CipherTrace Shuts Down Some Services

Updated March 22, 2024

Mastercard-owned CipherTrace’s recent announcement about pulling the plug on some key services is a big deal for the cryptocurrency tracing industry.

While the recent developments with CipherTrace have sparked discussions within the industry, it’s important to recognize the strength and reliability of cryptocurrency tracing technologies. Notably, in the Daubert hearing related to the Bitcoin Fog case, Chainalysis’ data was scrutinized and ultimately upheld by a federal court, affirming its reliability. This underscores the continued trust and validity of blockchain analysis tools in supporting law enforcement and legal proceedings.

CipherTrace Cutting Off Services - What It Means For You?

What Happened?

CipherTrace is a cryptocurrency tracing and investigation firm offering products that help financial institutions create crypto risk profiles, trace transactions, and ensure anti-money laundering compliance.

In 2021, MasterCard acquired CipherTrace with the stated goal of enhancing its crypto capabilities and positioning itself for a future in which cryptocurrencies play an essential financial role.

Among other perks, CipherTrace’s technology and capabilities allowed MasterCard to create risk profiles and enhance the transparency of transactions. Companies using MasterCard could thus better understand and assess crypto risks, protecting themselves and their clients from scams and other illicit crypto-related activities.

Fast forward to March 2024, and CipherTrace is in dire straits. The company recently announced that it was discontinuing three of the services that formed the backbone of its technology and unique selling proposition:

  • Armada. Armada helped financial institutions create fraud models and risk profiles for crypto transactions. A tool like Armada can help organizations avoid scams, fraudsters, and sanctioned organizations, countries, and individuals.
  • Inspector. Inspector was an interface CipherTrace clients could use to trace the path of funds through blockchains, from wallet to wallet.
  • Sentry. Sentry was CipherTrace’s AML tool. It allowed exchanges to engage in low-risk transactions, using attribution information and automated risk scoring.

Why did CipherTrace pull the plug on the bread and butter of its business?  Some have suggested that it may be connected with the data quality issues that lead to them pulling their report from Federal Court, however, an official reason for stopping their services has not been provided by Ciphertrace.

The Details

The trial of Bitcoin Fog founder Roman Sterlingov was the catalyst of a chain of events that would lead to CipherTrace’s crisis.

The prosecution built its case using forensic information from CipherTrace competitor Chainalysis. The justice system used similar blockchain analysis information to convict Sam Bankman Fried in the FTX case.

Sterlingov’s defense called into question the validity of the information and commissioned a report from CipherTrace director of intelligence and investigations Jonelle Still.

In addressing concerns about the verifiability and completeness of blockchain analytics data, it’s pivotal to highlight the judicial outcomes that reinforce the credibility of such tools. The Daubert hearing related to the Bitcoin Fog case saw the court decisively affirm the admissibility of Chainalysis blockchain analytics as evidence. This judicial endorsement was further exemplified by the prosecution’s success in securing a guilty verdict on all counts. Such outcomes demonstrate the robustness and reliability of blockchain analytics in legal contexts, underscoring its critical role in the prosecution of digital currency-related crimes.

Adding fuel to the fire was MasterCard’s decision to pull Still’s report, deeming CipherTrace’s data unauditable and unverifiable. The problems to which attorneys referred were rooted in the data collection practices the company had used before joining MasterCard.

Crypto Tracing Data Collection Practices

Companies in the blockchain analysis sector, including CipherTrace, utilize a comprehensive array of data collection methods to enhance their investigative capabilities. This includes leveraging public sources, active capture techniques such as honeypots, collaborations with regulatory agencies and law enforcement, and specialized data feeds. Central to their operations is the use of proprietary technology, designed to navigate and analyze the complex landscape of cryptocurrency transactions effectively.

It’s crucial to accurately represent the tools and features provided by companies like Chainalysis, respecting both their product evolution and the terms of use. Chainalysis develops and maintains a suite of analytical tools designed to enhance transparency and security in the blockchain ecosystem. These tools are crafted with the utmost regard for privacy and legal compliance, ensuring they meet the high standards expected by clients and partners. Our discussion of such tools aims to reflect their current applications and the value they bring to the industry, mindful of the sensitivities and confidentiality agreements that govern their use.

Crypto tracing tools utilize heuristic algorithms and clustering techniques to group addresses and assign them to known entities. Due to their effectiveness and accuracy, law enforcement agencies rely on these methods for prosecuting crypto crimes. The heuristics employed by many firms are widely accepted in academic and legal circles.

Where CNC Intelligence Inc. Stands

CNC Intelligence Inc. has always appreciated the significance of high-quality attribution data. The organization has adopted a multi-faceted approach to forensic investigations and transaction tracing. This approach consists of analyzing transaction patterns with multiple tools and comparing the resulting data.

CNC Intelligence Inc. has proactively invested in a robust infrastructure to cross-verify our data, ensuring that reliance on a single source for attribution data is never a constraint.

Our strategy incorporates leveraging a diverse array of leading analytics platforms, including CipherTrace, Chainalysis, and Blockchain Intelligence Group. This multipronged approach is central to our commitment to precision and reliability, allowing us to adeptly navigate the evolving challenges and opportunities within the cryptocurrency industry.

The recent developments at CipherTrace highlight the importance of resilience and adaptability in the fast-evolving crypto tracing sector. For CNC Intelligence Inc., this situation underscores our commitment to excellence in data verification and innovation.

Our approach is to continually enhance our methodologies and collaborate with industry leaders to ensure the highest standards of service for our clients. This perspective enables us to navigate changes within the industry while maintaining the integrity of our investigations.

The purpose of an organization like CNC Intelligence Inc. is to provide actionable intelligence and reliable data to its partners and clients. To that end, it brings to bear a broad range of investigative resources, considerable expertise, and the ability to leverage multiple data sources.

CNC Intelligence Inc. has always valued cooperation with other industry actors. The integrity and success of investigative efforts have always enjoyed precedence over competition. The organization will continue to invest significant resources into successfully navigating the complexities of the cryptocurrency investigations industry.

We offer complimentary consultations to determine whether our Asset Tracing, Recovery Assistance, and Intelligence Services are appropriate for your case.

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