Cryptocurrency is a digital asset in which transactions are made and verified through a decentralized system known as the blockchain. Decentralized blockchains are immutable; once entered, the data cannot be changed.
An estimated 20% (roughly 50 million) of Americans own some form of cryptocurrency. Globally, nearly 10,000 cryptocurrencies within 800 exchanges currently exist. Account and customer information can be obtained from cryptocurrency brokerages and exchanges subject to US jurisdiction, but you need to know which ones are and how to properly request the information.
Cryptocurrency Wallets
A cryptocurrency wallet contains a physical key that can authorize a crypto transaction. The wallet does not hold cryptocurrency, which lives on the blockchain. However, a crypto wallet is required to buy, spend, or trade cryptocurrency.
Wallets are also often referred to as “hot” or “cold,” relative to Internet connectivity. “Hot” wallets connect to the Internet; “cold” wallets do not.
Several popular wallet types can be used to store and access cryptocurrencies.
- Custodial wallet (hot). Stores cryptocurrency assets online with a third-party cryptocurrency exchange (e.g., Coinbase, Binance, Kraken, or BitMex), which holds the private keys in custody. Custodial wallets are centralized and don’t allow for the loss of access to funds. A deceased individual’s assets can be retrieved by presenting their death certificate.
- Hardware wallet (cold). A physical device that often resembles a USB drive, hardware wallets connect to a computer to access cryptocurrencies, but the information doesn’t live on an Internet-connected device or platform. Some hardware wallet providers offer apps that make it easier to buy, sell, or exchange cryptocurrencies but keep the private key safely hidden.
- Software wallet (hot). A program that holds the keys to store and access cryptocurrency. Software wallets can be downloaded to a mobile device or computer. Exodus, Guarda, Electrum, and Mycelium are among the most well-known software wallets.
- Paper wallet (cold). A physical piece of paper containing cryptocurrency information. Often, the information is created by a program and then printed, or a QR code is printed to be scanned later. Paper wallets can easily be damaged or lost.
When it comes to cryptocurrency wallets, private keys and recovery phrases are everything. A private key is often a randomly generated number that allows someone to send or spend cryptocurrency. A recovery phrase, sometimes referred to as a seed phrase, is a group of random words generated by the cryptocurrency wallet that allows users to access the crypto stored within.
Cryptocurrency Investigations
When it comes to investigating wallet addresses and transactions, examining cryptocurrency activity has several major components.
- Blockchain analysis. Using known addresses/transactions and related efforts to tie individuals and/or firms to transaction activity.
- Subpoenas to exchanges. These subpoenas can help tie an individual to a crypto wallet address by yielding KYC (know your customer) information, transaction histories for each address tied to the exchange, digital assets held or previously held, etc.
Physical searches and forensic analysis. Searching physical devices and analyzing them forensically can add undiscovered wallet addresses. These actions can also provide a starting point or create the foundation on which a case will be investigated.
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