Crypto casinos such as Bitcoin and Ethereum casinos are in huge demand among online gamblers given their ease of use. However, there have also been several instances where these platforms have been used for money laundering, terrorism financing, and other illicit activities. The question is whether central governments and their regulatory agencies are skilled enough to find such fraudulent transactions in a decentralized setup where crypto casinos are embedded. This is where blockchain forensics comes into play.
Blockchain forensics uses statistical modeling, AI, and data science techniques to analyze crypto casino transactions and find out any fraudulent transactions. In this article, you will read more about the role of blockchain forensics in ensuring the legitimacy of crypto casinos and understand how central governments track the player funds transfer in crypto casinos to understand their legitimacy.
What is Blockchain Forensics?
Blockchain forensics uses data collected through blockchain technology to track criminal activities involving cryptocurrencies. Authorities can trace the flow of funds and examine whether they are being used for any illicit activities and take enforcement action such as freezing funds or bringing criminal charges in a court of law. It limits exposure to criminal activities and ensures that all cryptocurrency users comply with Know Your Customer (KYC), Countering the Financing of Terrorism (CFT), and Anti-Money Laundering (AML) programs.
The Use Cases of Blockchain Forensics
Blockchain forensics has wide usage in the realm of cryptocurrencies in several aspects such as fraud detection and ensuring regulatory compliance. The use cases of blockchain forensics are explained here.
- Fraud Detection: Even though cryptocurrencies offer strict security and privacy, different types of criminal activities are rampant in the sector. For instance, criminals can indulge in wash trading, where the buyer and the seller are the same individuals or organizations. Wash trading can manipulate the market dynamics and make undue demand for a certain asset. Blockchain forensics tools can prevent instances of wash trading and other fraud by detecting behavioral patterns of the users to find out instances of such crimes.
- Tracking Illicit Fund Transfers: Blockchain forensics can be used to track the path of the funds that have been already transferred for criminal activity. For instance, in the case of the occurrence of a hack, the funds would have been transferred to multiple accounts to counter detection. In such cases, regulators can track the path of money laundering. They may also gather data from blockchain explorers, open-source tools, or even the dark web. In most cases, investors would succeed in tracing the path of the fund transfer and arresting the wallet users involved.
- Regulatory Compliance: Blockchain forensics is critical in ensuring regulatory compliance for cryptocurrency users and companies. It helps users comply with Know Your Customer (KYC), Countering the Financing of Terrorism (CFT), and Anti-Money Laundering (AML) programs. Blockchain forensics identifies and mitigates risks associated with customers, clients, and transactions. It also prevents users from doing business with fraudulent entities such as ransomware operators or terrorist organizations.
How Blockchain Forensics Helps Governments Track Player Funds?
Blockchain forensics along with blockchain analytics helps governments track player funds in crypto casino games. Blockchain analytics uses transaction analytics on the accounts of crypto casino players to understand the movement of cryptocurrency from its origin to its destination. The patterns of money flow are investigated and transaction inputs and outputs are investigated to find out patterns of any suspicious, criminal behavior.
Another common methodology of blockchain forensics that is used to detect criminal behavior in crypto casino transactions is address clustering. Through address clustering, investigators can find data about the various addresses used by a single individual or entity. This gives a more comprehensive idea about the transaction history and behavior of individuals in the crypto casino space.
To enhance the effectiveness of blockchain forensics techniques, investigators use blockchain explorer tools that provide insights into transaction details, addresses, and network statistics. This helps in enhancing the efficiency and effectiveness of blockchain forensics investigations.
Also Read: Claiming No-Deposit Bonuses At Crypto Casinos: Step-By-Step Guide
The Bottom Line
Blockchain forensics helps in tracking player funds involved in crypto casino games and identifying if they are being used for any type of illicit activities. However, it has certain limitations too. For instance, the pseudonymity and privacy offered by cryptocurrency transactions make it difficult for regulatory oversight in crypto casino transactions. Moreover, regional laws cannot be implemented in crypto casinos as they have a cross-border scope. Nevertheless, it is beneficial to have blockchain forensics as the third eye to oversee crypto casino transactions and prevent them from becoming breeding grounds of financial crimes.