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Cyber Crime: Investigating Bitcoin Transactions

First of all, this article assumes the reader has a basic understanding of the innovative technology called blockchain (​Editor's Note: If you do not, check out this article from O'Reilly, "Understanding the Blockchain"). You just need to realize the blockchain is a sequence of data records maintained as a distributed database. It is a peer-to-peer system. Nobody has exclusive permission to add or remove records thereto, yet anybody can do that. Any entries must satisfy strict rules. It is a public, open-access list of data blocks. However, it is not available for revision and tampering.

The technology is capable of accommodating a number of inventions. Bitcoin is but a first breakthrough. One can compare it to the beginning of the world wide web era. For the time being, any of the search providers, social networks, accommodation and travel websites had not yet developed a worldwide recognized business. Would anyone expect Google to become a global corporation with a budget exceeding that of many world's countries?

The blockchain today makes its first steps like the web 30 years ago. Public opinion tends to associate it with Bitcoin while sees the latter as a nursery for a black hat hacker's transactions. True, before we unleash the white power of the chain, its black power needs to be oppressed. Given the current development of cyber technology, the law enforcement and businesses enjoy a unique opportunity to explore the blockchain. It is a fast, safe and stable financial tool.

Meanwhile, the cryptocurrency poses a range of challenges to the public security, for example when dealing with ransomware. To start with, a Bitcoin wallet does not necessarily refer to a particular person. Any kinds of virtual money are hard to trace back to a specific person or company. International law enforcement agencies follow quite different regulations in tracking virtual currencies.

Again, these are the issues inherent in any online transactions. On the other hand, the blockchain features a number of exclusive benefits in terms of public disclosure, stability and traceability.

The first one is really stunning for a newbie. It may dramatically change public opinion regarding the subject matter.

Rumors have it the Bitcoin ensures complete anonymity of the parties. That is not quite true. Anybody using Bitcoin must have a unique address. In case it is possible to link that address to a specific person, you are able to track down and all the transactions in which that person has taken part utilizing that address.

A Bitcoin user may try all sorts of tricks to cheat the system and remain anonymous. For such cases, a number of counter-measures are available. But blockchain provides a more sophisticated option for the crime investigators. Investigating Bitcoin transactions differs greatly from the old-school online transactions.

The exchanged Bitcoin data remains intact as long the blockchain exists. In other words, the data logs are always available. It can be used at any time any case filed to the Court may reasonably need it. The design of the public ledger implies its data, once deposited, is to be retained forever.

Quite in contrary, using traditional bank accounts and switching providers from different countries the cyber criminals manage to bewilder the law enforcement. The investigators often apply enormous effort to find to the final mediator and eventually put their hands on the hacker's keyboard. When they are about to reach the target, it escapes as the finance institution just does not retain the records long enough.

Third party issues. In the case of online bank transactions, there is a concept of a Third Party Doctrine. It basically declares that, once you have exposed your data to your bank or similar entity, you are aware of the risk that other parties may reach it. It is the above doctrine that the authorities use to obtain logs relevant to the suspect's cell phone or account number without going through the complex system for obtaining relevant permits.

The doctrine still requires the law enforcement to get a subpoena. Besides, the court, governmental, public, and research bodies keep on discussing the viability of the doctrine.

If you need to trace a blockchain transaction, it remains forever and is available to anyone. Any search warrants or subpoena do not apply as such.

The bitcoin knows no borders. Indeed, cybercrimes committed overseas are harder to investigate. With traditional online currencies, one would need to go through a troublesome MLAT (Mutual Legal Assistance Treaty) routine to get the foreign authority to assist you in the investigation by disclosing the data available within their jurisdiction. Bitcoin is beyond any governmental system. You can get the data whenever you reside. All you need is an Internet connection.

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