The Science of Crypto Forensics Survives a Court Battle—for Now

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On March 12, Russian-Swedish national Roman Sterlingov was found guilty of money laundering conspiracy and other violations by a federal jury in Washington, DC, for having operated Bitcoin Fog, a service criminals used to launder what authorities claim was hundreds of millions of dollars in ill-gotten gains.

The conviction was heralded by the US Department of Justice as a victory over crypto-enabled criminality, but Sterlingov’s lawyers maintain the case against him was flawed and plan to appeal. They allege that the nascent science used to collect evidence against him is not fit for the purpose.

The DOJ investigation used blockchain forensics, a technique whereby investigators scrutinize the public trail of crypto transactions to map the flow of funds. In a statement, Lisa Monaco, deputy attorney general for the US, described the DOJ as “painstakingly tracing bitcoin through the blockchain” to identify Sterlingov as the pseudonymous administrator behind Bitcoin Fog.

Bitcoin and other cryptocurrencies have acquired an undeserved reputation for being less traceable than conventional money, but evidence collected this way has brought down many criminals over the past decade. Blockchain forensics was crucial to the trial of Ross Ulbricht, founder of the infamous Silk Road marketplace. But in the Bitcoin Fog case, the defense has pulled this investigative technique into the spotlight, effectively putting crypto tracing on trial in place of their client. The case is a “first-of-its-kind,” says Tor Ekeland, legal counsel to Sterlingov. “Nobody has challenged blockchain forensics before, because it’s brand-new.”

Before Sterlingov’s trial, his attorneys asked the presiding judge to determine the admissibility of evidence from blockchain forensics experts that had used software from a firm called Chainalysis, which expedites the otherwise tedious process of sifting through the blockchain. He ruled the evidence was admissible.

That decision has been characterized by Michael Gronager, Chainalysis CEO, as an endorsement of his firm and its methods. “We are now the only company in the world with a stamp of approval for our ability to look at a blockchain and create evidence,” he says. But Ekeland says he will work with Sterlingov to appeal both the guilty verdict and the judge’s ruling on the validity of blockchain forensics. The conviction of Sterlingov is the latest example of the unhappy phenomenon, claims Ekeland, whereby “newly emergent junk science leads to unjust verdicts.”

Beth Bisbee of Chainalysis, formerly the company’s head of US investigations, disputes that characterization. “The evidence that the government presented to the jury demonstrated the exact opposite,” says Bisbee, who testified as an expert witness at the trial. “Our methods are transparent, tested, reviewed, and reliable.”

Natsec Threat

Until it was shut down by US law enforcement in 2021, Bitcoin Fog supplied what’s known as a crypto mixing or crypto tumbling service. Funds belonging to many parties are pooled, jumbled up, and spat out into brand-new wallets, masking the origin of the coins held in each. Mixers were originally promoted as a way to improve the level of privacy cryptocurrency could afford consumers, but they have been readily co-opted for the purpose of money laundering. Bitcoin Fog was among the first mixers to emerge, in 2011, making it “the longest-running bitcoin money laundering service on the darknet,” the DOJ says.

In the past few years, the US government has cracked down on crypto mixers, which it considers a threat to national security. After taking down Bitcoin Fog, the US Treasury sanctioned Tornado Cash, another mixer, in 2022. The year after, it took down another, ChipMixer, and charged the founder with money laundering. To identify the individuals behind these operations, investigators had to follow the crypto money.

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