“Let’s Gather for a Block Point” April Event Collaborates with Taiwan Virtual Asset Anti-Money Laundering Association
With the widespread adoption of blockchain technology, the transparency and traceability of on-chain data provide the public with a window to observe the flow of funds and market trends. However, how to practically apply coin flow analysis, understand its legal implications, and effectively prevent related cybersecurity risks has become a significant issue for many newcomers entering the blockchain world.
The “WEB3+” “Let’s Gather for a Block Point” April event has specially collaborated with the Taiwan Virtual Asset Anti-Money Laundering Association to jointly hold a knowledge feast designed specifically for beginners.
This event invited three industry experts: Chen Tsai-Lu, CEO of Chainvestigate, the Taiwan Virtual Asset Anti-Money Laundering Association Chairman Jian Shu-Yong, and STARBIT’s on-chain security and coin flow analyst Qiu Yong-Ping.
They started from the basic concepts of coin flow analysis, gradually guiding participants to learn how to use open-source tools for practical analysis, comprehensively analyzing the three core themes of coin flow analysis, cybersecurity protection, and legal applications.
Unveiling the Mystery of Coin Flow Analysis: What is On-Chain Tracking?
“Coin flow analysis sounds quite profound, but as we break it down today, you will feel that it is much closer to you,” Chen Tsai-Lu pointed out first. The essence of coin flow analysis is “data analysis,” based on the public and transparent characteristics of blockchain (also known as distributed ledger technology).
He further elaborated that the application of this technology extends far beyond common imagination, spanning multiple professional fields:
- Finance and Accounting: Accountants can use coin flow analysis tools to verify whether exchanges indeed separate and safeguard customer assets from company-owned assets, meeting regulatory requirements.
- Information Security: In cases of hacker attacks resulting in large amounts of cryptocurrency theft, coin flow analysis is a key method for tracking the flow of stolen funds and attempting to intercept or freeze the money.
- Legal Compliance and Law Enforcement: Practitioners (such as compliance personnel at exchanges) need to use coin flow analysis to monitor customers’ on-chain transactions, identify funds from high-risk sources (such as the dark web, sanction lists, ### financing, or addresses related to “creative private accounts”), and produce risk assessment reports. Law enforcement agencies (such as prosecutors and police) utilize this technology to investigate various crimes (such as sexual exploitation and ransom payments in Bitcoin) to identify suspects or clarify cases.
- Investment Analysis: Market participants can use on-chain data to track the movements of “smart money” or institutional investors to determine potential buying and selling points. Venture capital (VC) firms also use coin flow analysis to examine the fairness of token distribution when evaluating Web3 projects to avoid investing in malicious projects like “rug pulls.”
Regarding cryptocurrency, Chen Tsai-Lu lamented, “The crypto circle has been stigmatized for a long time, as everyone associates cryptocurrency with scams.”
To help the audience better understand current scam tactics, Chen Tsai-Lu categorized common cryptocurrency-related scams into several types:
- Transfer Scams: Manipulating victims into purchasing virtual currencies through fake investment platforms, fake job opportunities, etc., and transferring them to scam-designated wallet addresses.
- Junk Coin Scams: Issuing virtual currencies or NFTs with no actual value, using multi-level marketing or false promises (such as exchanging for high-priced goods but receiving models) to defraud investments.
- Nominal Scams: Using virtual currency investment as a guise (such as claiming “Tether mining”), while actual funds transactions remain in fiat currency (such as requesting remittance in TWD to designated bank accounts), unrelated to the blockchain technology itself.
- Money Laundering Medium Scams: Fraudulent proceeds (possibly in fiat) are ultimately converted into virtual currency through layers of conversion, using its cross-border, fast transfer characteristics for money laundering.
According to a report by Chainalysis, the highest revenue types of on-chain scams are “high-return investment scams” and “pig butchering.” Chen Tsai-Lu specifically explained that pig butchering typically begins with relationship building (romantic partners, friends, work partners, etc.), using a long duration (even months to a year) to gain trust, and then luring victims with “a great investment opportunity,” which often evolves into investment fraud.
In addition to the aforementioned common scams, there are several types of scams that blockchain users should be particularly cautious of:
- Malicious Approval (Crypto Drainer): Scammers lure users to connect their wallets via phishing websites and sign seemingly harmless “Approve” transactions. Users should carefully review the authorization content, as this may grant the scammer unlimited rights (usually 2 to the power of 256 minus 1) to withdraw specific tokens (such as USDT) from the user’s wallet.
- Rug Pull: Project teams hype up coin prices through marketing to attract investors, then sell off large amounts leading to a price crash. On-chain red flags include highly concentrated token distribution in the project team (Fair Launch issues), restrictions hidden in smart contracts (Honey Pot), and inconsistencies between white paper promises and actual results (such as the Squid Game token case).
- Address Poisoning: Scammers send zero-value transactions to target addresses and use addresses that are “similar at the start and end but different in the middle” to the target’s frequently used trading counterpart. The aim is to gamble that the user will, during their next transfer, mistakenly copy the address from transaction history and send funds to the scam address.
- Miner Fee Scams: Spreading “free giveaways” of wallet mnemonic phrases in community comment sections, where the wallet contains tokens but lacks the miner fee (Gas Fee) necessary for transfers. When the greedy attempt to transfer out tokens and remit miner fees, a pre-set script immediately siphons off that miner fee.
Finally, Chen Tsai-Lu also reminded that if one unfortunately encounters a scam, it is essential to collect complete evidence, including chat logs, transaction numbers, wallet addresses, etc., and report to law enforcement, avoiding falling for secondary scams promising to recover funds.
The Legal Battle Over Coin Flow Analysis Reports
The chairman of the Taiwan Virtual Asset Anti-Money Laundering Association, Jian Shu-Yong, followed with a different perspective from the legal practice and regulatory system. With a background in traditional finance and compliance at cryptocurrency exchanges, as well as expertise in criminal law, Chairman Jian incisively analyzed two core issues in the limited 20 minutes: the evidential value of coin flow analysis reports within the Taiwanese legal system, and key details in the current registration system for virtual asset service providers (VASPs) that are easy to overlook.
Jian Shu-Yong first posed a highly concerning question in the practical field: “Can coin flow analysis reports be legally accepted as evidence?”
He pointed out that through the Judicial Yuan’s judgment database, searching with “coin flow analysis” retrieves over 234 related judgments, covering the Supreme Court to various district courts, indicating that coin flow analysis reports “have already become widely adopted and presented.”
However, their legal status is not without controversy. Jian Shu-Yong explained the concepts of “evidential capacity” (whether evidence can be accepted by the court as a basis for judgment) and “hearsay evidence” (statements made by individuals other than the defendant outside of trial, which generally cannot be accepted as evidence) based on the Criminal Procedure Law. He elucidated that coin flow analysis reports essentially belong to hearsay evidence, as they are analyses and statements made by analysts (who may be domestic or foreign experts) outside the courtroom.
Nevertheless, courts often cite exceptions under Article 159-4 of the Criminal Procedure Law regarding “special credible documents” to grant evidential capacity to coin flow analysis reports. The rationale is often based on “the immutable nature of blockchain data, which ensures high accuracy.” However, Jian Shu-Yong astutely pointed out the crux of the issue: courts sometimes confuse “immutable blockchain records” with “subjectively judged coin flow analysis reports.”
He emphasized, “The public ledger cannot be altered, that is correct, but how I interpret the contents of this public ledger is under my subjective consciousness.” A key example is that once virtual currency enters a centralized exchange (CEX), on-chain tracking should technically and legally pause, requiring continuity via internal exchange data. However, many reports still create seemingly continuous cash flow diagrams (for example, A → B (CEX) → C (CEX) → D), leading law enforcement to potentially identify D as the final recipient and apply for seizure orders with the court.
Jian Shu-Yong mentioned that some judges have become aware of this issue; if the transfer levels exceed a certain number (such as more than three levels), they may deny issuance of seizure orders due to “insufficient relevance.” More importantly, coin flow analysis has evolved from a mere tool for law enforcement into a “battle of wits between law enforcement and defendants” in the courtroom. Defendants now also hire experts to create reports favorable to themselves and have lawyers question law enforcement personnel’s methodologies and blockchain knowledge in court. This even leads law enforcement to prepare their own “blockchain knowledge checklists” to respond to challenges.
In conclusion, coin flow analysis reports can possess evidential capacity after following statutory procedures (such as analysts appearing in court as witnesses or appraisers for cross-examination), but the interpretation of their content and the reliability of methodologies will continue to be focal points in judicial battles.