Excerpt from Tracers in the Dark: The Global Hunt for the Crime Lords of Cryptocurrency 

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“ON A SUMMER’S day in London a few months earlier, a UK-born South African tech entrepreneur named Jonathan Levin had walked into the unassuming brick headquarters of the UK’s National Crime Agency—Britain’s equivalent to the FBI—on the south bank of the Thames. A friendly agent led him to the building’s second floor and through the office kitchen, offering him a cup of tea. Levin accepted, as he always did on visits to the NCA, leaving the tea bag in.

 

The two men sat, cups in hand, at the agent’s desk in a collection of cubicles. Levin was there on a routine customer visit, to learn how the agent and his colleagues were using the software built by the company he’d cofounded. That company, Chainalysis, was the world’s first tech firm to focus solely on a task that a few years earlier might have sounded like an oxymoron: tracing cryptocurrency. The NCA was one of dozens of law enforcement agencies around the world that had learned to use Chainalysis’ software to turn the digital underworld’s preferred means of exchange into its Achilles’ heel.

 

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. They could follow bitcoins on the blockchain as they moved from address to address until they reached one that could be tied to a known identity. In some cases, an investigator could learn someone’s Bitcoin addresses by transacting with them, the way an undercover narcotics agent might conduct a buy-and-bust. In other cases, they could trace a target’s coins to an account at a cryptocurrency exchange where financial regulations required users to prove their identity. A quick subpoena to the exchange from one of Chainalysis’ customers in law enforcement was then enough to strip away any illusion of Bitcoin’s anonymity….

 

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 Administration, and the IRS’s Criminal Investigation division (or IRS-CI) had traced Bitcoin transactions to carry out one investigative coup after another.”

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