Altcoins: An Overview
Altcoins, short for "alternative coins", generally refer to cryptocurrencies other than Bitcoin. Since Bitcoin's launch in 2009, thousands of digital assets have emerged, each designed to address perceived limitations of Bitcoin or to support different use cases within the digital asset ecosystem.
Examples of altcoins include Ethereum (ETH), Solana (SOL), Cardano (ADA), XRP, and many others. While some market participants refer to all non-Bitcoin cryptocurrencies as altcoins, others classify Ethereum as a separate category due to its significant role in decentralised applications and smart contracts.
Today, altcoins serve a range of purposes, including:
- Facilitating payments and transfers.
- Supporting decentralised finance (DeFi) platforms.
- Powering blockchain-based applications.
- Enabling tokenisation of real-world and digital assets.
- Supporting governance and voting mechanisms within blockchain networks.
Blockchain Explained
Blockchain is a distributed ledger technology that records and verifies transactions across a network of computers. Rather than relying on a central authority, the network collectively validates transactions, helping to ensure transparency, security and data integrity.
Key components include:
Ledger
The complete historical record of transactions occurring on the network.
Block
A collection of validated transactions grouped together and added to the blockchain.
Chain
The chronological sequence of blocks, each cryptographically linked to the previous block.
Because blockchains are generally immutable, historical transactions can typically be viewed and verified by anyone using blockchain explorers and specialist analytics tools.
Tracing Altcoin Transactions
One of the defining characteristics of blockchain technology is that transaction activity is generally recorded on a public ledger. This creates opportunities for investigators to trace the movement of cryptoassets between wallets and across blockchain networks.
Tracing altcoins involves analysing:
- Transaction histories.
- Wallet interactions.
- Asset transfers between exchanges and private wallets.
- Cross-chain transfers using bridges.
- Activity within decentralised finance (DeFi) protocols.
Modern forensic investigations utilise blockchain explorers, specialist blockchain analytics software, open-source intelligence (OSINT) techniques and traditional financial investigation methods.
While blockchain transparency can assist investigations, tracing cryptoassets can be challenging due to factors such as:
- The use of pseudonymous wallet addresses.
- Privacy-focused cryptocurrencies and protocols.
- Mixing or tumbling services.
- Layering through multiple wallets and exchanges.
- Cross-chain transactions and asset bridges.
- Decentralised exchanges (DEXs) that operate without traditional intermediaries.
Successful tracing often requires investigators to combine blockchain evidence with information obtained from exchanges, financial institutions, corporate records and legal disclosure processes.
Converting Cryptoassets into Fiat Currency
Cryptoassets can be converted into traditional (Fiat – Government issued money) currencies through several channels.
Centralised Exchanges (CEXs)
Platforms such as Coinbase, Binance and Kraken enable users to buy, sell and exchange cryptocurrencies. Users can convert cryptoassets into fiat currency and withdraw funds to linked bank accounts, subject to applicable regulatory and compliance requirements.
Decentralised Exchanges (DEXs)
DEXs allow users to exchange cryptoassets directly through smart contracts without a central intermediary. While these platforms do not typically offer direct fiat withdrawals, users may exchange assets before transferring them to a centralised exchange for conversion into fiat currency.
Crypto ATMs
Certain cryptocurrency ATMs allow users to buy or sell cryptoassets in exchange for cash, although availability varies by jurisdiction and regulatory environment.
Peer-to-Peer (P2P) Transactions
Some platforms facilitate direct transactions between buyers and sellers, with payment typically made through bank transfers or other agreed methods.
Payment Processors
Providers such as BitPay and CoinGate enable businesses to accept cryptocurrency payments and settle proceeds in fiat currency if required.
Over-the-Counter (OTC) Trading
Large cryptoasset transactions are often conducted through OTC desks. These services help facilitate substantial trades while minimising market impact and often support fiat settlement.
Example Investigation Scenarios
Centralised Exchange
A user transfers Bitcoin from a private wallet to an exchange account. The Bitcoin is sold for fiat currency, and the proceeds are withdrawn to a bank account. Investigators may seek records from the exchange to identify the account holder and establish the flow of funds.
Cross-Chain Transfer
An individual transfers assets from one blockchain network to another using a bridge. Investigators must analyse transactions on both networks and identify corresponding transfers to maintain the audit trail.
Decentralised Finance Activity
Cryptoassets are deposited into a lending or liquidity protocol. Investigators assess smart contract interactions and associated wallet activity to determine ownership and asset movements.
Wallets: Cold vs Hot Storage
Cryptocurrency wallets are generally categorised according to their connection to the internet.
Cold Wallets
Cold wallets remain offline and include hardware wallets and paper-based storage solutions. Because they are disconnected from the internet, they generally offer greater protection against online attacks.
Hot Wallets
Hot wallets remain connected to the internet and are commonly used for everyday transactions. While they offer greater convenience and accessibility, they are generally exposed to higher cybersecurity risks.
Summary
Tracing altcoins and other cryptoassets in forensic investigations requires a multidisciplinary approach that combines blockchain analytics, financial investigation techniques and digital forensics.
Although cryptoassets are often perceived as anonymous, blockchain transactions can create extensive audit trails. By analysing these digital footprints and correlating them with real-world information, investigators can identify asset ownership, trace fund movements, support litigation and insolvency proceedings, and assist in the investigation of fraud and other financial misconduct.
