Blockchain's audit trail, coupled with federal subpoena power, made it possible for investigators to uncover the personal accounts linked to operators of the underground marketplace.
Bitcoin and other cryptocurrences are often criticized as enablers of less-than-legal transactions, giving criminals anonmymity and a way to bypass highly regulated traditional financial channels. But the blockchain ledgers that power those cryptocurrencies are now being mined by criminal investigators -- and the most famous case reads like a pulp-fiction crime novel.
The first time the U.S. government used blockchain analysis in a criminal investigation was to help bring down the creator of Silk Road dark web marketplace, according to Kathryn Haun, a former federal prosecutor for the Department of Justice who was directly involved in the case. The blockchain also was instrumental in catching two corrupt federal agents who became involved in the black market site and worked on the original investigation.
Before it was shut down, the Silk Road marketplace sold “everything from heroin to fake passports,” Haun said at a May 9 event hosted by BMC Exchange and presented by FCW, which is GCN’s sibling publication. A DOJ task force began working to bring down the platform in 2012.
“They didn’t know who was running Silk Road,” said Haun, who is now a professor at the Stanford Business School. All investigators had was the creator's username: DPR, or Dread Pirate Roberts. Before long, however an undercover federal agent was able to befriend DPR, and the two messaged almost daily. The agent’s user name was NOB.
In 2015, DPR started receiving threats from Silk Road users named Death from Above and French Maid. Death from Above said he would expose DPR’s identity unless DPR paid “hundreds of thousands of dollars, in bitcoin,” Haun said. Meanwhile, French Maid was selling information on the federal investigation of Silk Road back to DPR.
During this same period of time, 21,000 bitcoins disappeared from Silk Road accounts. DPR launched his own investigation and determined the credentials of a Silk Road administrator named Curtis Green were used to move the money, she said.
DPR then asked NOB to kill Green. But Green was already cooperating with federal authorities and had turned over his computer and administrative information, including his Silk Road credentials.
Even with Green in protective custody, federal investigators still had plenty of loose ends. They didn’t have any idea who French Maid or Death from Above was, and they also didn’t know what happened to the 21,000 missing bitcoin. But that’s when blockchain analysis came into play, Haun said.
A tip from someone in the cryptocurrency community led investigators to look into their own agents.
“I took it with a grain of salt,” Haun said. But looking at NOB’s accounts revealed the suspect was moving large amounts of bitcoin around to his personal accounts.
Distributed-ledger technology, or the blockchain, makes bitcoin possible. It is a decentralized, public database that encrypts and tracks every bitcoin transaction, which ensures security and transparency. Blockchain's audit trail, coupled with federal subpoena power, made it possible for investigators to uncover the personal accounts linked to the bitcoin transactions.
“We traced the Bitcoin payments from NOB’s account and guess where why all led? I’m sure you can all guess,” Haun said. “They led back to the Silk Road.”
NOB was behind the other two accounts, both French Maid and Death from Above. “He was playing both sides the whole time,” she said.
He was also the first, obvious suspect for the theft of the 21,000 bitcoin. “And before the blockchain we probably would have thought that,” she said.
Investigators followed the missing bitcoin to Mt. Gox, an exchange that handled a large number of bitcoin transactions before it filed for bankruptcy in 2014, Haun said.
Upon closer inspection of the blockchain, though, federal investigators found the money went to a Secret Service agent on the Silk Road task force. The agent had been in the room when Curtis Green was handing over his password, she said.
Both NOB and this Secret Service agent did a great job covering up their tracks, Haun said, and they would not have been caught without the blockchain.
“Before the blockchain these agents would still be agents today,” she said. “They would not be sitting in federal prison where they both are now.”
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