This is a guest post by Scott Dylan.
Chainalysis signed an
agreement with Europol
on Friday that paves the way for the European law enforcement
agency to use the New York-based company’s blockchain analytics
tools to investigate criminals who use Bitcoin.
The deal between Europol and Chainalysis comes just days after
news broke about a
high-profile ransomware attack
against Hollywood Presbyterian Medical Center. The attacker froze
the hospital’s computer systems for 10 days and demanded 40
bitcoins, about $17,000, to restore service. The brazen attack
and the hospital’s decision to pay the ransom has renewed the
debate about the criminal uses of Bitcoin.
Chainalysis’ blockchain analytics technology enables law
enforcement agencies to track such ransom payments through the
Bitcoin blockchain, and eventually to identify the culprits.
Law enforcement agencies are not the only ones interested in
blockchain analytics. Chainalysis recently contracted with
Barclays to provide compliance tools that will allow the
London-based bank to work with businesses that operate on the
Many banks are prevented from providing services to businesses
that accept Bitcoin because the pseudo-anonymous nature of the
virtual currency keeps banks from complying with anti-money
laundering regulations. Chainalysis gathers and analyses data
from the blockchain so that banks can meet their regulatory
reporting requirements to ensure that they are not facilitating
money laundering or other criminal activities.
Chainalysis is a big player in the fast-emerging blockchain
analytics industry. Major rivals include
, which also offer compliance tools for banks and investigative
tools for law enforcement agencies.
How the advent of Chainalysis and other blockchain analytics
companies will affect the perception of Bitcoin among advocates
and users of the virtual currency remains to be seen. If Bitcoin
transactions can be tracked and traced as easily as bank
transfers, the virtual currency risks losing its appeal with both
the criminal underworld and its privacy-minded pioneers.
Chainalysis’ stated goal is to “move digital currencies out of
the hands of the criminals and into the hands of consumers and …
commerce.” That transition, however, may be opposed not just by
criminals but also by law-abiding users of Bitcoin, and by the
developers of the virtual currency themselves.
Last March, Chainalysis’ CEO Michael Grønager responded to
allegations from three Bitcoin Core developers that his company
had launched a so-called ”
” against the Bitcoin network. Wladimir van der Laan, Peter Todd
and Gregory Maxwell
of creating more than 250 fake nodes on the Bitcoin network in
order to collect transaction location information.
A Sybil attack is when a single user creates multiple fake
nodes on a peer-to-peer network. Chainalysis’ fake nodes
prevented users of some decentralized wallets such as Breadwallet
from syncing with the Bitcoin network.
Grønager admitted that Chainalysis created the fake nodes, but
said that they were “carefully tailored” not to interfere with
the Bitcoin network, and that a Sybil attack was “unintended.”
Chainalysis says it has since shut down the fake nodes.
In response, Breadwallet blocked all IP addresses known to be
associated with Chainalysis, and Mycelium, the blockchain
payments company where Chainalysis’ co-founder Jan Møller
previously worked as lead developer, quickly followed suit. In a
explaining the move, Mycelium’s founder Dimitry Murashchik, aka
Rassah, said that he and his team “are not fans of what
leaked in April 2015 reveals that Chainalysis intends to
effectively de-anonymize the virtual currency, something which
Mycelium and many others in the Bitcoin ecosystem adamantly
oppose. In the effort to make Bitcoin more accessible to banks
and law enforcement agencies, Chainalysis and other blockchain
analytics companies have irked some diehard Bitcoin advocates and
But that has not stopped investors from piling on the cash.
Chainalysis’ agreement with Europol comes as the company finishes
a $1.6 million round of funding led by Point Nine Capital,
Techstars, Digital Currency Group, Funders Club and Converge