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Upstart Crypto Tracer Brings ‘Middleware’ to Busy Blockchain Analysis Industry

Blocktrace’s new product pools multiple data intelligence streams to help investigators demystify high-profile crypto crimes.

Jun 21, 2021 at 6:42 p.m. UTC
Updated Sep 14, 2021 at 1:14 p.m. UTC

Meat packers and gas magnates are paying massive bitcoin ransoms, prompting governments to trace, and sometimes seize, millions of dollars in crypto. Purists call these recent headlines regulatory encroachment. But to intelligence startup Blocktrace it's an opportunity.

The Austin, Texas-based software company on Monday unveiled Fusion, a product that seeks to further demystify illicit cryptocurrency transactions for government agents and financial institutions. 

There’s already plenty of competition in the crypto intelligence space. Established startups including Chainalysis, Elliptic, CipherTrace and TRM Labs have made millions of dollars pairing inherently traceable blockchains with troves of proprietary information, such as illicit transaction histories, that investigators find useful.

But Blocktrace’s Fusion is a new software product, not another tracing service. CEO Shaun MaGruder calls it middleware: “It essentially brings all the data together, aggregated into a single central place.” 

Think of Fusion as a bridge between crypto tracers’ data silos. One tracing firm might know bitcoin address xyz123 transacted on the dark web, and a separate transaction database knows that the same address likely violated sanctions. With Fusion, MaGruder said, investigators can access both bread crumbs in a single place.

“Whether it be CipherTrace or Elliptic or the anti-human trafficking intelligence initiative, or other data partners for that matter,” Fusion can pool the data for easy access, MaGruder said, arguing this “makes the picture more complete.”

Sleuthing partners

At launch, the product pulls from CipherTrace and Elliptic APIs as well as a handful of other databases that document the darker side of crypto. But MaGruder said that over time it could integrate with more hands-on streams such as bitcoin exchanges. He cautioned that personally identifiable information will be kept out of Fusion’s pipes.

The company itself isn't new. MaGruder, a former signals analyst for U.S. Army Special Forces who later worked at Chainalysis, started Blocktrace in early 2018 after seeing a “bottleneck” in the data processing market. He privately funded Blocktrace and then began building relationships across the crypto intelligence landscape.

“Most of what we do really happens behind the scenes,” MaGruder said. “A lot of folks that need to know about us already know how to reach out to us.”

MaGruder declined to say who those folks were.

Government partners

The company has been working with the federal government since at least May 2019, netting nearly $800,000 through Drug Enforcement Agency (DEA) training sessions on cryptocurrency and providing Internal Revenue Service criminal investigators with analytical and technical support, according to contract data reviewed by CoinDesk. Blocktrace stands to make nearly $750,000 through an IRS subscription contract that stretches well into 2023.

Just last week, U.S. Immigrations and Customs Enforcement signaled its intent to pay Blocktrace $36,000 for a 30-day contract, according to public data.

That’s hardly a drop in the buck of the $30 million federal agencies have spent on tracing contracts since 2015.

“Our hope is that through collaboration we'll be able to increase transparency across blockchains more effectively, thus exposing and identifying cyber-criminals more quickly,” MaGruder said.

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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