions. In most cases funds are divided into smaller parts. These parts are then ‘mixed’ at random with similar sizes of other users’ funds. As a result, the criminal perpetrator receives the funds with a much lower ‘taint’ ratio (low traceability to perpetrator’s initial blockchain addresses).


Some blockchain protocols like Dash or Zcash have embedded anonymizing functions within their protocols. Mixing services are useful to criminals if the amount of illicit funds is not extraordinarily large. The higher the amount, the more difficult it is to conceal the source of funds.


Afterwards, large and sophisticated hacking and scam operations typically pass funds through a deliberately designed chain of hundreds or thousands of ‘layering’ transactions – similar to traditional finance money laundering methods.


The destination of illicit funds are typically cryptocurrency exchanges. Most often those with no or low KYC standards as well as reputable exchanges, owing to many of them still missing truly effective, high-tech AML and Transaction Monitoring solutions such as Coinfirm’s AML Platform.


The other usual recipients of crime-related coins are various disreputable Clearnet and Deep Web blockchain services such as; marketplaces, decentralized finance applications or gaming and gambling sites. All of these endpoints may serve criminals both to cash out illicit cryptocurrencies as well as a means of further hindering the trail of funds by exchanging them through several such services.


But despite the sophistication of the schemes’ route, the blockchain ledger is immutable. It can and is tracked.


This article originally appeared on To read the full article and see the images, click here.


Nastel Technologies helps companies achieve flawless delivery of digital services powered by middleware. Nastel delivers Middleware Management, Monitoring, Tracking and Analytics to detect anomalies, accelerate decisions, and enable customers to constantly innovate. To answer business-centric questions and provide actionable guidance for decision-makers, Nastel’s Navigator X fuses:

  • Advanced predictive anomaly detection, Bayesian Classification and other machine learning algorithms
  • Raw information handling and analytics speed
  • End-to-end business transaction tracking that spans technologies, tiers, and organizations
  • Intuitive, easy-to-use data visualizations and dashboards

Nastel Technologies is the global leader in Integration Infrastructure Management (i2M). It helps companies achieve flawless delivery of digital services powered by integration infrastructure by delivering tools for Middleware Management, Monitoring, Tracking, and Analytics to detect anomalies, accelerate decisions, and enable customers to constantly innovate, to answer business-centric questions, and provide actionable guidance for decision-makers. It is particularly focused on IBM MQ, Apache Kafka, Solace, TIBCO EMS, ACE/IIB and also supports RabbitMQ, ActiveMQ, Blockchain, IOT, DataPower, MFT, IBM Cloud Pak for Integration and many more.


The Nastel i2M Platform provides:


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