New scheme suggested to test deanonymized blockchain data in courts

A group of researchers from Friedrich-Alexander-Universität Erlangen-Nürnberg has recently published a paper that explains how investigators and courts can determine the validity of deanonymized data on the Bitcoin (BTC) blockchain. The preprint paper, titled “Argumentation Schemes for Blockchain Deanonymization,” offers a blueprint for conducting, verifying, and presenting investigations into crimes involving cryptocurrency transactions. Though the paper focuses on the legal systems of Germany and the United States, the authors state that their findings should be generally applicable.

Investigations into Bitcoin-related crime revolve around the deanonymization of suspected criminals, which is made more challenging by the pseudonymous nature of blockchains. Users conducting blockchain transactions are identified by wallets (unique software addresses) instead of legal names. However, blockchains are transparent by nature, and whenever data is added to a blockchain ledger, the transaction is recorded and made available for anyone with access to the blockchain to see.

Investigators trying to determine who is behind a specific wallet use the information within blockchain transactions (blocks) as data points that, when combined, form a digital paper trail. According to the research team, the current bottleneck when it comes to these investigations is no longer a technological one; it’s a legal issue.

Law enforcement agencies have access to the tools needed to conduct preliminary blockchain analysis, but these early data points represent circumstantial evidence. This evidence relies on certain raw assumptions that can only be validated by connecting on-chain activity to off-chain activity, such as compelling an exchange to disclose the identity or bank account information of users suspected of criminal involvement. The paper states that “in legal practice, those assumptions are critical for inferring the evidential value of the deanonymization of a perpetrator. However, no standard practice for deriving and discussing the reliability of those analysis results has been proposed yet.”

If conducted properly, blockchain investigations can reveal the perpetrator of a crime. The researchers cite the Wall Street Market case as an example where US Postal Service investigators identified the operator of an illegal dark web marketplace by connecting various data points that law enforcement officers corroborated through surveillance operations. However, the researchers state that such investigations risk impinging on suspects’ rights due to legal requirements. Prosecutors (in Germany and the US, per the paper) must demonstrate a certain degree of evidence of guilt before a warrant for invasive investigations, such as surveillance or arrests, can be issued.

To aid investigators and prosecutors while also ensuring the law is applied fairly to suspects, the researchers propose a standard framework containing five argumentative schemes designed to ensure proper reporting and explanation throughout the legal process. The paper includes an image showing two of the schemes, each utilizing a set of defined premises to frame a specific conclusion and then providing a set of critical questions to assess the strength of the argument. The researchers assert that “by utilizing the schemes, an analyst can clearly articulate the employed heuristics, their individual strengths, and potential weaknesses. This increases the comprehensibility of such analyses and court proceedings for the decision makers, and also eases the documentation for later verification by an expert witness.”