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11-01-2025

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11 min.

We explain how cryptocurrency theft investigations are conducted

Investigating cryptocurrency incidents is a highly complex issue that differs from the conventional financial system. In this article and subsequent ones, we will attempt to explain how this process works, what tools can be used, and what results can be achieved.

Main money-laundering schemes

Methods for tracking addresses on the blockchain

Freezing of Funds and the Ultimate Goal of the Investigation

List of Sources

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An investigation of cryptocurrency incidents is the process of analyzing the movement of digital assets after thefts, hacks, or fraud schemes. Unlike the traditional financial system—where transactions pass through banks and regulated institutions—the blockchain provides full transparency: every operation is permanently recorded in a distributed ledger. However, this very “transparent anonymity” is what makes investigations both possible and challenging.

The main goal of such an investigation is to understand how stolen or unlawfully obtained funds move through the network:

how perpetrators try to “launder” money using mixing services, bridges, or DeFi protocols;

which centralized exchanges (CEXs) the assets ultimately reach for fiat withdrawal or conversion into more liquid tokens.

Essentially, an investigation is a search for the “financial trail” that criminals try to obscure. Special blockchain analysis tools and methodologies come to the rescue here, enabling the tracking of transaction chains, the identification of links between wallets, and, ultimately, bringing investigators closer to the real suspects.

When attackers attempt to hide the traces of stolen cryptocurrency, they use various laundering schemes. Most often the goal is the same—to break the direct link between the original wallet and the final cash-out. To achieve this, they use bridges and cross-chain transfers, mixers and swaps on DEXs, fragmentation into many addresses, conversion into stablecoins or privacy coins. The use of Layer 2 solutions and the combination of several methods in sequence is also becoming increasingly common.

Main money-laundering schemes

Bridges — transferring assets from one network or blockchain to another to make tracking more difficult.

Mixers (mixers / tumblers) — combining funds with other users’ transactions to break the link between sender and receiver.

DEX swaps — exchanging for other tokens via decentralized exchanges (Uniswap, PancakeSwap, etc.).

Peel chain (peel chain) — gradually splitting and distributing funds in small amounts across many addresses.

Chain hopping — sequential swaps through bridges and DEXs across different blockchains.

Use of stablecoins — converting to USDT, USDC, or DAI to simplify withdrawal or storage.

Privacy coins — converting to Monero (XMR), Zcash, or Dash, where anonymity is higher.

Layer 2 / Rollups — using second-layer solutions (such as Arbitrum or Optimism) to “dissolve” transactions and obscure their origins.

Methods for tracking addresses on the blockchain

Within an investigation, one of the key tasks is establishing a reliable link between addresses controlled by suspected perpetrators and centralized services (CEX). A set of analytical methods used in international blockchain-forensics practice is applied for this. The main approaches are presented below.

Deterministic Tracing
This method is used when funds move directly and continuously from the subject’s address to wallets of centralized platforms. It is effective under the following conditions:
- transactions follow one another without significant involvement of third-party addresses;
- there are no mixing operations or network changes (for example, TRON → TRON);
- the route can be fully reconstructed using blockchain explorers (Tronscan, BSCscan, etc.).
Confirmation of a link in this case is based on an unbroken sequence of transaction hashes and timestamps.
Clustering & Behavioral Analysis
Used to identify groups of addresses that are very likely controlled by a single actor. Grounds for grouping include:
- matching sources or recipients of funds;
- synchronous activity;
- recurring patterns of asset distribution;
- shared technical indicators (for example, IPs or devices, if data from a CEX are available).
This approach allows one to demonstrably link a large number of intermediate addresses into a single cluster, and therefore to establish that the assets belong to one operator.
Taint Analysis / Coin Flow Scoring
This methodology aims to assess the degree of “taint” of addresses that have come into contact with unlawfully obtained funds. With it you can determine:
- the percentage of stolen assets present on final wallets;
- the share of assets that reached exchanges even after being mixed with “clean” funds;
- the likelihood that an address participated in laundering operations.
Taint analysis is indispensable in complex schemes involving mixers, bridges, or P2P exchanges.
Temporal & Volume Correlation
This method is based on correlating transactional activity by time and volume. It includes:
- identifying coincidences between the time funds are received and their subsequent cash-outs;
- analyzing similar transfer amounts;
- evaluating time gaps between transactions.
Applying this approach increases confidence that addresses belong to the same transactional chain.
CEX Deposit Attribution (Analysis of Final Addresses)
This method is used to confirm that funds arrived at specific centralized services. Main sources of confirmation are:
- databases of known deposit addresses (both public and private);
- official information from exchanges;
- address signatures (memo, tag, chain id).
This analysis is necessary to document a legally meaningful “stop point” for assets—the moment they enter a centralized platform.
Using the methods above in combination enables analysts to logically and empirically confirm the origin of assets, reconstruct their route, and determine their final disposition.

Freezing of Funds and the Ultimate Goal of the Investigation

A key stage of any blockchain-forensics investigation is the identification of the actual controller of the stolen assets and the documentation of fund movements up to the point they reach a controlled platform (primarily a centralized exchange).

The freezing of assets on an exchange serves two strategic purposes:

1

Preventive — to stop further movement and laundering of the stolen funds;

2

Evidentiary — to preserve data that can confirm the link between a transaction and a specific user.

It is important to understand that freezing itself is not the end of the investigation, but rather a tool for keeping assets within a legally accessible domain until the perpetrator’s identity is established and a legal decision is made.

The Ultimate Goal of a Blockchain Investigation

Despite its technical focus, a blockchain investigation ultimately serves a legal and procedural purpose — the identification of the individual responsible for the theft.

It is through the identification of wallet controllers and the collection of evidence linking them to criminal activity that the investigation transitions from a purely technical domain into the legal sphere of accountability.

The blockchain provides full transparency of transactions but does not reveal who exactly is behind specific addresses. Therefore, at the final stage of the investigation, centralized services (CEXs) play a decisive role, as they:

conduct user verification (KYC/AML);
store login logs, IP addresses, and device information;
record internal identifiers and fund movements between accounts.

Through this data, investigators can identify the real owner or user of the account that received the stolen assets.

Completion of the Investigation

Once the perpetrator’s identity has been established, several possible scenarios may follow:

Judicial Proceedings — initiation of a criminal case, filing of charges, and subsequent court proceedings, including motions for asset confiscation.
Negotiations with the Perpetrator — in some cases, particularly in cyber incidents without an organized structure, a pre-trial settlement or voluntary return of funds may occur through mutual agreement (sometimes with the mediation of an exchange or law enforcement authorities).
International Cooperation — if the suspect or the exchange is located outside the jurisdiction, the investigation continues through intergovernmental procedures (MLA requests, INTERPOL cooperation, Egmont Group channels, etc.).

Thus, a blockchain investigation is not merely a transactional analysis, but a comprehensive process of identifying the perpetrator, freezing assets, and bringing the case to a procedural outcome — either a court decision or the recovery of stolen funds.

List of Sources

Blockchain Explorers:

Services for obtaining labels/annotations for cryptocurrency addresses:

Explorers for major decentralized bridges:

Smart contract visualizers:

Working with Big Data:

Creation of relationship graphs:

Blockchain address tracking:

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