▶Introduction

Digital currencies have evolved into established financial instruments and increasingly feature in criminal cases globally. However, numerous law enforcement organizations continue struggling to adjust to this transformation. Essential resources such as specialized software, personnel education, and technical expertise needed for tracking blockchain transactions and addressing cryptocurrency-based offenses remain inadequate or insufficiently developed. Addressing this gap requires agencies to develop comprehensive expertise and tactical approaches for managing the intricacies of digital asset criminality.

Following, we will provide a guide for law enforcement agencies about how to react and adapt to the shift of the digital financial landscape. This comprehensive framework addresses the critical areas where agencies must focus their efforts to build effective cryptocurrency investigation capabilities.

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1. Crypto Is Traceable — If You Know Where to Look:

A common misconception is that crypto transactions are completely anonymous and untraceable. In reality, coins like Bitcoin and Ethereum operate on public blockchains, which permanently record every transaction in an open, immutable ledger. Anyone can view these transaction records, including amounts transferred, timestamps, and wallet addresses involved.

Despite this transparency, criminals use various techniques to obscure the origin and destination of illicit funds. For example, they may use mixers or tumblers, which pool and shuffle funds from multiple users to break the direct connection between sender and receiver.

Another common tactic is transferring assets across different blockchains using cross-chain bridges or wrapped tokens, which complicates tracking because the flow of funds is no longer confined to a single ledger. A hacker might steal funds on Ethereum, convert them into a wrapped token, transfer them to another blockchain like Binance Smart Chain, and then cash out, making it harder to follow the money without specialized tools.

Despite these tactics, tracing crypto transactions is far from impossible. Although blockchain data shows only wallet addresses and not personal identities, most users interact with centralized exchanges and other regulated platforms that require identity verification through Know Your Customer (KYC) processes. When law enforcement identifies suspicious activity linked to such addresses, they can request user information through legal channels. This cooperation is vital, as these platforms maintain records similar to banks, enabling investigators to link on-chain activity to individuals involved.

2. Not All Crypto Crimes Are the Same

Crypto-related crime spans a broad spectrum of illegal activities, each with distinct characteristics and investigative challenges. These crimes range from financial scams targeting everyday users to sophisticated hacks on DeFi platforms, and from illicit trade on darknet markets to the funding of organized crime and terrorism. Understanding the diversity of these threats is essential for law enforcement agencies to develop effective response strategies.

Scams remain the most prevalent form of crypto crime and continue to evolve rapidly. In 2024, cryptocurrency crimes surged, with total losses from scams and hacks surpassing $10 billion globally. Scams alone accounted for at least $9.9 billion in on-chain losses, driven by schemes like high-yield investment frauds and "pig butchering" scams, which saw a 39% increase from the previous year. These schemes often promise unrealistic returns or exploit social engineering to gain access to victims’ wallets.

On the technical side, DeFi hacks have emerged as a major threat, exploiting vulnerabilities in smart contracts and protocols to steal millions within seconds. The rise of DeFi platforms has attracted criminals who use complex exploit techniques, including flash loan attacks and oracle manipulation. These platforms experienced significant breaches, including a total loss of $55 million from the Radiant Capital hack.

Beyond scams and hacks, cryptocurrency also facilitates traditional crimes such as drug trafficking and ransomware. Darknet marketplaces continue to rely heavily on crypto to facilitate anonymous sales of illegal goods.

Ransomware attacks, which demand payment in Bitcoin or privacy coins such as Monero, target critical infrastructure, healthcare providers, and government agencies alike. In May 2021, the Colonial Pipeline—one of the largest fuel pipelines in the United States—was forced to shut down operations after a ransomware attack by the criminal group DarkSide. The attackers infiltrated the company's IT systems and demanded a ransom in Bitcoin (75 bitcoin), which was paid to restore operations quickly. The shutdown disrupted fuel supplies across the East Coast, causing panic buying and shortages. Although U.S. authorities later recovered a portion of the ransom through blockchain tracing and cooperation with crypto exchanges, the incident highlighted how ransomware incidents cause widespread disruption and cost victims billions annually.

Understanding the nature of the crime is key to identifying the responsible wallet(s) and following the money.

3. Clues to Look for in a Crypto Case

A major sign of suspicious behavior is a sudden spike in transaction volume or a departure from an address’s usual pattern of activity. For example, a wallet that has been inactive for weeks or months might abruptly send large amounts of crypto to multiple new addresses. This kind of irregular activity could indicate the wallet has been compromised or that it’s being used to launder stolen funds from a recent breach.

Timing is another important factor. In many fraud or hacking incidents, criminals move funds almost immediately after the attack. These movements often occur late at night or during weekends, when monitoring is reduced. Funds might be routed quickly through several addresses in succession, swapped across multiple tokens, or sent through cross-chain bridges to evade detection. Understanding these patterns can help law enforcement act within a critical window before the assets are mixed or cashed out.

Investigators should also check whether any of the wallets involved have links to previously identified scam operations, fraud rings, or laundering services. For instance, if funds are moved to an address associated with a known mixer like Tornado Cash or previously used in phishing attacks, this raises the likelihood that the wallet is involved in concealing stolen assets. Tracking these associations not only strengthens evidence but can also broaden the scope of the investigation beyond a single bad actor to an entire network of coordinated criminal activity.

4. Building Strategic Partnerships

Unlike traditional financial systems, which are often restricted by national boundaries and banking hours, crypto can be transferred across borders in a matter of seconds. A suspect in Asia could defraud a victim in Europe and route the stolen funds through a series of wallets and services operating across several continents, all before local authorities are even alerted.

Criminals take full advantage of this global fluidity. They often route stolen assets through exchanges and DeFi platforms located in jurisdictions with limited regulatory oversight or weak cooperation with foreign law enforcement. This creates significant friction for investigators attempting to issue subpoenas, freeze assets, or secure transactional data. In some cases, legal assistance requests (such as MLATs) can take months to process, by which time the funds have already moved through mixers, bridges, and multiple wallets, further obscuring their origin and destination.

Adding to the complexity is the rise of cross-chain swaps and blockchain bridges, which allow assets to be transferred from one blockchain to another without a centralized intermediary. These cross-chain activities often break the continuity of the transaction trail, posing additional technical and legal hurdles for investigative teams unfamiliar with multi-chain environments.

To effectively navigate these obstacles, law enforcement agencies must build strategic partnerships with firms that specialize in blockchain intelligence, cybersecurity, and legal response. These collaborations provide access to the technical skills and cross-jurisdictional insights needed to follow money trails across borders, chains, and complex laundering techniques.

Chainvestigate works hand-in-hand with cybersecurity analysts, on-chain tracing platforms, and legal partners to map out illicit financial flows, even when they span multiple continents and blockchain networks.

Also, victims of crypto-related crimes often face immense difficulty pursuing justice and recovering lost assets. Law enforcement plays a key role, but it cannot act in isolation. Recovering funds and building a strong case typically requires input from multiple actors, such as blockchain investigators to trace the flow of funds, cybersecurity teams to analyze breaches or scams, and legal professionals to push for recovery and restitution. Without this coordinated effort, cases risk stalling due to a lack of technical clarity or jurisdictional reach.

Chainvestigate supports victims and agencies by providing detailed transaction mappings, intelligence briefs, and evidentiary reports that can be submitted in formal legal proceedings. We help build a comprehensive narrative of how the crime occurred, where the funds traveled, and what legal levers can be used to intervene.

By combining investigative precision with strategic partnerships, law enforcement can help ensure that crypto crime is not only traceable but also prosecutable.

5. Acting Fast Makes a Difference

As stated earlier, digital assets can move across wallets, chains, and protocols in a matter of seconds. The longer a crime goes unreported, the greater the opportunity for perpetrators to launder funds using mixers, privacy-enhancing tools, or DeFi platforms. Once the money is fragmented, obfuscated, or swapped across chains, recovery becomes significantly more complex, if not impossible.

Law enforcement agencies should stress the importance of early reporting to victims. Whether the incident involves a phishing scam, an investment fraud, or a protocol exploit, victims should be encouraged to come forward with any information as soon as suspicious activity is identified. Key data such as transaction hashes, wallet addresses, screenshots of conversations, and timestamps of the incident can form the foundation of an effective investigation. Preserving this data in its original form ensures accuracy and integrity in the investigative process.

It is equally important to caution victims against publicly accusing the attacker or trying to negotiate independently. Confronting a suspect could prompt them to rapidly move or cash out the funds. Even in emotionally charged situations, keeping the incident confidential in the early stages allows law enforcement and blockchain analysts to track movements in real time.

To support this process, firms like Chainvestigate specialize in real-time blockchain analysis, offering rapid assessments of suspicious transactions. Our expertise enables law enforcement to swiftly identify fund flows, pinpoint touchpoints like exchanges or DeFi platforms, and prepare the necessary evidence or freezing requests.

▶ Conclusion: From Reactive to Proactive

The rise of cryptocurrency has introduced new layers of complexity to criminal investigations, but it also has opportunities for traceability if the right tools, knowledge, and partnerships are in place. From identifying wallet patterns to navigating cross-chain activity, law enforcement agencies that invest in crypto literacy can move from reactive responders to proactive disruptors of illicit financial activity.

At Chainvestigate, we are ready to assist agencies with specialized blockchain tracing, intelligence briefings, and investigative support that turns complex crypto crime into actionable evidence. Whether you're responding to a scam, an exploit, or a cross-border laundering scheme, please contact us and you don’t have to face it alone.

▶ Source:

Cryptocurrency scam losses likely hit record in 2024, research says

Radiant Capital says North Korea posed as ex-contractor to carry out $50M hack