Evidence vs. Inference: The Critical Distinction in Blockchain Analysis and Forensics
BGIN Block #12 - Blockchain Analysis vs. Forensic Analysis
Key Takeaways:
Critical distinction emerging between blockchain analytics (general interpretation) and forensics (court-admissible evidence)
Bitcoin Fog case highlighted fragility of blockchain evidence in legal proceedings
Data hygiene and attribution methodologies remain proprietary yet crucial for legal scrutiny
Courts and investigators lack shared understanding of blockchain analysis limitations and capabilities
Multi-jurisdictional differences in evidence standards create inconsistent approaches to blockchain evidence
The Evidence Dilemma
BGIN Block #12 in Tokyo surfaced a critical challenge facing blockchain investigations worldwide: the blurry line between analytical interpretation and forensic evidence. As one forensic expert at the session noted:
"When blockchain analysis enters the courtroom, everything changes. What was once a risk assessment tool suddenly becomes subject to evidentiary standards that many tools—and more importantly, many investigators—are not prepared to meet."
Research Genesis and Purpose
The session outlined a year-long research initiative aimed at tackling this growing challenge:
Background:
Initial discussions began at a previous Tokyo session focusing on taxonomy of on-chain analysis
Analytics companies were hesitant to share competitive information (e.g., tagging methodologies)
The Bitcoin Fog case emerged as a pivotal moment validating blockchain forensics in court settings
BGIN established a formal research proposal to address the growing confusion
Primary Goal:
Create a definitive reference document distinguishing between blockchain analytics and forensics
Build common language and understanding across industry and regulatory communities
Provide clear guidance for legal proceedings involving blockchain evidence
As one participant described the initiative: "We're not trying to reveal trade secrets or proprietary methods. We're trying to establish who is responsible for answering what questions when blockchain evidence enters the courtroom."
The Target Audience
The primary audience for this initiative is judges, prosecutors, and legal decision-makers unfamiliar with blockchain technology. The document aims to serve as a neutral, authoritative reference—almost like "Exhibit A"—in blockchain-related criminal cases.
A former prosecutor elaborated: "The Bitcoin Fog case succeeded only because of a perfect storm: an experienced investigator, a tech-savvy judge, and a tool company representative who was also the investigator. If any one of those elements had been missing, the outcome could have been disastrous."
Pain Points Across Stakeholders
The session revealed distinct challenges facing different participants in the blockchain investigation ecosystem:
For Investigators:
Uncertainty around the boundary between usable data and unsupported inference
Lack of standards for properly documenting blockchain evidence
Difficulty conveying technical concepts to non-technical audiences
Unclear responsibilities when testifying about tool-generated attributions
For Analytics Companies:
Proprietary nature of address identification data creates disclosure challenges
Hesitancy to participate in court proceedings due to resource intensity
Legal teams carefully assess risk before supporting cases
Bitcoin Fog case required months of preparation and extensive resources
For Courts:
Non-cyber investigators often have "allergic" reactions to technical terms
Judges lack standardized references for evaluating blockchain evidence
Defense attorneys exploit knowledge gaps to create confusion
Quality of expert testimony can vary dramatically based on resources
A blockchain analytics professional explained: "The Bitcoin Fog case is remembered as a success, but it actually revealed the fragility of our entire system. We got lucky once. We need standards and clarity before the next wave of cases hits the courts."
TradFi vs. Crypto: The Evidence Gap
The session highlighted fundamental differences between traditional financial evidence and blockchain analysis:
Bank statements provide straightforward records, while blockchain requires behavioral inference
"Structuring" (e.g., making repeated $9,900 deposits to avoid $10,000 reporting thresholds) is one of the few similar TradFi concepts
Blockchain analysis involves pattern recognition across pseudonymous entities, creating unique evidentiary challenges
Data Hygiene and Attribution
A critical concept emerged around "data hygiene"—how blockchain data is sourced, labeled, and maintained within analytical tools:
Attributions like "this address belongs to Exchange X" may come from purchases, open-source intelligence, or direct reporting
Investigators typically cannot explain the backend data sources in court
Courts may have the right to question the origin of attributions if used as evidence
The responsibility for explaining attribution methodologies lies with tool companies, not investigators
As one participant noted: "Data hygiene shouldn't be treated as a secret sauce, even if methods are proprietary. Courts and investigators need to understand who is responsible for what and what questions they're entitled to ask."
The Parallel Reconstruction Challenge
An important discussion centered on "parallel reconstruction"—the process of replicating analytical findings without relying on proprietary tools:
Previously encouraged as the preferred method for courtroom evidence
Growing case complexity makes reconstruction increasingly difficult
UK and Canada still favor or require parallel reconstruction
US approach has evolved to be more accepting of direct tool evidence
"Failure to reconstruct findings doesn't mean an investigator is incompetent," explained one expert. "It simply highlights the value and complexity of the tools they're using."
Jurisdictional Differences
The session revealed significant variations in how different legal systems approach blockchain evidence:
UK courts generally don't accept blockchain attributions as standalone evidence
US courts may accept such evidence, but Bitcoin Fog remains an exceptional case
Japan faces a shortage of Japanese-language materials for investigators
Each jurisdiction represents a different level of maturity in dealing with blockchain evidence
Next Steps for the Initiative
The BGIN working group outlined concrete steps to advance this critical work:
Framework Document Creation: Developing a comprehensive reference that distinguishes between forensics and analytics
Industry Guidelines: Establishing clear boundaries of responsibility between tools and users
Multi-Jurisdictional Approach: Ensuring relevance beyond US legal frameworks
Structured Sections: Creating modular content that can be extracted as standalone reference materials
Setting Realistic Expectations
The group emphasized the importance of focusing on non-proprietary content to gain support from analytics companies:
Stick to basic concepts of what blockchain analysis tools do
Emphasize best practices for using the tools
Differentiate common heuristics from proprietary methodologies
Define boundaries of responsibility rather than revealing trade secrets
Get Involved
This initiative represents a crucial step toward establishing blockchain forensics as a legitimate, standardized field. BGIN invites legal professionals, blockchain investigators, tool providers, and regulators to contribute to this critical work.
We've started a new sub-working group within BGIN focused on Blockchain Forensics vs Analytics Standards - comment or join below.
This blog post is based on discussions from BGIN Block #12, Tokyo, Japan, March 3, 2025.
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We are making progress on the following document: BGIN IKP Working Group Distinguishing Blockchain Forensics from Analytics