Power Law Briefing – A deliberate design feature of Bitcoin is that it enables users to buy or sell anything without revealing their identity. Yet, paradoxically, all Bitcoin transactions are stored publicly and permanently on blockchain. Now, as seen in recent cases, enterprising US prosecutors and private plaintiffs’ lawyers are using software called blockchain explorer to crack Bitcoin’s anonymity.
The US Treasury Financial Crimes Enforcement Network (FinCEN) also appears to suggest that financial institutions and crypto businesses should consider how explorer software could help them meet their own anti-money laundering (AML) and sanctions obligations.
Blockchain explorer software can search the public Bitcoin blockchain (or other public blockchain platforms) and identify all transactions associated with a given public key. Finding interactions between that public key and a financial institution or other entity with AML/KYC or books and records retention requirements – e.g. a regulated virtual currency exchange –that can be subpoenaed (or made the subject of a search warrant), means that personal information can be unlocked that could help identify the owners of the public key.
Industry awareness of blockchain explorer technology is growing: an article in the February 2019 edition of the U.S. Department of Justice’s Journal of Federal Law and Practice, “Attribution in Cryptocurrency Cases”, written by the Digital Currency Counsel in the Criminal Division’s Money Laundering and Asset Recovery Section, recognizes that “third -party blockchain analysis software is used as anti -money laundering software by financial institutions worldwide.”