Bitcoin Fog Case Challenges Blockchain Analysis; Chainalysis Software Faces Scrutiny in US Court

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Since his arrest in April 2021, Roman Sterlingov, the alleged operator of the crypto mixing service Bitcoin Fog, has been defending his claimed innocence for more than two years. Recent court filings indicate Sterlingov’s legal team is challenging the Reactor software from Chainalysis, which was presented as evidence in the case. Sterlingov’s attorney contends that the Reactor’s heuristics have “no known error rates for, no rates of false positives, no rates of false negatives, nor any peer-reviewed paper attesting to their accuracy.

Attorney Labels Chainalysis Methods as ‘Junk Science’ in Bitcoin Fog Trial

A recent court filing from the lawsuit against Roman Sterlingov, who is accused of operating the crypto mixing application Bitcoin Fog, reveals that his attorneys are challenging the Reactor software from Chainalysis. Attorney Tor Ekeland labeled the Reactor software’s heuristics as “junk science” in court, as reported by Bloomberg. In the court document, Sterlingov’s legal team stated:

In regards to the slide on page 9 of 45, the summary table of Bitcoin Fog darknet market exposure, these figures appear to be based upon Chainalysis Reactor’s heuristics that the Government can produce no known error rates for, no rates of false positives, no rates of false negatives, nor any peer-reviewed paper attesting to their accuracy.

The court order reveals the U.S. government’s knowledge that the defense is challenging the legitimacy of the clustering techniques tied to the Bitcoin Fog cluster. Furthermore, the defense fervently asserts that the slide is contentious, more inclined to prejudice than provide clarity, lacks a solid basis, and includes hearsay. To conclude, attorneys emphasize that there’s no clarity on when the valuations concerning the exchange rate between BTC and the U.S. dollar were established.

This isn’t the first instance where the U.S. government’s blockchain specialists have faced scrutiny. In the Crypto 6 scenario, Ian Freeman, a co-anchor of the radio show “Free Talk Live,” presented a Daubert motion, intending to dismiss the government’s expert testimony. Freeman’s attorneys contended that private entities and proprietary software employed in blockchain scrutiny fall short of the Daubert benchmarks for acceptable evidence. After Ekeland’s letter to the court, the U.S. government responded, defending its analysis in the case against Sterlingov.

Prosecutors Defend Blockchain Analysis and Insist the Evidence Meets Daubert Benchmarks

In a response filing, prosecutors emphasized that “blockchain analysis” meets the Daubert criteria for admissibility and highlighted there was “significant testimony regarding the reliability of Chainalysis Reactor.” The government stated that both the software and the broader field of blockchain analysis have undergone testing, including scrutiny during law enforcement investigations. They further specified that methods used in blockchain analysis have been “studied by academics,” with research focused on clustering techniques to minimize false positives. The prosecutors elaborated:

The government’s Nov. 7, 2022, filing noted that blockchain analysis does have commercially accepted standards, even in the absence of a government standards body or certification board.

Sabrina Willmer and David Voreacos of Bloomberg reported that Chainalysis has defended its position in court documents, describing the criticism as a “smear campaign.” However, U.S. judge Randolph Moss has permitted the defense to enlist an expert to examine Chainalysis’s methods for tracing blockchain data. Moss emphasized that any findings should remain confidential.

What’s your take on the criticism Sterlingov’s lawyer presented in the court battle? Dive into the conversation and share your perspectives on this topic in the comments below.