Nancy Guthrie disappearance brings focus to cryptocurrency crime detection

The disappearance of Nancy Guthrie has brought a renewed focus on the traceability of cryptocurrencies and their use by criminals following reports of alleged ransom notes requesting payment in bitcoin.

Guthrie (84) was last seen on February 1 when authorities believe she was abducted from her home. There have been reports of several alleged ransom notes demanding payment in bitcoin during the course of the investigation, now in its second week.

While bitcoin gained a reputation for being associated with crime following the 2013 takedown of the Silk Road online black market, where crypto was used to buy illegal drugs and other items, the evolution of the digital asset industry and expanded regulatory oversight of it in the years since has made it harder for bad actors to do so.

“Every single bitcoin transaction is recorded on a public ledger called the blockchain, so when it comes to tracking transactions, following the money, you have a perfect record with bitcoin,” Perianne Boring, founder and chair of the Digital Chamber, told FOX Business. The Digital Chamber advocates the use of digital assets and blockchain-based technologies.

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“The blockchain is a public ledger that’s free for anyone to audit, so anyone can look up a specific bitcoin wallet address and see every transaction that’s come in and out since the beginning,” she said.

“So, there’s no way to hide those tracks. It’s actually an incredibly powerful tool for law enforcement. In fact, it’s a much better tool for law enforcement than it is for criminals, which is why we really don’t see a lot of criminal activity with bitcoin now that the industry has matured,” Boring added.

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Boring said that criminals can “self-monitor” their bitcoin without using a third party – such as a bank – to hold onto the money, although they still face problems trying to convert the crypto to the fiat currency of their choice.

“If a ransom was paid to a bitcoin wallet and the criminal has control of that money, that’s entirely possible. But at some point they’ll have to transfer that money into US dollars or into yen or into euros or whatever currency they want in order to use the money,” she said.

“The companies that provide that currency exchange service are all globally regulated businesses … you have to use a regulated financial institution like Coinbase to do that, and at that point you’re at a [know your customer] entity so that we will know the identity of the person trying to exchange the bitcoin linked to the ransom payment,” Boring said.

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Another tactic used by criminals to try to undermine the traceability of bitcoin is to send it from a self-managed crypto wallet to multiple wallets, although those different distributions are still traceable by law enforcement. Boring noted that this tactic has led to the emergence of mixing services in the crypto space that “will receive crypto from multiple parties and mix it together, and then you can pull it out on the other side.”

“That’s one way to hide it. But even that, you get all the money that goes into a mixer, you can see all the crypto that comes out of it, so there’s still traceability on it, but it confuses things a little bit for law enforcement purposes — but law enforcement is very, very sophisticated with the ability to track and trace the blockchain,” Boring says on all transactions.

She noted that businesses within the crypto-economy have created track-and-trace software used by compliance officers at crypto firms as well as law enforcement.

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“It’s a very sophisticated effort that’s been built over a decade. There’s a lot of coordination that’s happening with the crypto exchanges and law enforcement to track and trace illegal activity in this space, and it’s very effective and very efficient,” Boring said.

She added that the Justice Department has had a number of cases in which they have seized large amounts of crypto from criminals, and said that “law enforcement has really done a very good job of helping police criminals who are misusing this technology for nefarious purposes and keeping this ecosystem safe.”