Cryptocurrency forensics is both a science and an art. It requires meticulously looking at the data presented, analyzing, evaluating, and then initiating steps to uncover and recover crypto assets from crypto wallets that were used in the scam. They assist law enforcement in tracking down unlawful money, building a complete case on behalf of victims, and bringing culprits to justice.
It is the need of the hour to investigate and analyze blockchain transactions to uncover, compile the data, and organize the entire events leading to the fraudulent activity. Scammers are known to launder money in the form of cryptos by frequently changing their crypto wallets. Besides laundering cryptos, these con artists also engage in hacking, online fraudulent activity, and simply stealing cryptos and NFTs from their potential victims. And this is where crypto crime investigation plays a vital role.
The Widespread Of Crypto Crimes
In recent years, there has been a boom in the crypto adoption rate. During the pandemic period, many witnessed that during the economic hardship, it was the crypto market that prevailed, while the rest of the traditional economic market collapsed. This situation further fueled the adoption rate of cryptomania.
Cryptocurrencies can be classified into payment currencies, tokens, stablecoins, and central bank digital currencies. Such a boom in the crypto market and the ever-increasing dependency on digital transactions make it crucial to safeguard these financial assets.
Each crypto transaction offers pseudo-anonymous peer-to-peer transactions. These transactions are immutable; once a transaction is initiated, it cannot be reversed. Scammers make use of this loophole and target their potential victims. The daily crypto volume ranges in billions; thus, it is necessary to protect the asset class.
As per reports, compared to 2022, the total amount of money lost was in the tune of $4.2 billion, and another $40 billion was lost due to the collapse of Terra, Celsius, and FTX; roughly $2 billion was lost in 2023. These numbers are bound to be higher as many are clueless while reporting a crypto scam, while a small portion avoids reporting as they do not wish to be stigmatized by their close ones.
Given the current economic hardships, many are living from paycheck to paycheck. Many are also finding it challenging to continue living their lifestyle and are forced to downgrade it. They are ready to invest in cryptos as an alternate source of income. However, they lack the necessary awareness and knowledge while investing in the crypto market. Thus, these are the exact people who are on scammers’ radar.
Scammers take advantage of these desperate people who wish to upgrade their lifestyles. Since many are living paycheck to paycheck, their credit score is low, making it challenging to get a loan at a cheaper interest rate.
Con artists understand that they can rip off those who are willing to change their lifestyle. Thus, they attract these potential victims through a web of lies and offer the wrong financial advice, which further destroys their credit scores. Many are encouraged to take the money from their emergency funds, like college tuition fees and mortgage funds, and even give up their retirement funds only to invest in shady investment opportunities.
Challenges Of Cryptocurrency Forensics
Although it is far easier to launder money using fiat money compared to cryptocurrency, the FBI admits that some loopholes are exploited by scammers, which makes it challenging for law enforcement agencies to apprehend these criminals. This is where crypto forensic experts come into the picture
- Lack of information about entities trying to get around the requirements of the US Bank Secrecy Act
- A lack of knowledge about other criminal groups is probably leading them to turn to crypto-related crimes.
- Criminal entities may engage in crypto services like tumblers and mixers, a process where coins are mixed, making it challenging to track original crypto.
- Using privacy-enhancing technologies.
- Freely flowing borderless transactions may cause jurisdiction challenges.
- Limited and ambiguous regulations may cause challenges.
- Evolving technology may further enhance privacy, making it challenging to track down original cryptos.
Malevolent Cryptocurrency Activities That Require Crypto Forensics
It seems that scammers are always one step ahead of law enforcement agencies. They quickly understand the technology and adapt it to their nefarious agenda. As technology evolves, these charlatans will quickly adapt the current available technology to scams. Due to their creative and innovative nature while pulling off a scam, the Boys in the Blue face challenging tasks ahead of them while apprehending the criminal tendency group involved in the scam.
Thus, there is a need for a crypto crime investigation to uncover these online scams and help prevent monetary losses that are to the tune of billions. These cybercriminals entice their potential victims through various methods, including:
Online Scams and Frauds
The chances of you finding potential online scams are high compared to genuine business opportunities. The sheer number of these scammers online makes it next to impossible for crypto regulators and the government to keep an eye on them. These scams include fake job guarantees and romance scams, and in all these scams, victims are left with poor financial health. Falling for an online scam only guarantees regret and misery, as it takes years to clear a messed-up credit score due to these fraudulent activities.
Dark Web Menace
It is surprising what one can find on the dark web. As the name suggests, one can buy an illegal drug consignment of unauthorized weapons delivered to their doorsteps. It is challenging to enter the dark web since it is also riddled with scammers. There is a high chance that you may select a product and buy it only to discover that it will never reach your doorstep.
The dark web is quite popular with scammers, and cryptos are the main source of transactions. From the complete data of identity theft to counterfeit fiat currencies, all can be traded within this dark web.
Ransomware
Another popular way for scammers to rip off their potential victims is to take control of their electronic devices, like smartphones and computers. These cybercriminals will prompt their potential victims to download malicious software through random emails, texts, messages, and so forth. Once the potential victim clicks on the link in the body of the message, malicious software gets downloaded and gives control to the scammer involved.
Once the controls are in the hands of scammers, they will ask for ransom. While their victims arrange for the ransom amount, these scammers will download all the sensitive details of their victims so that they can strike them again in the future through identity theft.
Cyber Attack
Crypto exchanges and crypto user wallets are always under threat of cyberattacks. These hackers not only attack big crypto exchanges, but they also target individual crypto wallets. Once they succeed, they ensure that the majority of cryptos are in their possession, leaving the exchanges and individual crypto users in financial disarray.
Terror Financing
In recent years, terrorists have understood the importance of borderless transactions offered by cryptocurrencies. They have smartly used this feature to their advantage. They can now launder money in huge amounts from one place to another using cryptocurrency; thus, it is quite challenging for the FBI to track all the crypto transactions carried out in bulk.
Money Laundering
It becomes easier for anyone to convert their black money into white money, as cryptos are notorious for their highly volatile nature. Thus, these antisocial elements invest and trade in cryptos, and it becomes increasingly challenging for the FBI to track all the illicit wealth that is used to promote illegal and criminal activities.
Thus, it is quite critical from society’s point of view to track down these stolen digital assets and bring the perpetrators to justice, and this is where crypto investigations come into play. With their assistance, law enforcement authorities may bring fraudsters, hackers, and other criminals to justice.
How Does Crypto Forensics Work?
Many are confused and ask, What are crypto scam investigations? We will shed light on how we operate and deal with the challenges that we face while investigating a crypto scam.
As we have mentioned, crypto forensics is both a science and an art. The science part deals with meticulously tracking down the stolen crypto assets using state-of-the-art technology while skillfully navigating through international financial rules and regulations and negotiating with third parties for the recovery of stolen crypto assets.
A crypto-forensic expert is impartial while pursuing the case and producing objective data. These experts do not engage in discriminating against anyone but rather work to collect all the data that will aid law enforcement agencies in their further investigation. The pieces of evidence gathered aid these law enforcement officers in bringing the involved con artists to justice.
While pursuing crypto fraud, cyber forensic experts follow certain methodologies to track down stolen crypto assets.
Pattern Analysis
Experts analyze activity patterns in blockchain; such analysis helps them identify suspicious transactions and, with the help of specialized tools, map them out.
Address Clusters
By observing the transaction patterns, experts can determine specific relationships between the wallet addresses. They can determine if it is the same individual or a group of individuals. It is a critical step as it allows investigators to understand the number of players in the scam.
Using Algorithms
Crypto forensic experts make use of advanced mental shortcuts and clustered algorithms, connecting dots that create the entire scenario of the crime. It helps better understand how the fraudulent activity was carried out.
Transaction History
Once the suspicious wallet has been identified, its transaction history is carefully studied. Experts collect all the data regarding the to-and-fro flow of funds in the suspicious wallet. This creates the necessary link when the wallet is used to steal crypto assets and launder them to another wallet address.
Transaction Tracing
All cryptocurrency transactions are registered like a ledger in the blockchain. It becomes easier for the experts to have a look at these blocks to understand the transaction records of suspicious wallet addresses. This helps law enforcement officers freeze and recover crypto assets that are illegally held.
Crypto Exchange
Cryptocurrency exchanges play an important role as they are authorized to confirm crypto users through KYC regulation. If the crypto user is a scammer, then law enforcement officers, through legal approval, can issue subpoenas, allowing them to investigate the crypto wallet in question. Based on the findings, the law enforcement officer can take further action against the suspected crypto user.
Attribution data
The most amazing operation crypto-forensic specialists can perform is connecting real-world identities to digital wallets. Accurate attribution data is critical to apprehending online perpetrators and perhaps retrieving any crypto funds they have stolen.
Active Capture
Honeypots are crypto wallets, tokens, or smart contracts that act as bait for con artists. Crypto investigators will use them as a lure, hoping for these charlatans to take the bait. Once they fall for it, these crypto investigators can use the information later to identify other transaction patterns.
OSINT
Open-source intelligence, or OSINT, involves the analysis of the data that is out there for the public to view. This publicly available data is used to link real-world entities to suspicious crypto wallets and transactions. These datasets are available on social media platforms, messaging platforms, forums, and public databases.
Cryptocurrency forensics is evolving at a faster pace, as they need to stay one step ahead of the cybercriminals, who are using their creativity and innovation to use the technology for nefarious purposes.
Future Of Cryptocurrency Forensic
Since its inception, cryptocurrency forensics has been trying to close the gap between cryptocurrency and crime. In recent years, this gap has become narrower and narrower as crypto cyber experts team up with law enforcement agencies to bring down crypto crime rates.
Law enforcement officers are relying more on these crypto cyber experts to expose scammers behind the scam and book them under the law.
As time progresses, the tools used by cyber forensic specialists are evolving, and their methodologies are also being refined, enhancing their accuracy and reliability. Thus, the emphasis on the accuracy of attribution data is considered essential for effective investigations and asset recovery.
At CapX Recovery, we understand the importance of crypto crime investigation using state-of-the-art hardware and software to track down the stolen crypto assets of the victims of an online scam. To ensure and enhance our quest to recover the stolen crypto assets and bring the scammers involved to justice, we follow:
- To meet the highest standards of data quality and reliability, we continuously refine our tools and methodologies.
- Strengthening partnerships and initiatives by emphasizing data verification, using cutting-edge technology, and encouraging cross-sector collaboration.
- Expand our investigative potential by encompassing a broad range of data sources and resources and providing an integrated strategy for each case.
- To create effective and efficient experts across the industry, providing both depth and breadth of knowledge to our crypto forensics team.
- Our team of specialists prioritizes integrity by validating our investigation findings while simultaneously ensuring every piece of information we provide strengthens reliability that can withstand rigorous legal scrutiny.
- Investing in long-term, creative solutions that improve the area of cryptocurrency forensics while also protecting the interests of our clients and the general public.
Adhering to and upholding these core values and beliefs not only helps us to maintain the highest industrial standards but also prepares the groundwork for future breakthroughs and legal accomplishments in the digital asset field.
While combating crypto crime, crypto intelligence, tracing, tracking, and forensics are indispensable tools. Such tools not only ensure the financial security of law-abiding crypto users but also help crack crime.
As technology advances, there is an ongoing conflict between those who commit crime and those who oppose it. It is a war that can prove costly if lost. Thus, at CapX Recovery, we share with our professionals the opportunity to study new technologies while also improving their knowledge and abilities, resulting in the sharpest tools in the box.
If you or someone you know has unfortunately fallen victim to an online crypto scam, then contact us at Capx Recovery. Our experts would be more than happy to help, advise, and guide you to recover your lost crypto assets.
