Even as it has gained mainstream traction, Bitcoin remains popular among crime syndicates and nefarious multinational operations. The cryptocurrency’s pseudonymous nature, coupled with its transnational reach, appeals to criminals conducting illicit businesses across borders.
Bitcoin was, in fact, the main transaction mechanism at Welcome to Video (WTV), a child pornography site that authorities in the United States and South Korea busted earlier this week. But it was Bitcoin’s blockchain that also provided a trail of digital crumbs that enabled authorities to take down the website. Aided by software from crypto forensics startup Chainalysis, law enforcement officials were able to identify the mastermind and users of the site.
The site, which operated on the Darknet, was run by 23-year-old South Korean Joong Woo Son and distributed more than 1 million sexually explicit videos of minors. Son is currently serving an 18-month sentence in prison in his native country.
Three hundred and thirty-seven individuals from multiple countries across the globe, including Brazil, United Kingdom, and Saudi Arabia, have been arrested for being users of the site and downloading material from it. Within the United States, 92 individuals have been arrested in connection with the crackdown and 23 minor victims have been identified.
A civil forfeiture claim to recover money from crypto exchanges which facilitated transactions for the site has been filed by prosecutors. They intend to distribute the claims back to the victims.
How did Bitcoin grease operations at WTV?
Bitcoin was among the payment modes available to users at WTV’s site. According to the indictment, customers could create VIP accounts, offering unlimited downloads for six months, by paying 0.3 bitcoin. They could also download videos incrementally by paying 0.02 bitcoin for each video.
Welcome to Video directed customers to particular cryptocurrency exchanges to make payments. Interestingly, the list of exchanges which facilitated the site’s payment transactions includes some prominent names, including Hong Kong-based Bitflyer and U.S.–based exchanges Kraken and Poloniex, according to Chainalysis's data.
WTV registered each user with a separate Bitcoin address. The indictment states that the site was responsible for creating 1.3 million Bitcoin addresses. The volume of address activity is also testament to WTV’s income. According to the indictment, the site received, at least, 420 bitcoin through 7,700 transactions between June 2015 and March 2018. Cumulatively, the transactions were worth $370,000 at the time they were conducted.
How did authorities track down WTV Users?
Crypto forensics firm Chainalysis played an important role in nabbing users of the site. The New York-based startup’s software Chainalysis Reactor was used by the authorities to investigate the flow of funds from WTV to numerous exchanges spread throughout the world.
Crypto exchanges, which generally onboard users with know-your-customer (KYC) processes, provided relevant identification information to the authorities. Chainalysis software was also used to identify and drill down to region-specific users.
“Through the sophisticated tracing of bitcoin transactions, IRS-CI special agents were able to determine the location of the Darknet server, identify the administrator of the website and ultimately track down the website server’s physical location in South Korea,” said IRS-CI Chief Don Fort.
This is not the first time that Bitcoin has been implicated in a transnational crime. The cryptocurrency became infamous earlier this year for its use by Chinese drug lords to sell drugs that have fueled America’s opioid crisis. Chainalysis itself had come out with a report in June estimating that $1 billion worth of Bitcoin would be spent in Darknet transactions.
The latest news of criminal elements’ involvement with crypto comes at a particularly inopportune time for Bitcoin, or cryptoassets on the whole, as the industry struggles for regulatory approval.