Kim Aarenstrup, the head of the Danish police’s cyber crime unit NC3, told Berlingske that police had built a system to analyse Bitcoin transactions which has already helped them bring two drug trafficking convictions.
In January, Danish police made their second bitcoin conviction when a 20-year-old was jailed by a court in Herning, Jutland, for making large-scale purchases of amphetamines, cocaine and ketamine on an online ‘dark web’ marketplace.
Aarenstrup described the new system as “ground-breaking”.
”We are pretty much unique in the world at this point, because there not really any others who have managed to use these trails as evidence,” he said. “Everyone in this field is looking towards Denmark, and we are in close dialogue with a number of other countries right now, so we can further develop out methods and teach them how we do it.”
Bitcoin is a digital currency which in theory functions anonymously, almost like cash. Since its launch in 2008, its use has become increasingly widespread among criminals, particularly those buying and selling drugs on illegal ‘dark net’ marketplaces such as Alphabay or Silk Road 3.0.
"Bitcoin - and digital currency in general - is used a lot for trafficking in weapons and drugs, ransom cases and extortion cases,” Aarenstrup said. “It has become a heavily used tool for criminals.”
However, it has long been apparent that those using the currency do leave traces which can potentially be used to identify them.
When purchasing bitcoin from a retailer online, buyers are often required to submit a picture of their passport or other identification. Users are also required to create a bitcoin wallet, which requires an address, even though both wallets and addresses can be anonymous. After that all transactions ever made with bitcoin are coded into the blockchain, a publicly distributed ledger maintained over peer-to-peer networks.
Jesper Klyve, the Danish prosecutor who made both last month’s conviction, and an earlier one which was Denmark’s first, said the Danish system worked by correlating transactions where bitcoins are used to buy illegal goods, with transactions listed in the blockchain, and other information about users.
“All transfers that have ever been made are coded into the bitcoin-system. Therefore, you can at any given time log in and search in the system and try to identify individual users,” he told Berlingske.
Aarenstrup said he hoped that by publicising the police’s new powers, he would deter those using dark net sites to buy and sell illegal goods.
“I just want to say to those out there in the criminal community that they need to be careful, because we can follow them. They should not think they can hide from the police anymore.”