Chainalysis

• 1. Introduction

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  Chainalysis was co-founded in 2014 by Michael Gronager, who at the time was chief operating officer at the cryptocurrency exchange Kraken. Kraken had been hired by the bankruptcy trustee for a collapsed rival exchange called Mt. Gox, which had suffered a devastating hack. That work gave Gronager a direct look at a new kind of financial crime. It played out on the blockchain, a ledger that was public in principle but difficult to navigate in practice. He joined Jan Møller and Jonathan Levin to build a company around that challenge, making Chainalysis the first start-up dedicated to Bitcoin tracing. The company planted its headquarters in New York City and built software to read the blockchain the way an investigator reads a paper trail. What followed was a series of cases touching some of the largest criminal enterprises in the digital age. But the firm's growing role in law enforcement also raised a harder question: when a criminal conviction rests on proprietary software, who checks the work?

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• 2. Tracing the Ledger

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  The blockchain is a permanent, public record of every transaction in a given cryptocurrency. Chainalysis built software to traverse that record, tracing how funds moved between wallets and matching activity to known entities. The company described its product as providing the first full view of transactions on the blockchain.

  The United States Federal Bureau of Investigation was among the first government agencies to become a customer. The Drug Enforcement Administration and the IRS Criminal Investigation division joined the client list as well. The United Kingdom's National Crime Agency signed on too, alongside banks and brokers managing exposure to digital assets.

  In March 2021, the company formed a partnership with a crypto compliance firm called Notabene. The goal was to meet the FATF Travel Rule, a global regulatory standard that obliges financial firms to share sender and receiver information when funds cross jurisdictions. Fast Company named the joint venture one of the ten most innovative of 2022.

  By May 2024, Chainalysis had opened a regional headquarters in Dubai to cover customers across Southern Europe, the Middle East, Central Asia, and Africa.

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• 3. Dark Web and State Hackers

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  In October 2019, Chainalysis worked with the United States Department of Justice to shut down a website dedicated to child abuse. At the time, it was the world's largest such site.

  The year 2020 brought a far larger target. Silk Road was a dark web marketplace for illegal goods, and its financial records stretched deep into the blockchain. Working alongside law enforcement, Chainalysis helped trace and recover over $1 billion tied to the Silk Road takedown.

  Seven cryptocurrency thefts carried out in 2021 were later attributed to the Lazarus Group, a hacking operation linked to the North Korean government. Chainalysis aided in making that attribution.

  One of those thefts centered on $100 million stolen from Harmony, a cryptocurrency firm based in California. Chainalysis worked with American investigators and the South Korean National Intelligence Service to trace those funds to North Korean hackers. Those hackers have taken billions of dollars from banks and cryptocurrency firms worldwide, and investigators say the proceeds fund North Korea's illegal missile program. One million dollars of the Harmony funds was recovered in April 2023.

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• 4. On Trial

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  In April 2022, Roman Sterlingov stood trial in the United States, accused of operating Bitcoin Fog. Bitcoin Fog was one of the oldest and most widely used bitcoin mixing services. Services of that kind are designed to obscure the origins of cryptocurrency funds by routing them through many wallets.

  The prosecution built a key part of its case on blockchain analysis conducted by Chainalysis. That analysis aimed to connect historical Bitcoin transactions to Sterlingov and to establish him as the operator of the platform.

  Defense-side experts and activists questioned the reliability and methodological transparency of the Chainalysis forensic tools. They argued that some conclusions were probabilistic rather than definitive. Because the software is proprietary, outside parties could not independently audit or reproduce the findings.

  Without sufficient public scrutiny or technical reproducibility, critics warned, defendants would have limited means to challenge such evidence. The debate forced into the open a pointed question. Could software capable of tracing over $1 billion from Silk Road hold up to what a criminal trial demands?

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