One of the main functions that were built into the cryptocurrency at the time of its creation was anonymity. This concept is hardly applicable to the traditional banking system, where the customer information is always stored in the database. Cryptocurrency succeeded – it is extremely difficult to find out and establish links between operations and customers.
Anonymity in electronic currency is provided by cryptography. This is what plays a key role in hiding the users’ identity. In cryptography, as in other areas of computer technology, we work with abstractions. Encryption, that underlies the principle of cryptography, can be represented as a kind of black box. The incoming message gets in, and at the exit it turns into chaotic noise, containing almost no original information.
Blockchain, the basis for almost all cryptocurrencies, is a black box analogue, a cryptographic abstraction. In fact, it is a message board – anyone can see and post transactions, although it is impossible to delete or change them. At the same time, the blockchain does not include any information that would directly identify the user. This is the beauty of cryptocurrency – you can make transactions, pay and receive while staying invisible to the outside world.
Anonymity flipside
Fraudsters could not miss such a unique opportunity. After all, before the advent of cryptocurrencies, malevolent intruders were limited in their actions on the Internet. To remain incognito, a lot of effort, skills and experience were required.
When the cryptocurrency appeared as a full-fledged financial instrument, an increasing number of frauds expended their efforts exactly there. There is the only reason for such a rapid popularity – money laundering. This is a significant crime the punishment for which is provided for in the criminal code. Crime cells seek to hide the real origin of assets that are linked to just about anything imaginable. Crime, corruption, illegal substances – all this is now presented in electronic money.
Anonymity played a low-down trick for a number of reasons:
• it is quite easy to purchase enough cryptocurrencies and turn physical assets into electronic ones;
• cryptocurrency is not tied to a specific person – what the user sees in his electronic wallet is really just a code;
• it is crucially difficult to determine a fraudulent transaction, the usual methods for tracking down online scammers do not work here.
There is a weird situation: electronic currencies are increasing their anonymity, thereby complicating control over cryptocurrency circulation. However, given the gradual transition of many areas to cryptocurrency, control over it is utterly necessary for security purposes.
What is the solution
No matter how attractive and versatile the cryptocurrency is, at the moment it cannot replace classic money. This is where the principle of searching for links between transactions is laid down.
To convert electronic assets into physical ones, you have to use online exchange services. These platforms provide services for the purchase of cryptocurrencies, in return for issuing regular money to your account. At the moment, this is the only practical way to convert it.
Being aware of this, the specialists can make connections. Approximately, this scheme looks as follows:
• To identify a suspicious transaction in the blockchain;
• To find out the moment the scammer entered the online exchanger;
• To establish a correspondence between a suspicious transaction, the transaction wallet address and an exchange request;
• To transfer the obtained data to law enforcement agencies.
After that, it’s for the relevant authorities to establish the further movement of suspicious money. The main thing is to bring the transaction out of anonymity.
“Digital Control” company services
The described technique is successfully used by specialists of the INFPO DRC DC (Independent Not-For-Profit Organization “Digital Research Centre “Digital Control”). We have developed our own database of cryptocurrency exchanges and money changers with addresses that can be used to determine the movement of electronic assets. In practice, the use of such methods is a technically difficult task. However, the professionalism of our specialists makes it possible to track the owner of suspicious money even in such a difficult situation.
Our advantages:
• A team of professionals in data protection, digital currency, finance and jurisprudence;
• Constant improving of our analysis methods;
• With a large database of accumulated data in the course of digital market research, we can analyze the situation more carefully;
• Modern technical equipment.
Our task is to make digital assets accessible and safe for every user. We prove that cryptocurrency can be useful without violating the law in practice.