Judge Allows Expert Testimony Using Blockchain Analysis Software in Bitcoin Fog Case

News | March 13, 2024 By:

On Thursday, February 29, 2024, the United States District Court for the District of Columbia issued an order addressing the admissibility of expert testimony related to blockchain analysis software in the case of United States v. Roman Sterlingov.

Sterlingov has been charged with money laundering conspiracy, money laundering, operating an unlicensed money transmitting business, and money transmission without a license in relation to his alleged operation of a Bitcoin mixer known as Bitcoin Fog. Both sides planned to present expert witnesses to analyze transaction records on the Bitcoin blockchain.

The court held several hearings from June to August 2023 to examine the proposed expert testimony, including reports analyzing transactions attributed to Sterlingov and several darknet marketplaces through the use of blockchain tracing software. In September, the court heard arguments regarding the admissibility of this analysis.

Two experts for the prosecution, Luke Scholl of the FBI and Elizabeth Bisbee of Chainalysis, utilized blockchain clustering software called Chainalysis Reactor to group Bitcoin addresses likely controlled by the same entity. Reactor clustered over 900,000 addresses attributed to Bitcoin Fog and traced billions of dollars worth of Bitcoin transactions between it and darknet markets like AlphaBay and Evolution.

The defense argued this analysis should be excluded, calling it “junk science.” They claimed Reactor’s clustering methods have not been peer-reviewed and Chainalysis does not track error rates. However, the court found substantial evidence that Reactor reliably clusters addresses in a conservative manner based on inherent blockchain properties.

Specifically, Reactor uses three “heuristics” – commonly used in blockchain analysis since Bitcoin’s inception – to group related addresses. The most significant method examines “co-spending,” where multiple inputs are used in one transaction, indicating the same entity controls each address. A second method analyzes unique transaction patterns to attribute clusters to specific entities.

While not tracking a precise error rate, the court noted the results could be checked against raw blockchain data. It also found Reactor’s role in the case relatively limited, with the prosecution primarily relying on other evidence like materials from Sterlingov’s arrest. Therefore, the court ruled the expert testimony and evidence based on Reactor passes muster for admissibility under the Daubert standard.

The defense can still challenge the software’s accuracy at trial, but the court was satisfied it would likely assist the jury’s understanding of the vast blockchain transaction records. The case against Sterlingov is expected to proceed to trial in the coming months.

Please contact BlockTribune for access to a copy of this filing.