The blockchain data platform delved into the topic in its 2022 State of Cryptocurrency Investigations Survey, with 74% of respondents indicating their agencies were under-equipped to investigate cryptocurrency-related crime.
Chainalysis polled some 300 respondents across 183 public sector agencies in the United States and Canada to unpack the challenges and successes working in the sector.
An overwhelming number of respondents indicated that cryptocurrencies were relevant to their investigations and that their respective agencies would do well to invest more resources.
Despite cryptocurrency being central in some investigations, most respondents agreed that the space could positively advance the financial system and disagreed with the suggestion that cryptocurrencies were used primarily by criminals.
Chainalysis noted the growth of legitimate cryptocurrency usage far outweighs the growth of criminal usage. Still, the percentage of illicit usage is significant enough in U.S. dollar terms that the public sector must be prepared to investigate.
Respondents also suggested their agencies have investigators or analysts specializing in cryptocurrency-related investigations. The survey also indicated that many agencies do not use specialized blockchain analytical tools, and 74% of respondents believe their agency isn’t well-equipped to investigate cryptocurrency-related crime.
Chainalysis highlighted this as a major problem given the constantly changing industry, citing the recent shift from centralized services to decentralized finance (DeFi) protocols, which are more complex and difficult to investigate:
“If agencies aren’t becoming proficient in cryptocurrency investigations now, their knowledge gaps could compound, causing them to fall further behind the criminals exploiting cryptocurrency regularly.”
The survey revealed that over half of the 300 respondents see more than ten cryptocurrency-related cases in a year, while nearly 40% encountered more than 20 incidents. Scams, fraud, drugs, cybercrime and ransomware were the most commonly investigated crypto-related crimes.
Chainalysis global public sector chief technology officer Gurvais Grigg told Cointelegraph that while the majority of cryptocurrency use is legitimate, there is an intersection with a wide range of consumer protection and national security concerns including terrorism financing, human and drug trafficking, scamming and ransomware.
Grigg proposed that agencies should consider creating a formal or informal industry group to provide advice on formulating cryptocurrency policies and promote operational collaboration. The group could potentially offer in-house training and develop agency-wide best practices:
“Law enforcement and national security agencies need the right training and tools to improve domain awareness, enhance investigations, and strengthen response capabilities. Specifically, agencies should consider creating a “Center of Excellence,” or a working group of crypto-related subject matter experts to leverage these tools and training.”
Chainalysis highlighted the need for trustworthy data powered by robust blockchain analysis tools that allow for simple and valuable data visualizations. Training in cryptocurrency and blockchain analysis was another point raised by respondents, while partnerships with the private sector could deliver these tools and resources.