A team of researchers from Friedrich-Alexander-Universität Erlangen-Nürnberg recently published an article detailing methods that investigators and courts can use to determine the validity of anonymized data on the Bitcoin (BTC) blockchain.
The team's preprint document, "Argumentation Schemes for Blockchain Deanonymization," lays out a plan for conducting, verifying, and presenting investigations of crimes involving cryptocurrency transactions. Although the paper focuses on the German and American legal systems, the authors state that the conclusions should be generally applicable.
Bitcoin crime investigations revolve around de-anonymizing suspected criminals, a process made more difficult by the pseudonymous nature of blockchains. Users performing blockchain transactions are identified by wallets (unique software addresses) instead of legal names.
However, blockchains are inherently transparent. Each time data is added to a blockchain ledger, the transaction is recorded and made available to anyone with access to the blockchain.
Investigators trying to determine who is behind a specific wallet use the information in blockchain transactions (blocks) as data points that, when combined, form a digital paper trail.
According to the research team, the current bottleneck of these investigations is no longer technological; it is a legal question.
Law enforcement agencies have access to the tools needed to perform preliminary blockchain analysis, but these early data points represent circumstantial evidence.
This evidence relies on certain crude assumptions that can only be validated by connecting on-chain activity to off-chain activity, such as requiring an exchange to disclose the identity or bank account information of users suspected of criminal involvement . According to the paper:
“In legal practice, these assumptions are essential for inferring the probative value of an author's de-anonymization. However, no standard practice for deriving and discussing the reliability of these analytical results has yet been proposed.
If done properly, blockchain investigations can uncover the perpetrator of a crime. Scholars cite the Wall Street Market case as an example. There, US Postal Service investigators identified the operator of an illegal dark web market by connecting various data points that law enforcement agents corroborated through surveillance operations.
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However, researchers say such investigations risk infringing on suspects' rights due to legal requirements. Prosecutors (in Germany and the United States, according to the newspaper) must show some degree of proof of guilt before a warrant for invasive investigations, such as surveillance or arrests, can be issued.
To help investigators and prosecutors while ensuring the law is applied fairly to suspects, the researchers offer a standard framework containing five argumentative frameworks designed to ensure proper reporting and explanation throughout the legal process.
The image above shows two of the diagrams, each using a set of defined premises to formulate a specific conclusion, then providing a set of critical questions to assess the strength of the argument.
The researchers state that “using the schemas, an analyst can clearly articulate the heuristics employed, their individual strengths, and their potential weaknesses. This increases the comprehensibility of these analyzes and legal proceedings for decision makers, and also facilitates documentation for later verification by an expert witness.