Tracking cryptocurrencies(Digital assets) is challenging. In the traditional world, financial service providers have to follow KYC/AML regulations. Therefore, every transaction has a known origin and destination, and authorities can track money flow efficiently.
However, cryptocurrencies are not issued or controlled by centralized entities. Today anyone can create digital assets and distribute them on the internet without disclosing one’s identity. Besides, you don’t need any centralized entity to transfer cryptocurrencies. Therefore, tracking digital assets is one of the most challenging problems.
Coinpath® helps solve this problem by providing APIs for tracing money flow on the blockchain.
What is Money Flow on Blockchain?
Money flow is an analysis of how money transferred between multiple parties and intermediaries on Blockchain.
Table of Contents
Coinpath® provides money flow analytics for different blockchains. Thus, with Coinpath®, you can solve various problems. Let’s see some of the use cases of Coinpath®.
Cryptocurrency brought all the properties of cash into the digital world. And some people are using cryptocurrencies for illicit purposes. In 2018, Bitcoin transactions on the dark market grew to $872 million and estimated more than $1 billion in 2020.
However, unlike cash, blockchains are transparent, and every transaction is visible. Therefore, using Coinpath®, you can follow the money trails to its source and destination.
Cryptocurrency compliance usually depends on your jurisdiction, but often, they’ll largely mirror those laid out by FATF for money services businesses. Transaction monitoring is one of the compliance requirements for all financial businesses.
As a cryptocurrency custodial business, you have to monitor all transactions from your hosted wallers. A user may be sending or receiving money for criminal activities using your service.
With Coinpath®, you can monitor direct transfer from your service to any outside address. However, criminal actors often use multiple intermediate wallets to create a complex money trail. Therefore, it becomes challenging to trace the origin or destination of the funds.
Coinpath® also solves this problem by providing a money trail by following every intermediatory wallet, making it easy to identify the source or destination of the funds.
Cryptocurrency money laundering
In 2019, CipherTrace uncovered individuals operating illicit crypto MSBs, have accounts in 8 of 10 U.S. retail banks. These illegal MSBs were using their bank account to exchange fiat with crypto.
The pseudo-anonymous nature of cryptocurrencies makes it difficult to track money laundering and other criminal activities. Criminals use crypto money laundering to conceal the illegal origin of funds with various methods.
There are three main stages of crypto money laundering.
- Converting cash(fiat) into cryptocurrencies using ATMs and other P2P crypto services.
- Using intermediate wallets, anonymizing services, and ICOs to hide the source of the funds.
- Once the source of funds is no longer traceable, criminals legitimize the fund by using services like exchanges, gaming websites, tumblers. This way, they can claim capital gains through trading or other profitable ventures.
With Coinpath, you can uncover layering by tracking intermediate wallets and stop crypto money laundering by tracing crypto funds to their fiat-gateways.
Crypto Crime Investigation
According to a report by Chainalysis, in 2019, a total of $11.5 billion worth of cryptocurrency transactions were associated with criminal activity.
Investigating these crimes without sophisticated tools is almost impossible. With Coinpath®’s blockchain money flow APIs, you can investigate these crimes in real-time. Let’s understand with an example.
In November 2019, Hackers stole 342,000 Ethers from a South Korean cryptocurrency exchange Upbit. Let’s understand how Coinpath® can help to investigate Upbit’s stolen funds.
Investigating Upbit hack using Coinpath®
Hackers stole 342K Ethers in a single transaction from Upbit.
Then hackers used intermediate wallets to create a complex money trail, as you can see in the following image. There are several identical transactions of 5K ETH after five hops.
A hop is a transfer from one address to another address.
Hackers were trying to distribute these funds to many different wallets, so it will become difficult to trace them. We can deduce that these wallets belong to hackers without annotations just by observing the pattern. For example, here you can see there are multiple 5,000 ETH transactions.
Let’s dig deeper and follow the money trail up to 20 hops. Voila!! We can see that hackers transferred the funds to multiple exchanges such as Binance, Huobi, Bittrex. Besides, hackers also converted some Ether into WETH (Wrapped ETH) and used decentralize exchange(DEX) such as Tokenlon.
Note: A similar analysis using a normal blockchain explorer will take a lot of time and work.
Coinpath® APIs provide extensive details on money inflow and outflow. It currently offers 7 APIs to track the money flow on the blockchain.
Let’s see how we investigated the Upbit hack using Coinpath® API (
Outbound addresses, received coin or tokens from an address in a number of hops).
If you are not already a subscriber of Coinpath®’s APIs, you can follow these instructions to get started with Coinpath® API.
Outbound addresses, received coin or tokens from an address in a number of hops
This API provides the final destination of assets, where they most probably converted into fiat or other digital assets or transferred to other crypto services.
The API accepts multiple parameters using which you can narrow down your search results.
Let’s understand some important parameters.
- On Address field, we need to put the Upbit hacker’s address which is
- As we can see, the Ethereum blockchain is selected by default. Bloxy supports 24 different blockchains and testnets.
- Token Address or IDs — Here, we can enter the token we want to track. If empty, it will show the result for all the tokens outflowing from the hacker’s address.
- Limit of address list per token — Limit of transactions per token. Transactions will be ordered by the amount.
- Limit of Hops — As we mentioned above, A Hop is a direct transfer from one address to another. Here we can select how many hops we want to analyze. By default, hop’s value is 5.
- Snapshot time — Time when we need result
Now, when we call this API and get the following result.
If you have any questions about Coinpath® APIs, you can ask it on our Telegram channel.
Blockchain supported by Coinpath®
At the time of writing this article, Coinpath® supports the following 24 different blockchains and testnets.
- Bitcoin Mainnet
- Bitcoin Cash
- Cardano Mainnet
- Bitcoin SV
- Ethereum Mainnet
- Ethereum Classic
- Tron Mainnet
- EOS Mainnet
- Binance Chain
- Omni Bitcoin Layer
- Celo Alfajores Testnet
- Celo Alfajores Testnet (Apr 10, 2020)
- Celo RC1 Testnet
- Celo Baklava Testnet
- Celo Baklava Testnet (June 24, 2020)
- Algorand Mainnet
- Conflux Pontus
- Libra Testnet
Differences between Bitcoin and Ethereum Coinpath®
Coinpath® supports both UTXO (ex- Bitcoin, Zcash) and account-based blockchains (ex- Ethereum, Libra). Let’s see what’s the difference by looking at Bitcoin and Ethereum’s Coinpath® APIs.
Unlike Ethereum, where every account contains balance, tracking Bitcoin’s money flow is challenging for various reasons.
Bitcoin wallets do not contain balance rather coins (UTXOs). To understand, think of your purse currently in your pocket. It does not have any balance; instead, it contains notes and coins. Similarly, In Bitcoin, UTXOs are the actual coins. Wallets add them together to show your balance.
So whenever you send bitcoins to someone, there is a good chance you don’t have UXTO(single or set) of that amount. So you will receive some UTXOs back as change. (Similar to cash transaction).
However, identifying change coins (UTXOs coming back to the sender) can be a challenging task.
In addition, when there are multiple inputs and outputs, UTXOs involved in a transaction, tracking which input amount used for which output amount is also the difficult task.
To tackle these problems, we have developed proprietary algorithms inhouse. Currently, we support both UTXO flow and money flow mode for all UTXO-based blockchains.
Coinpath® APIs are the easiest way to track money flow for different blockchains. Our technology abstract away complexity to provide unified APIs for all the blockchains. So When you integrate with our APIs, you can scale to many blockchains with minimum development efforts.
If you have any questions about Coinpath®, ask them on our Telegram channel or email us at firstname.lastname@example.org. Also, subscribe to our newsletter below, we will keep you updated with the latest in the cryptocurrency world.