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The disappearance of Nancy Guthrie, 84, has brought renewed attention to how cryptocurrency transactions can be traced, particularly after reports of alleged ransom notes requesting payment in bitcoin during an investigation that is now in its second week.
Authorities believe Guthrie was kidnapped from her home on Feb. 1. The search is now on day 10, according to coverage referenced in the report.
Perianne Boring, founder and chair of the Digital Chamber, said bitcoin’s transaction structure makes it difficult for criminals to conceal payments. She noted that every bitcoin transaction is recorded on a public ledger called the blockchain.
“Every single bitcoin transaction is recorded on a public ledger called the blockchain, so when it comes to tracing transactions, following the money, you have a perfect record with bitcoin,” Boring said.
Boring added that the blockchain is publicly auditable, allowing anyone to review transaction activity tied to a specific bitcoin wallet address, including transactions from the beginning of that address’s activity.
“So, there's no way to hide those tracks. This is actually an incredibly powerful tool for law enforcement,” she said, adding that law enforcement tools and capabilities have improved as the crypto industry has matured.
Boring said criminals may attempt to hold bitcoin through “self-custody,” without using a third party such as a bank. However, she said they would still face challenges when converting the cryptocurrency into the fiat currency they want to use.
“If a ransom was paid to a bitcoin wallet and the criminal has control of that money, that's totally possible. But at some point they're going to have to transfer that money into U.S. dollars or to yen or to euros or whatever currency they want so they can use the money,” she said.
She also said that crypto-to-fiat exchange services are regulated and typically require know-your-customer procedures, which can link activity to identities.
“You have to use a regulated financial institution like Coinbase to do that, and at that point, you're at a [know your customer] entity so we would know the identity of the person who's trying to exchange the bitcoin that's linked to the ransom payment,” Boring said.
Boring said criminals may try to reduce traceability by moving bitcoin from a self-custodied wallet to multiple wallets. She said those distributions remain trackable by law enforcement.
She pointed to the emergence of mixing services, which she described as platforms that receive crypto from multiple parties and mix it together before releasing it.
“That's one way to conceal it. But even that, you get all the money that goes into a mixer, you can see all the crypto that comes out of it, so there's still traceability on it, but it does confuse things a little bit for law enforcement purposes,” Boring said.
She added that law enforcement is “very, very sophisticated” in tracking and tracing transactions on the blockchain.
Boring said businesses in the crypto sector have developed track-and-trace software used by compliance officers and by law enforcement.
“This is a very sophisticated effort that's been built over a decade. There is a lot of coordination that happens with the crypto exchanges and law enforcement to track and trace illicit activity in this space, and it's very effective and very efficient,” she said.
She also referenced Justice Department cases involving seizures of large amounts of cryptocurrency from criminals, saying law enforcement has worked to address abuse of the technology.
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