Cryptocurrency Explained for Law Enforcement: A Beginner’s Guide
- Jan 9
- 7 min read
Updated: Jan 11
Cryptocurrency is no longer limited to tech enthusiasts or investors. Today, it appears frequently in fraud investigations, narcotics cases, ransomware attacks, online scams, and money laundering operations. For law enforcement professionals, understanding cryptocurrency is becoming a core investigative skill.
This guide explains what cryptocurrency is at the most basic level, how blockchain works, and why it matters to law enforcement.
What Is Cryptocurrency?
Cryptocurrency is digital money that exists entirely online.
Unlike traditional currency:
It has no physical form
It is not issued by a government or central bank
It allows users to send money directly to one another without a bank
Cryptocurrency is digital currency that can be transferred peer-to-peer without financial institutions acting as middlemen. The term “cryptocurrency” is an over arching term, which can include numerous variations of crypto.
It’s equivalent to the term “currency” in which it may mean the US Dollar, the English Pound, the Euro, etc. Most people think cryptocurrency is synonymous with Bitcoin, when in reality, it means all variations. Bitcoin is the dominate currency type involved in digital currencies, but other types include: Ethereum, Tether, Tron, Solana, and XRP. The full list of cryptocurrencies can be found here.
Once sent, most cryptocurrency transactions cannot be reversed, which is where some of the law enforcement assumptions come into perspective.
The two most common questions I receive:
How does it get value?
How can I invest?
Even though I can’t provide any information on how to invest, or what to invest in, the first question is relatively simple: inherent value.
I’m a sports guy, and I find this explanation easiest while comparing trading cards. Michael Jordan was a rookie in the NBA at one time, and arguably the best basketball player to play the game. When he was a rookie in the ‘80s, a trading card of his was printed on cardboard and ink that likely cost pennies to make.
As soon as Jordan autographed the trading card, someone somewhere indicated they would pay a million dollars for it. Even though it only cost pennies to make, the inherent value of Jordan’s signature skyrocketed the price of the trading card.
That’s how Bitcoin has gained its value. Bitcoin came out in 2009, and it took four years for it to be worth $100 per Bitcoin. At the beginning of 2025, Bitcoin was valued at approximately $105,000, and at the end of 2025 it was worth approximately $88,000. The value can fluctuate violently but has traditionally increased over the years.
Some cryptocurrencies are tied to a traditional currency however, usually called “stablecoins.” These coins function differently and actually are equivalent to their standard. For example, Tether (USDT) is directly tied to the US Dollar, so 1 USDT is worth 1 USD.
How Cryptocurrency Differs from Traditional Money
Traditional money systems rely on banks and financial institutions.
Banks:
Hold customer funds
Verify identities of customers
Maintain transaction records
Can freeze or reverse transactions
Cryptocurrency operates differently behind the scenes but can be transacted similarly.
With cryptocurrency:
Funds are stored in digital wallets
Transactions are recorded on a blockchain
Wallets are identified by addresses, not names
There is no central authority controlling transactions
This structure creates both legitimate uses and investigative challenges. As an investigator, retrieving information related to banking records can be time consuming. Traditionally, a court order is required to provide even the simplest set of information related to an account holder. On the flip side, most cryptocurrency exchanges can provide that information within hours, and all transactions can be found on the blockchain.
Cryptocurrency transactions still allow users to send money directly to one person, interact with an exchange (the cryptocurrency version of a bank), and swap their crypto into other variants.
What Is Blockchain Technology?
A blockchain is a public digital ledger that records cryptocurrency transactions.
Transactions are grouped into “blocks”
Blocks are linked together chronologically
Copies of the ledger exist on thousands of computers worldwide
Once recorded, transactions cannot be altered or deleted
Anyone can view blockchain transactions. To locate a transaction, you must have a searchable piece of data to include the wallet address or transactional hash ID. Once you have either of those, usually provided by a receipt or transactional data provided by the victim, you can trace the funds through the appropriate blockchain immediately.
Wallet addresses do not automatically reveal identities, but with the right software many addresses are able to be attributed to service providers. This makes cryptocurrency pseudonymous, not necessarily anonymous.
What Is a Cryptocurrency Wallet?
A cryptocurrency wallet does not store money like a physical wallet. Instead, it stores cryptographic keys that allow access to funds.
Each wallet includes:
A public address (similar to an account number)
A private key (similar to a PIN or password)
Whoever controls the private key controls the cryptocurrency. In simple terms, a cryptocurrency wallet is similar to a traditional wallet you may have. Each cryptocurrency public address is stored in the wallet, but a private key is needed to use it, like a debit card PIN.
Important considerations for law enforcement:
Wallets can be stored on phones, computers, or hardware devices
Lost private keys mean permanent loss of funds
Seed phrases are a set of 12-24 words used as a password for many cold wallet storage devices. If those are provided to a cybercriminal, the entire wallet can be compromised
Are Cryptocurrency Transactions Anonymous?
A common misconception is that cryptocurrency is anonymous. Most cryptocurrencies are not anonymous.
In truth:
Transactions are publicly visible on the blockchain
Wallet activity can be tracked over time to provide data attribution
Law enforcement can link wallets to individuals through:
Cryptocurrency exchanges
IP addresses
Devices
Online accounts
Operational mistakes by suspects
While criminals may use mixers or privacy-focused coins to complicate tracing, cryptocurrency often leaves a more detailed trail than cash that can be traced quickly.
Why Criminals Use Cryptocurrency
Criminals use cryptocurrency for many of the same reasons they use cash — with added digital efficiency.
Common reasons include the ability to make quick international transfers. Since these transactions require no bank approval, they are perceived as being easier and anonymous. Combined with the ability to launder funds quicker than traditional funds, criminals use it as an opportunity to obfuscate activity – leading to difficulty in recovering funds.
Law enforcement frequently encounters cryptocurrency in:
Online fraud and romance scams
Ransomware attacks
Drug trafficking
Darknet marketplaces
Money laundering investigations
It is important to note that most cryptocurrency users are not criminals. Cryptocurrency is simply a financial tool that can be misused. With that said, in 2024 the IC3 provided a year-end report which documented approximately 9.3B dollars lost through cybercrime. Cryptocurrency losses were the highest documented form of losses, with the cases affecting the elderly population higher than younger populations.
Since IC3 can only report on what was documented, these numbers are likely a lot higher as they do not contain those victims who did not report their incident through the IC3.
Why Criminals Swap Cryptocurrency Variants
To understand a criminal, you must think like a criminal. These cybercriminals are operating a business – not a legitimate or legal business, but a business. Since Bitcoin can be highly volatile, it is in their best interest to convert the stolen Bitcoin funds and convert those funds into a more stable platform, stablecoins.
In most crypto investigations, I see a common laundering technique for stolen Bitcoin funds. After a few quick transactions, the stolen Bitcoin is converted into Tether (USDT) on a different network, called Tron.
Bitcoin has been around since 2009, and although the format is tried and true, it is antiquated. Each Bitcoin transaction can take a few minutes to be confirmed on the blockchain. There are ways to speed up the process by paying additional fees per transaction, but generally speaking a transaction may take 15-minutes to be confirmed.
The Tron network is significantly newer than the Bitcoin network. Due to that, systems have evolved to be faster and quicker. The Tron network can enact thousands of transactions per second, expediting the laundering process for criminals. In addition, with the network being newer the data attribution is not as strong on the Tron network compared to Bitcoin.
These criminals regularly convert the volatile Bitcoin into Tether on the Tron network because it is:
· Cheaper on each transaction
· Each transaction can be confirmed quicker
· All of which obfuscates the movement of the funds
Don’t fear. Even though the attribution is more difficult on the Tron network, there are reputable software that can attribute the addresses. With the steady flow of funds moving to Tron, it is more important than ever to understand how these cases work so the criminal can’t win.
Why Cryptocurrency Matters to Law Enforcement
Cryptocurrency is becoming part of routine policing and investigations. Many victims don't receive any help from the departments that don't understand how these investigations work.
Officers and investigators may encounter:
Wallet addresses in search warrants
QR codes on mobile devices
Cryptocurrency exchanges during financial investigations
Hardware wallets during searches
Digital assets during seizure and forfeiture proceedings
Understanding the fundamentals of crypto allows law enforcement to identify evidence in order to preserve digital assets properly. By being aware of cryptocurrency, it will help your department investigate these cases and avoid accidental oversight in the potential to recover funds. At the very least, it will give your community peace of mind that you can provide the knowledge and resources necessary to help them beyond their financial loss.
Key Takeaways
Cryptocurrency is digital money that operates on blockchain technology
Transactions are public but pseudonymous
Wallets replace traditional bank accounts
Most transactions are irreversible, but easily traced with proper tools and training
Cryptocurrency is not a passing trend. It is now deeply embedded in financial crime, cybercrime, and organized criminal activity.
Law enforcement professionals do not need to become blockchain experts — but understanding how cryptocurrency works is essential for following the money in a digital world.
Future training will focus on investigations, common scams, and real-world tracing examples.
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