A team of researchers from Friedrich-Alexander-Universität Erlangen-Nürnberg recently published a paper detailing methods investigators and courts can use to determine the validity of deanonymized data on the Bitcoin (BTC) blockchain.
The team’s preprint paper, “Argumentation Schemes for Blockchain Deanonymization,” lays out a blueprint for conducting, verifying and presenting investigations into crimes involving cryptocurrency transactions. While the paper focuses on the German and United States legal systems, the authors state that the findings should be generally applicable.
Bitcoin-related crime investigations revolve around the deanonymization of suspected criminals, a process made more challenging by blockchains’ pseudonymous nature. Users conducting blockchain transactions are identified by wallets (unique software addresses) instead of legal names.
However, blockchains are inherently transparent. Whenever data is added to a blockchain ledger, the transaction is recorded and made available for anyone with access to the blockchain to see.
Investigators trying to determine who is behind a specific wallet use the information ensconced in blockchain transactions (blocks) as data points that, when combined, form a digital paper trail.
According to the research team, the current bottleneck when it comes to these investigations is no longer a technological one; it’s a legal issue.
Law enforcement agencies have access to the tools needed to conduct preliminary blockchain analysis, but these early data points represent circumstantial evidence.
This evidence relies on certain raw assumptions that can only be validated by connecting on-chain activity to off-chain activity, such as compelling an exchange to disclose the identity or bank account information of users suspected of criminal involvement. Per the paper:
“In legal practice, those assumptions are critical for inferring the evidential value of the deanonymization of a perpetrator. However, no standard practice for deriving and discussing the reliability of those analysis results has been proposed yet.”
If conducted properly, blockchain investigations can reveal the perpetrator of a crime. The researchers cite the Wall Street Market case as an example. There, U.S. Postal Service investigators identified the operator of an illegal dark web marketplace by connecting various data points that law enforcement officers corroborated through surveillance operations.
However, the researchers state that such investigations risk impinging on suspects’ rights due to legal requirements. Prosecutors (in Germany and the U.S., per the paper) must demonstrate a certain degree of evidence of guilt before a warrant for invasive investigations, such as surveillance or arrests, be issued.
To aid investigators and prosecutors while also ensuring the law is applied fairly to suspects, the researchers propose a standard framework containing five argumentative schemes designed to ensure proper reporting and explanation throughout the legal process.
The above image shows two of the schemes, each utilizing a set of defined premises to frame a specific conclusion and then providing a set of critical questions to assess the strength of the argument.
The researchers assert that “by utilising the schemes, an analyst can clearly articulate the employed heuristics, their individual strengths, and potential weaknesses. This increases the comprehensibility of such analyses and court proceedings for the decision makers, and also eases the documentation for later verification by an expert witness.”