Balancing Blockchain Anonymity and Legal Investigations: Pros, Cons & Conflicts

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A team of researchers from Friedrich-Alexander-Universität Erlangen-Nürnberg recently published a paper detailing methods investigators and courts can use to determine the validity of deanonymized data on the Bitcoin blockchain. As the investigation of crimes involving cryptocurrencies becomes more common, law enforcement agencies have access to the tools needed to conduct preliminary blockchain analysis. However, these early data points represent circumstantial evidence, which often relies on raw assumptions that can only be validated by connecting on-chain activity to off-chain activity.

The current bottleneck in these investigations is a legal issue. Prosecutors in Germany and the United States must demonstrate a certain degree of evidence of guilt before a warrant for invasive investigations, such as surveillance or arrests, can be issued. To aid investigators and prosecutors while also ensuring the law is applied fairly to suspects, the researchers propose a standard framework containing five argumentative schemes designed to ensure proper reporting and explanation throughout the legal process.

By utilizing these schemes, analysts can articulate the employed heuristics, their individual strengths, and potential weaknesses. This increases the comprehensibility of analyses and court proceedings for decision-makers and eases the documentation for later verification by an expert witness. The researchers assert that their findings should be generally applicable beyond the German and United States legal systems.

However, the researchers also note that such investigations risk impinging on suspects’ rights due to legal requirements. The use of blockchain technology makes it more challenging to identify suspects due to its pseudonymous nature. Blockchain transactions are identified by wallets (unique software addresses) instead of legal names, and while blockchains are inherently transparent, the data points found within don’t always directly link to a suspect’s identity.

The proposed framework aims to strike a balance between protecting the rights of suspects and aiding investigators in their pursuit of justice. For example, in the Wall Street Market case, U.S. Postal Service investigators identified the operator of an illegal dark web marketplace by connecting various data points. This information was corroborated through surveillance operations, which ultimately led to the individual’s arrest. By implementing the argumentative schemes, it is hoped that future investigations will have a more transparent and analytically sound basis for determining guilt or innocence in cases involving cryptocurrency transactions.

Source: Cointelegraph

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