How to Catch Crypto Criminals Without Checking Your Wallet

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Jaroslaw Adamowski

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Jaroslaw Adamowski

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June 26, 2023

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An international consortium of 14 law enforcement partners aims to fight crypto crimes. Researchers are looking for ways to fight crime without compromising citizen privacy.

The ongoing struggle against cryptocurrency-related crime might become another “double-edged sword”: in order to catch a criminal, we may need to give up our privacy. However, is there a chance that this time “the sword has only one sharp edge”?

In Europe this may depend on the success of TITANIUM, an international consortium of 14 law enforcement partners from Austria, Germany, the Netherlands, Spain, Finland, and the UK, with the International Criminal Police Organization (INTERPOL) also on the list.

Having commenced in May 2017, the three-year TITANIUM project, which stands for Tools for the Investigation of Transactions in Underground Markets, aims to develop technical solutions for investigating and mitigating crime and terrorism involving virtual currencies and underground market transactions.

“The problem we are trying to solve is: in order to promote the legitimate use of cryptocurrencies for all users, it is necessary to curb the criminal use and abuse of the currency and its users,” said Bernhard Haslhofer, a Senior Scientist at the Digital Insight Lab at the Austrian Institute of Technology (AIT), which is one of the project partners, in an interview with Cryptonews.com

At this stage, researchers are trying to define the legal and ethical guidelines for how to process data and knowledge involved in criminal investigations without compromising citizen privacy and by complying with the applicable data protection frameworks.

“As a result of the first phase, which ends in May 2018, the project partners expect to develop policy recommendations and technical requirements for tools used in such investigations”, Haslhofer said.

Moreover, researchers are working on tools to reveal the common characteristics of criminal transactions, detect anomalies in their usage, and identify money laundering methods. They will also perform training activities for the EU law enforcement agencies.

“On a more technical side, we investigate various algorithmic techniques such as address clustering to conduct empirical investigations in the Bitcoin ecosystem. Recently, we completed a comprehensive examination of Ransomware payments, which should be published in early 2018. In the second project year [starting in May 2018], we will focus on the analysis of multiple virtual currency ledgers simultaneously,” explains Haslhofer.

User privacy concerns

The AIT researcher recognizes that privacy is a major concern for cryptocurrency users, but adds that their actions “are not fully private but at most pseudo-anonymous.” However, there are various cryptocurrencies, offering different levels on anonymity.

When it comes to Bitcoin, the profiles of almost 40% of crypto users can be to a large extent recovered even when they adopt the privacy measures recommended by Bitcoin developers, according to a joint paper published in 2013 by researchers from the Swiss ETH Zurich University and Germany’s NEC Laboratories Europe.

That said, while users of cryptocurrencies attribute high importance to anonymity, they still view them as a superior alternative to other online payment methods, according to another paper from 2016 by Benjamin Fabian (Hochschule für Telekommunikation Leipzig (HfTL)), Ulrike Sander (Humboldt University of Berlin), and Tatiana Ermakova (University of Potsdam).

The survey was based on 125 questionnaires. More than half of the respondents were German, while other answers came from the US and other European countries.

Researchers have also found that crypto users are not very active in adopting safety measures, even if they are aware of them.

Fabian told Cryptonews.com that, “nearly half of the participants (47%) did not know about stealth addresses, which increase privacy. Another 46% were aware but did not use them, and only 7% use stealth addresses. The result differed significantly when they were asked about the single use of addresses. Only 18% were unaware that this could be a measure for improving anonymity, and nearly half (47%) had adopted this option”.