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Bitcoin Fog Case May Put Cryptocurrency Tracing on Trial

If the prosecution doesn’t produce clear proof as Sterlingov’s case unfolds, it might should depend on the extra oblique digital connections between Sterlingov and Bitcoin Fog that it describes within the assertion of info assembled by the IRS’s legal investigations division, a lot of which was based mostly on cryptocurrency tracing strategies. That assertion reveals a path of economic 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 by means of a number of accounts and had been ultimately exchanged from Bitcoin for the now-defunct digital forex Liberty Reserve, based on prosecutors. However the IRS says IP addresses, blockchain information, and cellphone numbers linked with the assorted accounts all join the funds to Sterlingov. A Russian-language doc in Sterlingov’s Google Account additionally described a technique for obfuscating funds much like the one he’s accused of utilizing for that area registration.

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

Even when the federal government can show that Sterlingov created an internet site to advertise Bitcoinfog.com in 2011, nonetheless—and Ekeland argues even that’s based mostly on defective IP handle 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 legal 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 “take a look at 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 obtained any particulars of that blockchain evaluation and factors out that it was neglected of the newest superseding indictment in opposition to 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 neighborhood? No. Does it have a recognized error charge? No. It’s unverifiable. They’ll say complete 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 bought 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 legislation enforcement investigations, had a battle of curiosity within the case, given its monetary dependence on US authorities contracts and a circulate of former authorities investigators who’ve gone to work for Chainalysis. “This can be a story of individuals profiteering and advancing their careers, throwing folks in jail to advertise their blockchain evaluation instrument that’s junk science and doesn’t stand 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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