Before a new breed of cryptocurrency sleuths helped bring him down, Ryan Felton touted his crypto scheme with a swanky promise: he was creating “Netflix on the blockchain.”
He named the service FLiK. For a small amount of the Ether digital currency, customers could purchase a FLiK token, granting them access to shows and movies on the new platform.. Cryptocurrency enthusiasts bought more than $2 million worth of FLiK coins.
But the streaming business never materialized. Instead, Felton bought a $1.5 million home and $32,000 worth of diamonds. He spent another $180,000 on a red Ferrari.
When cryptocurrencies became mainstream in the 2010s, the technology was widely seen as a perfect vehicle for crime. Cryptocurrencies had promised the secrecy and anonymity of cash, without face-to-face exchanges.
That secrecy was a mirage. Cryptocurrency transactions are enrolled on a blockchain, a publicly visible ledger. To the uninitiated, blockchain records are an unintelligible jumble of letters and numbers. But a growing industry is dedicated to cracking them.
At the center is the New York startup Chainalysis. With tens of millions of dollars in US government contracts, Chainalysis has built a reputation as one of the crypto industry’s leading detectives — a team of blockchain analysts who help the government track crypto transactions. The company markets itself to the US government and private companies as a force for good in a misbehaving industry.
After the FTX stock market imploded, his bankruptcy attorneys hired Chainalysis to unravel the network of entities at the center of Sam Bankman-Fried yr’s empire.track down the $400 million in cryptocurrency that a hacker stole from FTX accounts. And in April, Chainalysis hosted a conference in New York to bring together US government officials and new cryptocurrency executives trying to win back their trust.
But that ambassadorial role has left Chainalysis at odds with some cryptocurrency advocates, who envisioned digital money as a private, anonymous financial network.
From a US government perspective, Chainalysis is arguably the most trusted company in the industry — but only because it sells powerful tools aimed at piercing the veil of secrecy that made cryptocurrency attractive in the first place.
Blockchain is “often the key to solving a case,” said Jonathan Levin, 32, one of the founders of Chainalysis. “It’s more traceable and more conclusive.”
At the end of 2020, felton he was accused of using investors’ funds to finance his extravagant lifestyle. He was on trial in Atlanta, Georgia, last summer. Beth Bisbee, a Chainalysis investigator who once worked for the US DEA, testified against him.
In court, Bisbee presented a diagram that mapped the movement of the millions of dollars worth of Ether that investors spent on Felton’s tokens. The funds were routed to a number of crypto wallets. Using a forensic technique called clustering, Bisbee proved that all of those wallets belonged to Felton. From those accounts, he had moved his investors’ Ether to one exchange before transferring it to another. He then he had converted the ether into cash.
The prosecution presented its case for four days. On the final day, Felton pleaded guilty.
In 2020, Chainalysis worked with US investigators to take down the largest child pornography website on the dark web.. By analyzing the blockchain, the agents located the digital addresses of customers who used Bitcoin to purchase the illegal material. The trail led to the cryptocurrency exchanges where customers had purchased their Bitcoin in the first place; the government could then subpoena those companies to establish the identities of the wallet owners.
Of late, Chainalysis has faced competition from smaller rivals, including TRM Labs, which has risen to prominence selling software for new types of cryptocurrencies, such as Solana.
A handful of companies are still developing tools to make cryptocurrency transactions less traceable, including a privacy service called Wasabi Wallet. To fight back, Chainalysis has offered tools such as “Wasabi Removal services” to the Office of Foreign Assets Control, a unit of the US Treasury Department that oversees sanctions, the documents reveal.
Government access to these tools has alarmed cryptocurrency supporters.
By: DAVID YAFFE-BELLANY
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/6714513, IMPORTING DATE: 2023-05-15 20:30:06
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