Bitcoin Fog Case Could Put Cryptocurrency Tracing on Trial

Bitcoin Fog Case Could Put Cryptocurrency Tracing on Trial

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If the prosecution doesn’t produce clear proof as Sterlingov’s case unfolds, it could should depend on the extra oblique digital connections between Sterlingov and Bitcoin Fog that it describes within the assertion of details assembled by the IRS’s prison investigations division, a lot of which was based mostly on cryptocurrency tracing strategies. That assertion exhibits a path of monetary transactions from 2011 allegedly linking Sterlingov to funds made to register the Bitcoinfog.com area, which was not Bitcoin Fog’s precise dark-web web site however a standard web site that marketed it.

The funds to pay for that area traveled via a number of accounts and had been finally exchanged from Bitcoin for the now-defunct digital forex Liberty Reserve, in line with prosecutors. However the IRS says IP addresses, blockchain information, and cellphone numbers linked with the varied accounts all join the funds to Sterlingov. A Russian-language doc in Sterlingov’s Google Account additionally described a way for obfuscating funds just like the one he’s accused of utilizing for that area registration.

Sterlingov says he “can’t keep in mind” if he created Bitcoinfog.com and factors out that he labored on the time as an internet designer for a Swedish advertising firm, Capo Marknadskommunikation. “That was 11 years in the past,” Sterlingov says. “It’s actually arduous for me to say something particular.”

Even when the federal government can show that Sterlingov created a web site to advertise Bitcoinfog.com in 2011, nonetheless—and Ekeland argues even that’s based mostly on defective IP tackle connections that got here from Stertlingov’s use of a VPN—Ekeland factors out that’s very totally different from operating the Bitcoin Fog dark-web service for the next decade it remained on-line and laundered prison proceeds.

To indicate Sterlingov’s deeper connection to Bitcoin Fog past a site registration, the IRS says it used blockchain evaluation to hint Bitcoin funds Sterlingov allegedly made as “check transactions” to the service in 2011 earlier than it was publicly launched. Investigators additionally say that Sterlingov continued to obtain income from Bitcoin Fog till 2019, additionally based mostly on their observations of cryptocurrency funds recorded on the Bitcoin blockchain.

Ekeland counters that the protection hasn’t acquired any particulars of that blockchain evaluation and factors out that it was unnoticed of the newest superseding indictment towards Sterlingov, which was filed final week. Which means, he argues, that the federal government has based mostly the core of its case on an unproven, comparatively new type of forensics—one which he says led them to the fallacious suspect. “Has it been peer-reviewed? No,” Ekeland says of blockchain evaluation. “Is it typically accepted within the scientific group? No. Does it have a recognized error price? No. It’s unverifiable. They will say whole nonsense, and everybody has to take it on religion.”

Ekeland says that discovery paperwork within the case present that the prosecution’s cryptocurrency tracing was carried out with instruments offered by Chainalysis, a New York–based mostly blockchain evaluation startup, together with consulting assist from Excygent, a authorities contractor specializing in cybercriminal and cryptocurrency investigations, which Chainalysis acquired in 2021.

Ekeland argues that Chainalysis, valued at $8.6 billion in a current funding spherical and often utilized in high-profile cybercriminal regulation enforcement investigations, had a battle of curiosity within the case, given its monetary dependence on US authorities contracts and a circulation of former authorities investigators who’ve gone to work for Chainalysis. “This can be a story of individuals profiteering and advancing their careers, throwing individuals in jail to advertise their blockchain evaluation software that’s junk science and doesn’t face up to any scrutiny,” says Ekeland. He provides that, based mostly on the proof offered in Sterlingov’s case, he believes “Chainalysis is the Theranos of blockchain evaluation.”

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