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The disappearance of Nancy Guthrie has brought a renewed focus on the traceability of cryptocurrencies and their use by criminals following reports of alleged ransom notes requesting payment in bitcoin.
Guthrie, 84, was last seen on Feb. 1, when authorities believe she was kidnapped from her home. There have been reports about multiple alleged ransom notes demanding payment in bitcoin during the course of the investigation, now in its second week.
While bitcoin gained a reputation for being associated with crime following the 2013 takedown of the Silk Road online black market, where crypto was used to buy illegal drugs and other items, the evolution of the digital assets industry and expanded regulatory oversight of it in the years since has made it more difficult for bad actors to do so.
“Every single bitcoin transaction is recorded on a public ledger called the blockchain, so when it comes to tracing transactions, following the money, you have a perfect record with bitcoin,” Perianne Boring, founder and chair of the Digital Chamber, told FOX Business. The Digital Chamber advocates for the use of digital assets and blockchain-based technologies.
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“The blockchain is a public ledger that is free for anyone to audit, so anyone can look up a specific bitcoin wallet address and see every transaction that’s come in and out from the very beginning,” she said.
“So, there’s no way to hide those tracks. This is actually an incredibly powerful tool for law enforcement. In fact, it’s a way better tool for law enforcement than it is for criminals, which is why we really don’t see a lot of criminal activity with bitcoin anymore now that the industry has matured,” Boring added.
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Boring said that criminals may “self-custody” their bitcoin without using a third party – like a bank – to hold on to the money, though they would still face issues trying to convert the crypto to the fiat currency of their choice.
“If a ransom was paid to a bitcoin wallet and the criminal has control of that money, that’s totally possible. But at some point they’re going to have to transfer that money into U.S. dollars or to yen or to euros or whatever currency they want so they can use the money,” she said.
“The companies that provide that money exchange service are all regulated businesses globally… you have to use a regulated financial institution like Coinbase to do that, and at that point, you’re at a [know your customer] entity so we would know the identity of the person who’s trying to exchange the bitcoin that’s linked to the ransom payment,” Boring said.
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Another tactic used by criminals to try and subvert the traceability of bitcoin is to send it from a self-custodied crypto wallet to multiple wallets, although those various distributions are still trackable by law enforcement. Boring noted that this tactic led to the emergence of mixing services in the crypto space that will “receive crypto from multiple parties and mix it together, and then you can pull it out the other end.”
“That’s one way to conceal it. But even that, you get all the money that goes into a mixer, you can see all the crypto that comes out of it, so there’s still traceability on it, but it does confuse things a little bit for law enforcement purposes – but law enforcement is very, very sophisticated with being able to track and trace all transactions on the blockchain,” Boring said.
She noted that within the crypto economy, businesses have created track-and-trace software used by compliance officers at crypto firms as well as law enforcement.
“This is a very sophisticated effort that’s been built over a decade. There is a lot of coordination that happens with the crypto exchanges and law enforcement to track and trace illicit activity in this space, and it’s very effective and very efficient,” Boring said.
She added that the Justice Department has had a number of cases in which they’ve seized large amounts of crypto from criminals, saying that “law enforcement has really done a very good job of helping police criminals that are abusing this technology for nefarious purposes and keeping this ecosystem safe.”
