US DHS requests Bitcoin Forensic Tools from Nuclear Research Lab

After 10 years, its blatantly apparent that Bitcoin’s digital currency has successfully wormed its way onto the accepted list of virtual payment methods. While millions of people have come to appreciate the anonymity of Bitcoin, the US government wants to ensure the service is only used for good.

According to a newsletter published by Sandia National Laboratories on August 18, entitled ‘Beating Bitcoin Bad Guys‘, Sandia has been commissioned by the US Department of Homeland Security (DHS) to develop forensic tools to help investigate criminal activity revolving around the crypto-currency.

Researchers have already formulated a list of requirements for the analytics tool, and what it must be capable of doing in terms of surmounting the various challenges Bitcoin has presented to law enforcement agencies.

Researchers developing Forensic Tools for Bitcoin Digital Currency

Andrew Cox leads Sandia research team in developing Bitcoin digital currency forensic tools (photo Dino Vournas)

The project is headed by the lab’s R&D Systems Analyst, Andrew Cox, who confirmed the need for new, innovative tools to help federal authorities tackle the increasingly difficult task of investigating crytpo-currency crimes. These include such duplicitous incidents as cyber theft, convoluted money laundering schemes and the black market trade of illegal goods.

“Our job was to understand how Bitcoin works,” said Cox. “Bitcoin is a new semi-anonymous currency that holds the potential to change the way all sorts of transactions work in a way that might really benefit the economy.”

He went on to explain some of the “potential benefits” of Bitcoin’s digital currency in a responsible economy, including “making monetary transactions much more efficient, and thereby driving down the costs of doing business, making transaction histories more transparent, which could help both financial markets and financial regulation, and — depending on who you ask — reducing the risks associated with inflation and reliance on centralized monetary institutions.”

Unfortunately, all of those perquisites have been overshadowed by the ‘dark side’ of anonymous digital currencies. “It has been clear that criminals have been pioneers in using Bitcoin,” explained Cox. “They use it for drugs, for guns, child pornography, and all sorts of terrible stuff.”

For the moment, Sandia’s research into the development of Bitcoin forensic tools is being fabricated for use by the DHS Science and Technology directorate, which has requested researchers create a front end GUI that agents can use to test the various algorithms in actual investigative scenarios.

“This will allow us to adjust what we’re doing to make sure we’re being of maximal use to them,” said Cox.

The lab confirmed that, once testing is completed and approved, the technology could be administered to other federal law enforcement agencies.

The biggest challenge faced by researchers has been “trying to truly understand all of the various patterns associated with Bitcoin transactions,” explained the systems analyst. He said they’ve incorporated the use of “past investigations as examples of patterns”, which they’ve been able to use to identify accurate configurations.

He added that there is no singular algorithm that will effectively solve crypto-currency crimes. Identifying suspects will take myriad tools and data cross-referencing, as well as “good old-fashioned police work.”

The ultimate benefit, said Cox, will be the adoption of the digital currency by more legitimate businesses once federal agencies are able to “effectively combat illicit Bitcoin commerce and reduce its perception as a tool of criminals”.