It’s been more than a decade since 850,000 BTC went missing from Mt. Gox, yet the collapse of the former exchange remains one of the most infamous black swan events of the cryptocurrency ecosystem. While creditors of the defunct exchange are edging closer to some form of restitution, Mt. Gox’s demise ended up playing an important role in the development of tools to identify, track, and tackle the illicit movements of funds through the wider cryptocurrency industry.
The search for answers and funds played a key role in the birth of crypto’s best-known blockchain analytics and tracing firm, Chainalysis, explains co-founder Michael Gronager. Close to a decade later, Chainalysis’ analytics tools are being used by myriad private and public enterprises and institutions. From data analytics to pure law enforcement use cases, the firm’s services continue to prove influential — and sometimes controversial — across the industry.
Gronager, a former co-founder of cryptocurrency exchange Kraken, got involved in blockchain analysis after Kraken went looking for a steady banking partner and met a wall of wariness over the lack of visibility in the cryptocurrency ecosystem along with KYC and money laundering concerns. The collapse of Mt. Gox around the same time presented another unique challenge for Gronager, who was tasked with figuring out what happened to the funds that Kraken and some of its clients had in the defunct exchange.
Gronager developed the tools that would lay the foundation for Chainalysis, with the nascent firm eventually appointed as the investigative team by Mt. Gox’s bankruptcy trustee in 2014. From there, Gronager and his team wasted no time putting the proverbial bits together to trace the missing funds.
Chainalysis has become the go-to tracing solution for some of the best-known law enforcement organizations worldwide and has helped the IRS seize an estimated $10 billion worth of cryptocurrency related to criminal investigations. Chainalysis tools helped investigators link a Bitcoin scam being promulgated by various hacked Twitter accounts to three perpetrators accused of orchestrating the scheme. The mastermind of the scheme is a juvenile whose identity has not yet been revealed.
Despite the controversy, Chainalysis has a lot of happy customers and has played a big role in the recovery of hacked funds. Erin Plante, VP of investigations at Chainalysis, manages a growing team of more than 120 investigators across 11 countries. Plante, who has a wealth of experience working in cybercrime and financial investigation as a U.S. government contractor, says that 90% of their investigators are tasked with probes into incidents involving public blockchains like Bitcoin and Ethereum. The Ronin Bridge investigation was a primary driver for the creation of her team, highlighting the importance of allocating human capital to trace funds in the immediate aftermath of a major hack.
In conclusion, Chainalysis has made significant contributions to the cryptocurrency industry, especially in terms of identifying and tracking illicit movements of funds. It has become a go-to solution for law enforcement agencies and has played a crucial role in solving high-profile cases and recovering stolen funds. While it has faced some controversy and criticism, its services continue to be widely used and valued in the industry.
