Last month, a Washington, D.C. jury decided that Roman Sterlingov was indeed the individual who ran the Bitcoin Fog mixer, and subsequently found him guilty of laundering tens of millions of dollars from illicit, darknet market activity. The jury also convicted the defendant of running an unlicensed money services business (MSB).
But this case had far-reaching implications beyond the conviction. Earlier during the trial, Judge Randolph Moss of the U.S. District Court for the District of Columbia ruled in a Daubert order that Chainalysis’s blockchain analytics is reliable and therefore admissible as substantive evidence, despite the defense’s arguments to the contrary.
That Daubert ruling sets a precedent that’s important for several reasons. First, it gives prosecutors a valuable tool to prove guilt at trial. Second, it affirms the auditability and transparency of Chainalysis’s blockchain analytics, which is crucial for the many agencies that rely on our solutions to investigate illicit activity.
Below, we’ll tell you more about how this ruling came to be and what it means for the future.
Chainalysis blockchain analytics is auditable and transparent
Chainalysis’s attribution and clustering of blockchain entities is accurate and verifiable. This fact is of paramount importance to our company and the industry. For that reason, we take a conservative approach, and only attribute a cryptocurrency address to a specific service or wallet when we have directly observable, empirical evidence demonstrating the address belongs to that service or wallet. Similarly, we only cluster new addresses together with those addresses on a deterministic basis. Deterministic methods of data analysis will always yield the same outputs when given the same inputs because they operate based on a set of predefined rules.
Deterministic clustering enables us to reconstruct the cluster representing any given service from scratch, step by step, at any time. This auditability makes internal peer review possible and provides unparalleled transparency into how we arrived at our conclusions. As such, law enforcement agencies and prosecutors can see for themselves how we clustered a given service, and verify the accuracy of our assessments.
During the Bitcoin Fog case, the defense claimed that Chainalysis operates as a “black box algorithm.” But the evidence that the government presented to the jury demonstrated the exact opposite — our methods are transparent, tested, reviewed, and reliable. Chainalysis expert Beth Bisbee made this clear in her pretrial and trial testimony, during which she meticulously detailed the process through which Chainalysis attributes and clusters blockchain entities in detail. She also drew on her extensive experience using Chainalysis Reactor in hundreds of cases as a DEA Intelligence Research Specialist prior to her employment with the Company, stating that she consistently and successfully relied on Chainalysis analytics when sending subpoenas to services identified as hosting specific addresses relevant to her cases. This is the rigor that courts and governments rightfully demand in order to confirm that Chainalysis blockchain analytics meets the standards of reliability necessary to be admitted in court as substantive evidence. Customers should always be skeptical of providers who claim that standalone visualizations suffice or that they can provide expert witnesses at a moment’s notice.
What happens now?
Roman Sterlingov and his legal team may very well appeal his conviction, as is his right. But Judge Moss’s ruling on blockchain analytics provides a legal paradigm for courts and agencies around the world. The use of Chainalysis blockchain analytics was limited in this case to the attribution and clustering of the Bitcoin Fog mixer and the eight darknet marketplaces that used the mixer to launder funds. Regardless of what happens next for Sterlingov, this hard-fought victory demonstrates that when put to the test, under rigorous conditions, Chainalysis blockchain analytics has borne its burden of reliability. That means that our customers in law enforcement can continue to use our tools to investigate illicit activity, with the confidence that our blockchain analytics can be used to prosecute bad actors successfully.
This material is for informational purposes only, and is not intended to provide legal, tax, financial, or investment advice. Recipients should consult their own advisors before making these types of decisions. Chainalysis has no responsibility or liability for any decision made or any other acts or omissions in connection with Recipient’s use of this material.