America’s hodgepodge of state, local and federal agencies together buy more Chainalysis software than anyone else, the company told CoinDesk. They drive the lion’s share of Chainalysis’ business: providing data tools that demystify who is sending bitcoin and other cryptocurrencies to whom – and where. It's how the government polices an illicit crypto economy that Chainalysis estimated at $14 billion last year.
“Chainalysis has charting capabilities that have been used to show investigators how bitcoin transactions are conducted and how they can be used as a tool to identify targets, the bitcoin exchanges they are using, and how to subpoena the exchanges for personally identifying information and bank information of targets,” the Drug Enforcement Administration explained in procurement documents for a 2019 contract worth nearly $135,000.
Nowadays, government crypto-investigations stretch far beyond bitcoin’s use in drug markets; ransomware attacks, terror groups and nation-state hackers are also in the mix. Chainalysis, helmed by CEO Michael Gronager, is a behind-the-scenes force in many of those investigations, be it through its software data-sets or its investigators.
The value of Chainalysis’ government business stretches into the tens of millions, according to government documents.
Agencies’ demand for investigative services has ballooned alongside the explosion in crypto crime. That prompted Chainalysis – as the largest provider of such services – to divvy up its corporate structure to better serve its biggest customers’ needs. Hence: Government Solutions, the new unit.
The division between Government Solutions and the Chainalysis mothership will help prevent client conflicts of interest, said Erin Plante, the company’s senior director of investigations.
Staff may double
The subsidiary will start with 90 staff investigators (the company has 110 total), many of whom have security clearances, said Plante. The corporate division makes it easier for those on-chain sleuths to work alongside agents who are hungry for assistance, she said.
“I wouldn't be surprised if we see double-the-team growth in the next six to 12 months,” Plante said.
Government agencies are becoming more savvy at on-chain investigations, she said. For one, they’re incorporating Chainalysis data-sets into their own proprietary sleuthing tools, which she said Chainalysis engineers help build.
“They’re looking at the raw data itself,” Plante said. “It goes beyond the user interface.”
Chainalysis’ own tools augment investigations by weaving together IP-address data sourced from its nodes, a robust wallet labeling database and address clustering, according to government contracts reviewed by CoinDesk. Some of its tools cater to private businesses such as exchanges.
Eric Scofield, whose data consultancy, Abaxx Associates, was acquired by Chainalysis in February, will lead the Government Solutions subsidiary, the company said.
“This ecosystem is changing faster than any other set in the national security sphere,” Scofield said. "What better way to serve it than to have [a government-facing firm]."
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