Cryptocurrencies have continued to rise in popularity over the last year and show no signs of loosening their grip on our attention. Like all things designed with good intentions, criminals will find a way to exploit and use cryptocurrencies to their advantage. This means as law enforcement, we see them more and more frequently in our cases. If you are conducting undercover investigations on the dark web, you are already too familiar with how cryptocurrencies are the standard currency. In this article, we will discuss ways of obtaining cryptocurrency in a safe, ethical and sustainable manner to further your investigations.
Can you imagine trying to conduct narcotics investigations without having funds to purchase narcotics? You would be very limited in your abilities. The same can be said for those trying to conduct undercover investigations on the dark web without crypto. How do we obtain crypto to fund these investigations? There are a few possible options. You can either directly purchase crypto at an exchange using funds authorized by your agency or using funds seized from prior investigations. No matter what method you use, you are going to want to ensure that your documentation and storage procedure are top-notch to reduce any likelihood of abuse.
Crypto, by nature, is harder to track and trace.
Crypto, by nature, is harder to track and trace. We are not looking at serial numbers like we have with U.S. dollars. Crypto transactions are also permanent. Once the funds have been sent, there is no reversing the transaction. There is no “Bank of Bitcoin” for you to complain to that you were scammed or the funds were stolen. Since crypto has some pseudo-anonymity built in, it increases the potential for abuse. We have to ensure that we limit that possibility where we can.
Keep all agency funds in agency-owned wallets. Meaning, you will not use a personal account at an exchange like Coinbase or Gemini to purchase the crypto and then use those funds in an investigation. Keep all agency funds away from your personal funds. This is the type of situation that is perfect for abuse and is filled with liability. You want to ensure that if you are purchasing crypto for an undercover operation that you use wallets and accounts that are owned, controlled and operated by the agency only.
If you have funds that have been seized from suspects, keep those funds separate from funds that are already owned or controlled by the agency. You do not want to move funds that are still subject to a seizure hearing into your master agency wallet. Once the seizure hearing is complete, you are free to move those into the agency-owned wallet, but until that time, it should remain in a separate agency-owned wallet designated for that seizure only.
One option that many people have not considered or acted on is seizing mining equipment. If you find yourself in the unique position of successfully seizing mining equipment during a case, there are generally two options. You can sell the equipment that was seized at auction, or you can utilize the equipment at your agency. Depending on the equipment that is seized, it could be cost effective to use the equipment to mine for crypto and use those funds in your investigation. Not all equipment is going to be effective at mining as it can be old and obsolete, making it cheaper to buy crypto at the current rate than to mine with the equipment. You will want to use sites such as whattomine.com and asicminervalue.com to ensure the equipment is profitable.
The downside to mining for Bitcoin, specifically? The equipment is loud, it produces a lot of heat, uses a lot of electricity and you need to monitor the miners for any downtime. While it’s a viable option, it is not for the faint of heart and is definitely not a “simple task.” This operation is going to require a lot of planning and should come with a new policy.
Some things to consider before going down the mining route include where the miner(s) will be stored. You do not want to just have this in an office as it is extremely loud (85 decibels) for one of the most common Bitcoin miners available. Also, it needs to be stored somewhere that is designed to handle heat, such as a data center or server room with dedicated HVAC service to ensure the miner or the other equipment does not overheat. Is there enough power available for the miner to run? Referencing the same unit as above, the power draw is approximately 1,372 watts. Now, for those of you who are not electricians, that means in a standard 110V outlet, you are pulling almost 12.5 amps, meaning you can easily overload or trip a circuit.
As you can see, there are lots of things to consider before just plugging in mining equipment and watching the Bitcoin come rolling in, but mining definitely has its benefits. It adds to the privacy aspect for the investigative team. You are not having to purchase your crypto with a company card that identifies your agency. You are not taking taxpayer funds and putting those dollars in the hands of criminals. By mining, you are earning freshly minted, brand-new Bitcoins. If the mining equipment you have is efficient enough, you could make more Bitcoin than you are spending on electricity. This is the biggest advantage.
Another negative is the need to have an audit trail and random audits verifying the funds are not being abused or misused. This adds work to multiple people’s plates and is, unfortunately, a necessary evil. Without random audits and checks and balances, an officer with an exemplary track record could be tempted by the opportunities before them.
Another concern will be, do you report the funds to your city, county and/or state? Agencies are often provided budgets, and these funds may need to be revealed and identified as potential revenue. Many will be concerned about how the agency uses the funds. For example, if the agency’s budget for office furniture was expended for the year, but the head decided to convert Bitcoin to dollars to purchase furniture in addition to the already depleted budget, that would be a misuse.
As you can see, there’s a lot more to consider than just, “Should I do this?” There are many variables that need to line up in order to make a mining operation a viable option. As you find yourself considering what route you should take, ask yourself if you are prepared to create policies and open yourself to scrutiny from the public. Many in the community may be opposed to the tactic, while others will think it is a waste of taxpayer funds or see it as a fund to be abused.
As you weigh out these options, ask yourself if it is better to start a mining operation or to purchase these cryptocurrencies from an exchange on an as-needed basis. The majority of you will find mining is an option, but it definitely has a lot of strings attached with it, and those strings never go away until you no longer have funds and equipment.