Can Police Track Stolen Crypto?

If you lost crypto and you are curious to know if police can track your stolen crypto, this guide must help you.

As we had discussed on the page, Bitcoin is traceable, when it comes to crypto transactions, anyone who might be interested can see your transactions on the blockchain. This includes your everyday folks just as much as the police.

There’s nothing hidden about how law enforcement can track down stolen cryptocurrency assets. Indeed, there were countless examples of law enforcement getting back stolen crypto.

Let’s rewind in time to November 5, 2022. We have the FBI with another victory—50,000 bitcoins (approximately $3.36 billion). Wow! The hoard had been stolen years earlier by one James Zhong from the infamous cesspool of commerce, the Silk Road marketplace. It required time; the investigation lasted nearly a decade until authorities identified and retrieved these hijacked funds.

So, as far as we could see, crypto recovery cases often seem to deal with an immense heap of money—millions or billions in cryptocurrency.

And what do you do if the common person suffers a minor setback – loses out a few thousands—through some sneaky crypto scam and sinister attack?

However, the majority of law enforcement agencies have little or no specialist training in cryptocurrency related offenses, nor do they appoint officers dedicated to the subject.

The crypto market is already mature; it started over a decade ago and got popular after a few years. After which, the use of cryptocurrencies skyrocketed, and law enforcers struggled to trace these types of assets while investigating crimes.

Therefore, can government institutions such as the police, the Federal Bureau of Investigation/FBI/and the Internal Revenue Service/IRS actually follow up on the ownership of the bitcoin owner or sender?

Also, does the government know which Bitcoin is owned by whom? 

In this case, BTC traceability is about whether one can connect someone’s address-based transaction activity to its originator, i.e., the person behind the names assigned to his/her Bitcoin public keys.

As crypto is decentralized and if someone is using a decentralized wallet or running their own nodes, it’s really hard to guess who owns those coins but surely it can traced with the unique address of the owner.

For instance, look at the recent transactions on the etherscan.

Let’s just look at how transactions actually work and how they can be traced.

How bitcoin transactions work:

The blockchain is the decentralized network that enables cryptocurrency transactions. The moment you send a transaction, it’s recorded in a block and eventually included on the chain.

The transaction is then checked by the multiple computers that exist on the network and are referred to as nodes. Verifying this ensures the safety, effectiveness, and legitimacy of each transaction.

In terms of anonymity vs. pseudonymity For instance, a cryptocurrency like Bitcoin provides pseudonymity, where you don’t have a real identity; with a transaction, you have only a unique address. 

While this provides some form of privacy, you must be aware that transactions on the blockchain are all visible for anyone to see.

Being completely transparent (you can see the entire transaction history), this is one of the main advantages of the public ledger/ or blockchain.

For instance, look at this random BTC transaction. Someone transferred about a 100K recently and it’s available on blockchain.

A blockchain is a public register (which refers to the list of transactions made with a particular digital currency). It is called a public ledger because any interested user can see the same record of transactions. 

Transparency helps maintain the credibility of the entire cryptocurrency industry, as users can monitor transactions and avoid fraud. On the other hand, transaction data is completely open, but the folks in those transactions are not like arbitrary people; they are typically, you know, more pseudonymous than anything else really.

Law enforcement’s role:

Cryptocurrency crimes and law enforcement have a very important link. Legislatively speaking, there’s already some sort of legal framework; laws and regulations are created for such crimes against cryptocurrency.

The cases of cryptos can be handled by different bodies of law; enforcers, including the FBI, Interpol, and police forces at the federal-, state-levels among others, are working on them. These organizations collaborate in order to gather evidence and indict criminals engaged in criminal behavior involving crypto currencies.

There are many challenges for law enforcement when it comes to combating crimes related to cryptocurrencies. A big issue at hand is how transactions are anonymous, and this makes tracking down people involved in crimes problematic. 

Cryptocurrencies also offer their own set of challenges as they operate globally, which leads to jurisdictional problems for law enforcement agencies.

While this is a daunting task, law-enforcement institutions continue to evolve their methods in an attempt to stop Bitcoin crimes. Many of them typically work closely with specialists (experts) in the field and use innovative technology to improve their investigation skills.

Retrieving stolen crypto could take a while, and unless the authorities are too informed about the crypto industry, do not assume you will get your crypto back.

In some cases, police and FBI can’t help you recover you lost crypto, in that case, you should reach out to crypto recovery experts for guaranteed crypto recovery.

Tracking stolen crypto:

A. Tools and Techniques Used by Law Enforcement:

The law enforcement agency utilizes numerous methods and tools to identify the crypto thief. Through their software, they monitor the blockchain, look at patterns of transactions, and see things where something does not feel right, which makes sense. They use these tools to sift through the blockchain in search of the electronic thumbprints of illicit currency. They are even capable of employing forensics to gather information from devices and systems infiltrated throughout the theft.

B. Cooperation with Crypto Exchanges and Service Providers:

Law enforcement collaborates with cryptocurrency service providers and exchanges to compile data on stolen cryptocurrency. These entities can ask for relevant data, user information, and transaction records. Collaborating with crypto platforms now involves a significant component of identifying and locating offenders. Thus, strong cooperation with law enforcement is now required between these exchanges and service providers.

C. Challenges in Tracing Crypto Due to mixing services and privacy coins:

Crypto tracking is hard because people mix their deposits around, and some others operate as privacy coins. Mixers let individuals blend the money they used in transactions with other users’ money, hiding where these coins came from. In contrast, privacy-coins aim to increase the level of anonymity by hiding transaction details. It is more difficult for law enforcement to follow the money and identify those responsible with these tools. It is just like following a hidden pathway!

A cryptocurrency exchange that is controlled by a single organization, like Coinbase, is known as a centralized exchange. Centralized exchanges are subject to rules in order to operate in a particular nation or region.

For instance, the majority of centralized exchanges have Know Your Customer (KYC) checks in place to reduce bitcoin anonymity and unlawful use. KYC is designed to enable authorities to evaluate activity on the blockchain while also confirming the identities of clients. In reality, before someone may trade, invest, or complete a transaction, they must provide a variety of documents and their personal data.

KYC compliance is going to open the door to providing information to law enforcement authorities during audits and potentially on an as-needed basis too. It’s because the exchange contains transactional as well as personal information about people, and the government can use it. Using KYC checks along with related personally identifiable information, the IRS can track down unknown Bitcoin wallets through centralized exchanges.

But not all exchanges have KYC implemented. One example of this is that decentralized exchanges do not have a headquarters nor they are managed by one big company or by a few persons, making it difficult for them to enforce the law.

Now, it isn’t that much trouble to follow up on bitcoin; just trusting in law implementation and legal advisors could take considerably more time, and in addition, it is difficult to state whether or how you should recuperate your taken digital money. Besides all that, the law enforcement or government will not return that much—you’re looking at tens to (if lucky) hundreds of thousands of dollars here—these guys go after the big fish (and sometimes actually catch them).