It is no secret that the rapid development of cryptocurrencies and sudden surges in their popularity presented challenges to victims trying to recover their losses. Cryptocurrencies are a secure, decentralized and anonymous way to conduct transactions outside the customary banking channel. Criminals flocked to cryptocurrencies as a way to conduct illicit business without revealing their names or locations. But, the FBI’s recovery of Bitcoins paid to Colonial Pipeline in the ransomware attack reveals that cryptocurrencies are not as hard to track as criminals think.
That is because cryptocurrency is traceable. Each payment is recorded in a permanent ledger, called a blockchain. That means the transactions are open and notorious. The transactions are not subject to change. The ledger can be viewed by anyone who has access into the blockchain. More on that below. The bottom line is that the speed to get the transactional information far exceeds the time that needs to be spent to get bank records from banks, especially when those banks are overseas.
The focus of recovery of cryptocurrency is to connect the perpetrators to the digital wallet, which stores the cryptocurrency. To do so, the focus is toward a “public key” and a “private key”. A “public key” is the string of numbers and letters that cryptocurrency holders have for transacting business with others, while a “private key” is used to keep the wallet secure. A “public key” is determined through tracking a user’s transaction history. The technology traces blockchains looking for patterns that suggest illegal activity. Obtaining the “private key” is more difficult. Cryptocurrencies are transacted through crypto exchanges and in the US, anti-money laundering and identity verification laws require such services to know who are their customers, creating a link between identity and account. There are forensic tools to locate the “private wallet” and the information can be compelled by compulsory judicial process.
In the end, cryptocurrencies are actually more transparent than most other forms of transferring value, especially cash. Recovery for victims may be easier, cheaper and quicker.