How blockchain forensics, asset tracking work to investigate fraud in the web3 ecosystem

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  • Blockchain forensics has been a security/ protection measure for traders against fraud and illegal transactions
  • Asset tracking also goes in hand with cautioning one against illegal transactions
  • Just how do blockchain forensics and asset tracking work in protecting traders

Blockchain forensics is a subset of digital forensics that investigates illegal transactions, fraud, and other kinds of criminal behaviour using blockchain data analysis.

Blockchain is a distributed ledger that records transactions in a transparent and impenetrable way. This makes it a desirable instrument for financial transactions and other applications. Its decentralized and unchangeable nature, on the other hand, makes it an attractive location for illegal activity.

Blockchain forensics entails the use of specialized tools and procedures to extract and analyze data from the blockchain. This is in order to discover patterns and investigate illegal activities. This involves investigating blockchain data such as transactions, addresses, and other information. They also locate and track down individuals and groups involved in illegal activity.

How blockchain forensics work

The precise stages needed in blockchain forensics can vary depending on the application and type of data being examined.

Investigators, on the other hand, can learn essential details about illicit activity on the blockchain and help to the fight against financial crime by following a strict and organized procedure. The following are the general stages in blockchain forensics:

Data gathering: This involves collecting all relevant blockchain data related to the investigation. This could include block data, transaction data, and other information.

Data Analysis: Examiners use techniques such as address clustering, transaction graph analysis, data scraping, network analysis, and machine learning to investigate the data. These techniques can help to identify patterns and connections between transactions and addresses, as well as track down individuals and companies involved in illegal activity.

Visualization of results: Because of the visualization, investigators and other stakeholders can easily grasp the results of the data analysis. This group includes charts, network diagrams, and other visual representations.

Presentation of evidence: The analysis findings are presented in a manner that is admissible in court or other legal proceedings. This could include writing reports, presenting proof, and giving expert testimony.

Investigation closure: The findings of the investigation are used to determine the best plan of action. This can include getting to court, recovering stolen property, and taking other preventative measures against financial crime.

READ: Exploring the advantages of DeFi over CeFi in financial management

Blockchain forensics applications

Blockchain forensics is a rapidly expanding area with numerous applications in today’s digital economy. The increasing use of blockchain technology for financial transactions is driving up the demand for powerful and efficient forensic research tools. Blockchain forensics can improve overall blockchain ecosystem security, monitor compliance, manage risk, and investigate fraud and financial crimes.

One of the primary applications of blockchain forensics is the investigation of fraud and financial offences. By studying blockchain data to identify patterns and links between transactions and addresses, investigators can assist in the discovery of people and organizations engaged in illegal activities such as money laundering and terrorism funding. This data can be used to prosecute offenders and avoid similar crimes from occurring in the future.

Monitoring compliance is a critical application of blockchain investigations. Blockchain-based transactions may be subject to a number of regulatory requirements, including Know Your Customer (KYC) and Anti-Money Laundering (AML) legislation. By monitoring the movement of funds and assets on the blockchain, blockchain forensics tools can help businesses and individuals adhere to these standards. They can also alert regulators to any suspicious behaviour.

Blockchain forensics can also be used to control risk in blockchain-based transactions. Blockchain forensics can help businesses spot and reduce risks associated with money laundering, fraud, and other illegal activities by allowing them to discover patterns and connections between transactions and addresses. This can help to protect individuals and businesses from financial losses and reputational injury.

How asset tracking works on blockchain

Asset tracking on the blockchain is the process of recording and watching asset movement on the blockchain in order to increase transparency and accountability.

The methods below demonstrate how asset tracking works on the blockchain using Bitcoin (BTC) as an example.

Creating and registering Bitcoin

When the network generates a new Bitcoin, it assigns a unique identifier known as a transaction ID (TxID) to it. The blockchain then records this TxID. The BTC can be tracked as it moves across the blockchain network by using this identification.

Bitcoin transfer

The blockchain forensics maintains track of all Bitcoin transfers between users. The generation of a record of BTC ownership and transaction history is a consequence of blockchain technology. For instance, when User A transfers 1 BTC to User B, the blockchain records the transaction and assigns a new TxID.

Validation and verification

At any point along its route, the blockchain record can prove the legitimacy and ownership of a Bitcoin. This reduces scams and prevents double-spending and counterfeiting of Bitcoin. For instance, when User B receives the Bitcoin, they can check the blockchain transaction to verify that the BTC they received is genuine and has not been spent previously.

Analytics and Reporting

Moreover, the blockchain record can generate reports and analytics on the movement of BTC. This is such as the amount of Bitcoin transferred or the total number of BTC transactions. This can help businesses identify patterns and improve their financial processes.

Benefits and limitations of asset tracking on the blockchain

Asset tracking on the blockchain has significant limitations in terms of scalability, interoperability, and the lack of industry norms, but the benefits of increased efficiency, security, and transparency make it an appealing choice for many businesses.

Blockchain technology provides numerous benefits for asset monitoring, including increased efficiency, security, and transparency. One of the primary benefits of the blockchain is that it provides a tamper-proof ledger of all activities, making it much more difficult for fraud to occur. Multiple network nodes confirm every transaction on the blockchain, enhancing security and reducing the risk of fraud.

Blockchain forensics also allows for real-time asset tracking, which can enhance supply chain management and reduce the likelihood of lost or stolen goods. Another benefit of asset monitoring on the blockchain is the ability to improve the efficiency of financial procedures. Transactions can be completed more swiftly and for less money. This is because blockchain-based asset monitoring eliminates the need for intermediaries such as banks or clearinghouses. Businesses can save time and money while improving their financial flow.



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Nathan Sialah
Nathan Sialah
Nathan Sialah is a seasoned journalist with a diverse background in digital journalism, radio broadcasting, and cryptocurrency trading. With over five years of experience in the field, Nathan has honed his skills in delivering accurate and engaging news content to a wide audience. In addition to his journalistic expertise, Nathan is a dedicated researcher in the Artificial Intelligence industry, keeping abreast of the latest advancements and trends. His multifaceted background allows him to bring a unique perspective to his reporting, covering a wide range of topics with depth and insight.