Blockchain: designed to catch criminals

Key information:

• • • Blockchain transparency is a double-edged sword— As criminals use cryptography for illicit activities, the permanent and public nature of the blockchain ledger creates an undeniable trail, making it a powerful tool for law enforcement to track and seize illicit funds.

    • The rise of crypto-investigation— A growing sector of companies and specialist investigators are exploiting the inherent design of blockchain to unravel complex financial crimes, demonstrating that “lost” crypto funds can often be recovered.

    • An evolving battlefield— Despite the ongoing challenges posed by tools like mixers and privacy tokens, blockchain technology is fundamentally changing the way financial crime is fought, transforming the very system that criminals exploit into a means of their capture.

Cryptocurrencies and other digital assets are used by criminals, which is ideal for catching them. Indeed, the biggest criticism leveled at cryptocurrencies since their inception has been their criminal use, which was estimated to account for almost half of total activity at the end of 2017. In the last three months alone, seizures and confiscations of over $22 billion in crypto assets have been carried out by authorities in the UK, US and their international partners.

These historic interceptions of illicit funds prove that the fundamental architecture of blockchain – the digital ledger that underpins most virtual transactions – makes it the ideal tool for catching criminals, thus validating the hypothesis of Satoshi Nakamoto, the presumed pseudonym of the person(s) who developed bitcoin, that fraud could be avoided through intentional system design.

While criminals believed they could optimize their illegal activities by using cryptography to obscure the flow of funds, the immutability of the blockchain ledger created a niche for financial crime investigators seeking to unravel these cases. Companies like Chainalysis, Elliptic, and TRM Labs have become synonymous with these investigations, joined by a growing network of small companies that are democratizing crypto investigations, combating terrorist financing and online child abuse. Ultimately, working to secure seized property and prevent further damage. By all accounts, the ecosystem is growing rapidly.

Each crypto transaction creates a permanent trail that allows investigators to catch criminals even years after their crimes. This is how a digital exchange hack in 2016 resulted in the theft of 120,000 Bitcoins worth $72 million (at the time) and was chronicled in the Netflix documentary. The biggest heist of all time ended years later with the seizure of $4.5 billion in crypto and the arrest of the two alleged perpetrators in 2022. Law enforcement may not act as quickly as crypto, but if the whale is big enough, they will catch it.

Indeed, the scale of crime linked to cryptocurrencies threatens Western economic stability. The FBI received 149,686 crypto fraud complaints in 2024, totaling $9.3 billion in losses, likely significantly lower than the actual figure. More than 100,000 people are trafficked and forced to commit scams from resorts in Cambodia and Myanmar. The Prince Holding Group, a transnational criminal organization led by Chen Zhi, generated $30 million a day at its peakapproximately $10.95 billion per year.

Financial crime as economic warfare

These are just headlines. Further research in the Netherlands shows that only 11.8% of fraud victims report being a victim. While many dismiss the fraud and blame the victims, crypto fraud is becoming an economic war that is systematically draining wealth from Western economies while enslaving hundreds of thousands in forced labor camps across the Global South. With a potential loss of $80 billion per year from crypto fraud, the impact extends beyond the 1.14% of the US federal budget it represents. These illicit outflows lead to a loss of productive capital, an erosion of the tax base and a reduction in economic activity.

Yet the technology blamed for enabling this new generation of fraud simultaneously provides the tools needed to detect and combat these criminal organizations more successfully than any financial crime-fighting technology in history. The Chen Zhi affair, by far the largest asset confiscation in US history, amounting to approximately $15 billion, demonstrates this perfectly.

Each crypto transaction creates a permanent trail that allows investigators to catch criminals even years after their crimes.

That’s why I’ve spent the last four years studying the crypto-ATM industry. While most financial crime professionals saw a problematic service in a problematic industry, I saw a massive data set on criminal activity that could predict other illicit activity beyond crypto ATMs. This dataset has helped identify terrorist financiers, sellers of child sexual abuse material (CSAM), and countless scams and frauds. Overlay data-rich sources such as crypto ATMs with blockchain data, and a good investigator can achieve remarkable results.

Modern blockchain analytics leverages Nakamoto-designed features for trust and verification. Immutability makes falsification of evidence impossible and makes investigations public; And verifiability allows investigators to validate every step of a criminal’s cryptographic trail. Consensus mechanisms create a distributed jury of millions, further validating the chain of evidence. These features allowed authorities to map The entire criminal empire of Prince Holding Grouprevealing 76,000 fake social media accounts operated from setups using 1,250 phones across 10 Cambodian compounds, and linking it to $15 billion in bitcoin.

The same technology facilitating billions of dollars in pig butchery scams allows law enforcement to arrest transnational criminals and recover funds each year. Traditional financial crimes disappear into offshore accounts and shell companies, often leaving investigators blind. However, as every blockchain forensics expert knows, the Locard exchange principle remains true: Every contact leaves a trace. The blockchain’s public ledger means that every suspicious transaction leaves a permanent clue.

Nakamoto’s vision of “trustless electronic transactions” inadvertently created a system for establishing criminal culpability. The public nature of blockchain convinced criminals that they could hide in plain sight, but Nakamoto understood that this transparency would deter participants from fraud. The naive assumption that users had nothing to hide if they didn’t do anything wrong quickly revealed that many were doing wrong. Nonetheless, the system proved fit for purpose once tools were created to detect bad actors. Nakamoto’s white paper’s emphasis on preventing double spending through public verification created a framework in which criminal spending leaves permanent evidence. All a good investigator needs is time.

The rise of crypto-investigation

As cryptography advances, tools like bridges, mixers, and privacy coins pose constant challenges for investigators, but claiming that money is disappeared when crypto is involved, this is simply wrong. As blockchain forensics advances, criminals face an uncomfortable truth: They are conducting operations on a permanent, public, and immutable ledger. Their only protection is time and the cryptographic puzzles that an entire industry strives to solve.

While some industry press reports has been diligent in highlighting some of the challenges in the industry and some of what has been missed, there are many more cases of illicit fraud that never see the light of day due to what has been prevented by blockchain forensics. And while it may not be perfect, the fact that there is an industry striving to build a more secure financial system than the one that came before it is commendable, and the accountability made possible by public ledgers is empowering for those who must police it.

Unfortunately, Chen Zhi’s $15 billion seizure is not the end but the beginning. With at least $64 billion stolen each year, these criminals have little incentive to stop. Although some fraudulent schemes have been dismantled, reports indicate that they are simply being moved.

Nonetheless, blockchain is establishing a new paradigm in financial crime, in which the technology that enables crime will ultimately become the weapon that defeats it.