Criminal activities often thrive where oversight is weakest, which is why cryptocurrency has become a preferred tool for financial crime worldwide.
“We see an increasing use of cryptocurrency. It’s a massive growth,” says Federico Paesano, a financial investigation expert at the Basel Institute on Governance, an international non-profit focused on strengthening global governance and fighting corruption.
For many journalists, investigating cryptocurrency can seem daunting—even impenetrable. Yet, it's an increasingly critical beat. At the 13th Global Investigative Journalism Conference (#GIJC23), a workshop led by Paul Radu, co-founder of the Organized Crime and Corruption Reporting Project (OCCRP), and featuring expert Federico Paesano, offered key insights and practical tips for reporters.
Understanding Cryptocurrency: Core Concepts
What Is Cryptocurrency?
Federico Paesano uses an analogy: the Yapese people of Micronesia historically used massive limestone rocks as a form of currency, which weren’t carried around but recorded as ownership in a shared ledger. Similarly, owning cryptocurrency represents an entry in a digital ledger. You access it through cryptographic keys, and transactions are recorded on a decentralized, encrypted, and immutable ledger—meaning they cannot be changed.
What Is a Blockchain?
A blockchain is that digital ledger. It records every transaction made with a particular cryptocurrency. Each cryptocurrency has its own blockchain; for example, Bitcoin’s blockchain is roughly 500 GB in size.
What Is a Cryptocurrency Wallet?
A wallet stores your cryptographic keys, which prove your ownership and allow you to access and transact with your cryptocurrency.
What Is a Cryptocurrency Cluster?
Clustering connects multiple wallets that belong to the same entity. Clusters are often shared publicly to receive funds and typically appear as a string of letters and numbers.
Is All Cryptocurrency Bitcoin?
No. Bitcoin is just one type of cryptocurrency, with its own blockchain and features. Different cryptocurrencies are designed for various purposes. For example, Bitcoin is more decentralized compared to Ethereum.
Why Is Cryptocurrency Attractive?
While features vary, here’s why cryptocurrency appeals to users—including criminals:
- Irreversible transactions: No central authority can reverse or stop payments.
- Decentralization: Assets aren’t controlled by governments or banks.
- Strong encryption: The underlying cryptography is robust, although hackers still find vulnerabilities—as seen in 2022 when billions were stolen.
- Permissionless: No third-party approval is needed for transactions.
- Pseudonymity: Offers some privacy, making it harder for authorities to seize assets.
- Inflation hedge: Can protect against local currency inflation, though crypto values are highly volatile themselves. For instance, Bitcoin’s value rose 300% from November 2020 to November 2021, then fell back to previous levels within a year.
How Prevalent Is Cryptocurrency Crime?
While cryptocurrency-related crime remains a small proportion of all financial crime, its scale is growing rapidly. Extremist groups, in particular, are increasingly using crypto, making it essential for investigative journalists to understand the basics.
Practical Tips for Investigating Cryptocurrency
Recognize Key Storage Methods
Understand what cryptographic keys and passwords look like and where they might be stored—on paper, USB devices, or in the cloud.
Identify Physical Exchange Points
Look for brick-and-mortar exchangers that convert crypto to cash. Paul Radu suggests engaging with these services to identify their wallet addresses, which can then be traced using public sources.
Use Open-Source Investigation
Search forums, social media, and dark web platforms where individuals may publicly share crypto addresses for fundraising, sales, or other purposes. Always follow online security best practices, such as using a VPN, when accessing risky sites.
Learn Transaction Mechanics
Cryptocurrency transactions don’t work like splitting a bill. If you want to send 0.5 Bitcoin from a 1 Bitcoin address, you must send the full 1 Bitcoin as an “input.” The “outputs” will be 0.5 Bitcoin to the recipient and 0.5 Bitcoin back to you as “change.” This process, part of “heuristics,” helps investigators cluster addresses owned by the same entity.
Connect the Dots
By understanding heuristics and the fact that one person can control multiple addresses, you can scale your investigation from a single transaction to uncovering entire networks.
Master Blockchain Explorers
Use blockchain explorer tools like WalletExplorer to visualize and track cryptocurrency transactions across public ledgers.
Recognize Obfuscation Techniques
Be aware of privacy-enhancing technologies like Zk-SNARKs, ring signatures, stealth addresses, mixers, and coinJoin. While not exclusively criminal, these can be used to hide illicit flows.
Attend Relevant Conferences
Events like the Global Conference on Financial and Cryptocurrency Crime offer opportunities to gather intelligence and network with law enforcement and experts.
Engage Monitoring Organizations
Platforms like Elliptic specialize in blockchain analytics. Reaching out to such organizations can provide valuable support during investigations.
Frequently Asked Questions
What is the first step in a cryptocurrency investigation?
Start by understanding basic concepts like blockchains, wallets, and clusters. From there, use open-source tools to trace publicly available transaction data.
How can I track anonymous cryptocurrency users?
While users aren’t fully anonymous, they are pseudonymous. Using clustering techniques and blockchain analysis, you can often link multiple addresses to one entity or identify real-world exchange points.
Are cryptocurrency transactions truly irreversible?
Yes. Once a transaction is confirmed on the blockchain, it cannot be reversed. This makes it crucial to verify details before proceeding with any transfer.
What tools are available for cryptocurrency tracing?
Several blockchain explorers—such as WalletExplorer, Blockchain.com, and Etherscan—allow you to track transactions. For deeper analysis, consider using advanced blockchain forensic tools.
How do criminals typically launder money using cryptocurrency?
Common methods include using mixers or tumblers to obscure transaction trails, chain hopping (switching between cryptocurrencies), and using unregulated exchanges.
Is it safe to investigate cryptocurrency transactions?
It can be risky, especially when dealing with criminal actors. Always use strong cybersecurity measures, including VPNs and secure devices, and avoid accessing suspicious sites without protection.
Getting familiar with cryptocurrency involves a steep learning curve, but it’s increasingly necessary as both crime and corruption move into the digital asset space. For those looking to deepen their knowledge, the Basel Institute on Governance offers resources like their Quick Guide to Cryptocurrencies and Money Laundering Investigations.