Blockchains are great tools for investigators

Cryptocurrencies and crime are often linked, but the reality is a bit more complex

Hi all,

Have you ever come across a headline that linked cryptocurrencies with crime? You're not the only one. (And just in case, you can find some examples here, here and here.)

Supposedly anonymous crypto payments are often mentioned in the context of criminal activities, preferably even on the 'dark web'. In reality, however, blockchain-based payments are pseudonymous, not anonymous. You can't trace them by name, but you can trace wallet addresses on public blockchains.

So what’s up?

We'll discuss some common misconceptions around digital currencies.

  • What's the intersection of crime and crypto?

  • How can investigators use blockchains?

  • Is to possible to tackle 'crypto crime'?

Let’s get started! πŸ€“

All cryptocurrencies together are currently worth more than $2 trillion. To put that into perspective, it's significantly above the overall market capitalization of Germany's DAX stock index which includes the country's 40 major blue chip companies.

Unsurprisingly, such numbers draw the attention of criminals. There have been a lot of headlines about crypto scams and all sorts of unsavoury activities involving cryptocurrencies. Chainalysis put the value of cryptocurrencies received by illicit addresses in 2024 at more than $24 billion.

It's a large number, but it should be read in context. The insolvency of the German payment provider Wirecard, for example, involved a company that was valued at almost $28 billion in 2018. The company even got into the DAX as one of Germany's most valuable companies. Two years later, it went bankrupt, allegedly due to fraudulent accounting (legal cases are still ongoing).

Overall, crypto should not be considered to be more or less prone to illegal activities than other parts of the economy. However, blockchain-based payments pose unique problems – and offer opportunities for investigations.

What's the intersection of crime and crypto?

Cryptocurrencies are relevant for criminal activities. They are pseudonymous (as mentioned above), they can easily be transferred worldwide, and they can be laundered with so-called crypto mixers.

As long as cryptocurrencies remain in the crypto world, it's hard – but not impossible – to identify a person or a group behind a wallet address 

Turning cryptocurrencies into fiat money, i.e. 'real' currencies like US dollars, euros or yens, requires an exchange. These exchanges should follow certain requirements to identify their customers.

For a long time, many exchanges have more or less ignored such rules. That has contributed to the crypto industry's bad reputation. In November 2023, a settlement worth more than $4 billion in the United States highlighted the scale of the problem in previous years. It's safe to say that the situation is still not perfect, but it has become a lot more regulated than just a few years ago.

How can investigators use blockchains?

Blockchains are transparent, but reading the data requires specific skills. Moreover, blockchains are processing a lot of transactions. To find a small number of illicit ones means that you need specific software tools.

These tools turn publicly available data into actionable insights. Everybody can see which transactions took place between different wallets, yet these are merely combinations of letters and numbers.

Software helps investigators to visually trace the flow of transactions. Which wallets are interacting with other wallets? Are some wallets only sending or only receiving funds?

In a nutshell, Blockchain intelligence allows investigators or law enforcement agencies to apprehend suspects, prepare prosecutions and seize funds.

Large organisations may have the necessary capabilities and resources at their disposal. Private companies also offer such services. Given that the underlying data is public, these companies can provide the necessary tools for law enforcement efforts. 

Is to possible to tackle 'crypto crime'?

Yes – although it's impossible to completely eradicate 'crypto crime'. That's not different from pretty much any other type of criminal activity.

The basis is a good foundation. Given the level of expertise required to investigate and prosecute cases involving cryptocurrencies, it's vital to build partnerships across different government agencies and – in many cases – the private sector.

In addition, flexibility is essential. Just like the tech sector in general, crypto evolves quickly. Criminal patterns and potential targets change. Investigating such crimes therefore requires law enforcement agencies to quickly adapt.

Seizures of illicit gains are another aspect. In March 2024, for example, authorities in the UK announced a Bitcoin seizure worth billions of dollars. Recovering cryptocurrencies, however, is a highly technical process which might require access to different wallets or blockchain-based protocols.


'Crypto crime' is often used to discredit the use of blockchains and cryptocurrencies. In reality, however, criminal activities occur anywhere. Blockchains are no exception, but they offer law enforcement agencies unique opportunities.

Using those opportunities requires a solid legal framework, cooperation between different agencies and specialist knowledge. In a nutshell, it's the mirror image of sensible regulation to enable the legal use of cryptocurrencies in a large variety of use cases.

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That’s the end for today! 😒

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