Robert Whitaker is not your father’s gumshoe. The former special agent for U.S. Homeland Security spends his days tracking down lost and stolen cryptocurrencies for frantic exchanges, financial companies and individuals.
As the director of forensics and investigations for Vancouver-based BIG Blockchain Intelligence Group, Whitaker and his team of six cryptocurrency investigators combine traditional detective work, such as interviewing victims and witnesses, with high-tech data analysis aimed at tracking cryptocurrency transactions. The team then uses dark web search tools to match transactions with scammers.
The anonymous nature of cryptocurrencies makes them a ripe target for theft, a problem that’s growing in scope and scale as cryptocurrency makes its way into the mainstream.
“It’s not as sexy as it sounds,” Whitaker tells ThirtyK. “You spend a lot of time looking at a desktop, writing reports and fielding phone calls from people who lost their crypto and want to know how to get it back.”
Fighting Crypto Scams
Blockchain Intelligence Group is just one of the cryptocurrency companies that are helping law enforcement agencies, individuals, exchanges and financial institutions track and locate digital tokens that are stolen or lost.
The anonymous nature of cryptocurrencies makes them a ripe target for theft, a problem that’s growing in scope and scale as cryptocurrency makes its way into the mainstream. According to Carbon Black, a cybersecurity company, in the first six months of this year there was $1.1 billion in cryptocurrency-related theft. That compares to $1.3 billion for all internet crimes reported to the Federal Bureau of Investigation in 2016.
What’s more, Carbon Black estimates there are 12,000 dark web marketplaces hawking more than 34,000 malware products aimed at stealing digital tokens. The biggest target for these hackers: cryptocurrency exchanges. Carbon Black found slightly more than 27 percent of the attacks were on exchanges.
Exchanges that enable individuals to buy and sell digital tokens have been a tantalizing target for global hackers. In January, hackers stole $530 million in NEM (XEM) coins from Japanese exchange Coincheck in the largest hack to a cryptocurrency exchange. There have been plenty of others, though. Since 2013 there have been at least 12 breaches of cryptocurrency exchanges.
“We get a lot of calls from exchanges that lost crypto and ATM operators that are scammed out of crypto,” says Whitaker. During the runup in the price of bitcoin (BTC) late last year scores of people were seeking help to find missing tokens. The same thing happened during the initial coin offering frenzy of 2017. He says inquiries came from investors questioning the validity of ICOs.
Cryptocurrency detectives have been around for several years, but their role is evolving. When CipherTrace, which provides cryptocurrency anti-money laundering, blockchain forensics and enforcement services, launched in 2015, it focused on helping law enforcement agencies with criminal investigations, largely thefts of bitcoin or ether (ETH), Dave Jevans, the company’s CEO, tells ThirtyK.
At the time, law enforcement was just getting up to speed, beefing up budgets and hiring the right staff. “Some people in law enforcement are absolute geniuses on blockchain and crypto,” says Jevans, whose company is based in Menlo Park, Calif. “But there’s only a few of those guys in the world. Law enforcement needed tools and tech and to be able to let folks who aren’t geniuses with blockchain do their jobs.”
That relationship is still central in fighting crypto crimes but the scope of attacks has expanded and more individuals are seeking help. Hackers are employing new tactics such as ransomware to go after cryptocurrency. Large-scale thefts from cryptocurrency exchanges are on the rise and tales of ICO scams are increasing. “There’s lot of fake investment companies and bitcoin mining ones that are ripping people off,” Jevans says.
Financial Firms Need Help, Too
CipherTrace and outfits like it are not helping only law enforcement and individuals. Jevans says governments are turning to crypto detectives to help create regulatory frameworks for the industry, while financial companies need assistance complying with the Know Your Customer anti-money laundering rule. Under the regulation, financial institutions are required to confirm the identity of every customer and everyone acting on behalf of customers. With cryptocurrency transactions, that’s not as easy to do.
“It’s the natural maturation of the market,” says Jevans. “Nobody wants to invest in something or work with a company that is going to be ripped off. [We’re coming] from the wild, wild west to something that is a little more controlled.”
Some of the cases CipherTrace has worked on include an investment firm that had $10 million in digital tokens stolen five days after purchasing it on behalf of customers, an investment group that lost $50 million to a fake investment company that provided strong and convincing financial returns for six months before stealing the funds, and a group of gaming companies that had customers’ data stolen. The hackers demanded $100,000 per company, paid in bitcoin, to prevent the data from going public.
BIG Blockchain Intelligence Group is also seeing a lot of demand from the financial community, says Lance Morginn, the company’s CEO and co-founder. “As traditional banks, ATM networks and exchanges dip their toes into the bitcoin waters, they’ll want to mitigate their risk associated with cryptocurrencies, so they will need many of our company’s services,” he tells ThirtyK. “We’re finding large organizations and even medium-sized ones need these tools.”
Some of the services the company offers include its BitRank Verified risk-scoring service that provides cryptocurrency transaction risk scores to help financial-services companies reduce their risk and meet regulatory compliance, and its QLUE platform, which enables financial firms to trace and track cryptocurrency transactions investigate what is going on behind cryptocurrency transactions and identify illicit ones.
CipherTrace employs a team of 31 engineers and data scientists who create software to help customers and internal detectives investigate hackers and scammers. There’s a smaller team that marries the data with traditional detective work to document what happened to the cryptocurrency.
The aim is to create a paper trail that is easy for prosecutors and judges to understand when the bad guys are caught and brought to justice. “There’s no point in doing all this stuff if you are not putting somebody in front of a court,” says Jevans.