Cambridge University Researchers Discover Promising Way to Track Stolen Bitcoin (BTC)
Researchers at the University of Cambridge have found a way to track certain kinds of illegal activity financed via Bitcoin.
Cryptocurrencies have been around for a decade, yet it remains a challenge to determine where the stolen money goes and what happens with it. This difficulty has made Bitcoin (BTC) attractive for thieves and hackers for nearly its entire existence. However, the efforts of University of Cambridge researchers led by security engineering professor Ross Anderson could change the situation. In a report published in MIT’s Technology Review, the team says it has managed to create an algorithm that could reliably track criminal activity involving blockchain-based cryptocurrencies.
The algorithm is inspired by an old UK finance law that determines how banks should distribute the money they have left when they collapse. It uses a simple point of logic to spot patterns: if a certain amount of Bitcoin enters a thief’s wallet from the victim’s address, the destination address in any payout of the same amount, regardless of the number of transactions involved, is considered associated with the thief.
The team claims to have found many addresses linked to money laundering in this manner. However, this is not the only method criminals use to divide funds. In some cases, smarter crooks use distribution chains involving smaller sums to throw authorities off the scent.
“These may occur close to the time of a crime as criminals try to cover their tracks by feeding their loot into systems that divide their winnings into hundreds of tiny transactions… We observed similar patterns many times; in some of the instances, we were able to connect the collection address to illegal gambling sites,” the researchers wrote.
Still, there are two problems with this approach. First of all, for governments to prosecute theft using the same legal procedure it uses for banks, it would have to consider Bitcoin a form of currency. There is also the fact that criminals are steadily moving away from Bitcoin into other digital currencies, like Monero. However, it is worth noting the problem remains minor as crime is still conducted mostly using paper cash.
Although this is a step forward in tracking criminal activity on Bitcoin, a lot of work remains to be done to resolve the issue of cryptocurrency-aided money laundering around the world.