BITCOIN AND OTHER DIGITAL CURRENCIES caught on with criminals thanks to their reputation as an anonymous, untraceable way to move money around the Internet. That reputation may be overblown. Companies like Chainalysis have built fast-growing businesses helping law enforcement track the mysterious money.
The New York City company employs a gaggle of doctoratewielding data scientists and statisticians who study Bitcoin’s blockchain—its indelible public ledger that records transactions—to gain clues about who owns given hoards of the digital currency. The practice is possible because the blockchain contains a series of digital “wallets” that have a unique identifier and show the flow of money into and out of the wallet.
Though the “keys” that identify the wallets are random alphanumeric strings, Chainalysis can identify clusters of wallets tied to criminal activity, enabling law enforcement to look for other online clues to connect them to a real-life identity. The most famous example of this came in 2015 when forensic sleuthing by Chainalysis helped the FBI identify two corrupt federal agents who had been stealing Bitcoins from the owner of a notorious online drug market.
Chainalysis isn’t the only Bitcoin detective out there. A California startup called CipherTrace infects its own computers with ransomware to observe the movement of Bitcoin paid to free the machines. The activity can provide clues about who is behind a given shakedown and, in some cases, help law enforcement recover the money.
It’s not just Bitcoin the firms are chasing. “Other currencies such as Ethereum, Litecoin, and Ripple are rapidly expanding,” says Tom Robinson, cofounder of London-based forensic firm Elliptic. “Whatever form value is stored in, it can be used for illicit purpose.”
Bitcoin detectives’ work may be cut out for them in the years ahead. The arrival of so-called privacy coins like Zcash do not leave behind a transaction record like Bitcoin. But Chainalysis CEO Michael Gronager is not fazed. He says that relatively few people use them and that it’s still possible to glean some insight about those who do.
Besides, tracking criminals is just one line of business for forensic firms. As cryptocurrency investing enters the mainstream, these companies are working to help banks, hedge funds, and others comply with “know your customer” and anti–money laundering laws.
“These laws have been, and will continue to be, a hurdle for incumbent financial institutions becoming more comfortable with digital currencies,” says Tom Mason, an analyst with S&P Global Market Intelligence.
Cryptoforensics could give rise to another intriguing business: detecting market trends. An uptick of Bitcoin activity in countries such as Venezuela or China, where governments impose capital controls, could indicate that a national currency is under stress. Insights could even help investors understand macroeconomic trends months before authorities make official statements about them. Call it putting your money where your mouth is.
This article originally appeared in the July 1, 2018 issue of Fortune.