The Bitcoin Fog Case Could Put Cryptocurrency Tracing to the Test

If the prosecution does not produce clear evidence as the Sterlingov case unfolds, it may have to rely on the more indirect digital connections between Sterlingov and Bitcoin Fog that it describes in the charge. facts gathered by the IRS Criminal Investigations Division, much of which was based on cryptocurrency tracing techniques. This statement shows a trail of financial transactions from 2011 allegedly linking Sterlingov to payments made to register the domain Bitcoinfog.com, which was not Bitcoin Fog’s actual dark website, but a mainstream website advertising it.

Funds to pay for this domain flowed through multiple accounts and were eventually exchanged from Bitcoin to the now-defunct Liberty Reserve digital currency, prosecutors say. But the IRS says the IP addresses, blockchain data and phone numbers linked to the various accounts connect all payments to Sterlingov. A Russian-language document in Sterlingov’s Google account also describes a method of concealing payments similar to the one he is accused of using to register this domain.

Sterlingov says he “can’t remember” if he started Bitcoinfog.com and points out that he was working as a web designer at the time for a Swedish marketing company, Capo Marknadskommunikation. “That was 11 years ago,” Sterlingov said. “It’s really hard for me to say anything specific.”

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Even though the government housing proving that Sterlingov created a website to promote Bitcoinfog.com in 2011, however – and Ekeland even maintains that this is based on faulty IP address connections resulting from Stertlingov’s use of a VPN – Ekeland points out that this Very different from running the dark service Bitcoin Fog for the next decade, it stayed online and laundered the proceeds of crime.

To show Sterlingov’s deeper connection to Bitcoin Fog beyond a domain registration, the IRS says it used blockchain analysis to trace Bitcoin payments Sterlingov allegedly made as “transactions “. ”. test” to the service in 2011 before its public launch. Investigators also claim that Sterlingov continued to receive revenue from Bitcoin Fog through 2019, also based on their observations of cryptocurrency payments recorded on the Bitcoin blockchain.

Ekeland counters that the defense was not given any details about this blockchain analysis and points out that it was excluded from the most recent replacement indictment against Sterlingov, which was filed last week. This means, he argues, that the government based the core of its case on an unproven and relatively new form of forensics – one that he says led them to the wrong suspect. “Has it been peer reviewed? No,” Ekeland says of the blockchain analysis. “Is this generally accepted in the scientific community? No. Does it have a known error rate? No. It is unverifiable. They can talk total nonsense, and everyone has to believe it.

Ekeland said discovery documents in the case demonstrated that the prosecution’s cryptocurrency tracing was done with tools sold by Chainalysis, a New York-based blockchain analytics startup, as well as consulting assistance from Excygent, a government contractor specializing in cybercrime and cryptocurrency investigations, which Chainalysis acquired in 2021.

Ekeland argued that Chainalysis, received $8.6 billion in a recent investment round and frequently used in high-level law enforcement investigations of cybercriminals, had a conflict of interest. interests in the case, given its financial dependence on U.S. government contracts and a stream of former government investigators. who went to work for Chainalysis. “It’s a story of people profiting and advancing their careers, throwing people in jail for promoting their blockchain analytics tool which is junk science and doesn’t hold up to any scrutiny,” Ekeland says. He adds that, based on the evidence provided in Sterlingov’s case, he believes “Chainalysis is the Theranos of blockchain analytics.”

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