A team of researchers has reportedly found a new way to track stolen bitcoins. The program, which is called Taintchain, allows law enforcement to track the digital currency even after it has been laundered.
Taintchain, which was created by researchers from the University Cambridge in the United Kingdom, is based on a 19th century UK law that established the first in, first out (FIFO) principle, upon which many cryptocurrency launderers reportedly operate.
Bitcoin is not anonymous digital currency. Instead like many other cryptocurrencies, it is pseudonymous, meaning identities are disguised, not hidden. Such Pseudonymity means that law enforcement can identify the owner of the address holding stolen funds once they have already been tracked down.
Though distributed ledgers allow for all transactions to be seen and traced, the assets themselves cannot be tracked because they have no serial numbers or individual identifiers.
Laundering has become one of the most common ways of hiding stolen cryptocurrency. Bitcoin thieves can launder stolen BTC by first depositing both clean and stolen coins into a wallet, then distributing the coin into separate wallets before redepositing them into many other accounts. This method makes it impossible to identify the stolen BTC from the clean BTC.
According to the research team, which is comprised of Ross Anderson, Ilia Shumailov, and Mansoor Ahmed, Taintchain is based on the FIFO principle, which stipulates that when funds are withdrawn from a collective account, the first person to have paid in is the first person to be paid out.
The Taintchain algorithm applies this principle to bitcoin wallets. If the first bitcoins paid into the wallet are considered stolen, then the first ones paid out are considered stolen too. Even when thieves use multiple methods and patterns to hide the funds, the algorithm can identify stolen assets by employing the FIFO principle.
Cryptocurrency has become a popular tool for money laundering. Over $761 million in cryptocurrency assets was stolen in the first six months of 2018 alone; over three quarters of a billion dollars that would potentially need to be laundered. Such increases in crime have caused researchers and law enforcement to look for ways to trace criminal proceeds.